Nov 17,2021 | 3 min read

Different Types of Investment available to Startups

A startup may need money for one, several, or all of the following reasons. It is critical for an entrepreneur to understand why they are soliciting funding. Before approaching investors, founders should have a thorough financial and business strategy.

The money needed to establish and run a firm is referred to as funding. It is a monetary investment in a business for the purposes of product creation, production, expansion, sales & marketing, office space, and inventory. Many businesses opt not to seek outside investment and instead rely solely on their founders for funding (to prevent debts and equity dilution). Most companies, on the other hand, do raise money, especially as they expand and scale their operations. This page will serve as your virtual startup fundraising guide.

Types of Funding in Startups δΈ€ in consolidation 

  • Equity Financing

Selling a piece of a company's stock in exchange for funds is known as equity financing.

There is no provision for reimbursement of the cash invested.

Financer: There is no assurance that his investment will pay off. Startups must surrender a portion of their ownership to shareholders. While startups are less likely to be held to a payback schedule, investors are always striving to meet their development objectives.

Investors' capital will expand. The majority of equity investors like to be involved in the decision-making process. Angel Investors are individuals who invest in small businesses. Self-financing Friends and family Venture capitalists are those who invest in businesses. Incubators/Accelerators for Crowdfunding. 

  • Debt Financing

Debt finance entails taking out a loan and repaying it with interest. Invested funds must be repaid with interest within a certain time limit. Lender: The lender has no influence over the activities of the company. As a startup, you may be required to offer collateral in the form of a company asset. Startups must adhere to a strict repayment schedule at all times, which necessitates increased efforts to create cash flow to cover interest payments. Investors get their interest payments back. The Debt Fund has a little role in decision-making. Banks Non-Banking Financial Institutions (Non-Banking Financial Institutions) Government-sponsored loan programmes. 

  • Grants 

A grant is a cash reward provided to a firm by an organisation to help it achieve a goal or incentivise performance. There is no provision for reimbursement of the cash invested. Financer: There's a chance that the company won't achieve the aim or purpose for which the funding was given. Due to a variety of factors, there is a chance that the company will not get a portion of the award. Grants are provided in successive tranches based on the achievement of specific milestones. As a result, a status is always striving to meet the set goals. There is no direct involvement in the decision-making process. Corporate Challenges for the Federal Government and State Governments Private Entity Grant Programs. 

Conclusion -

Equity and debt are no longer the only sources of funding. There are a variety of possibilities for getting your business funded, including unconventional methods like crowdsourcing and crowd-lending. Some of these choices, however, are only available once your product is complete. As a result, make sure you understand what your business needs (and deserves) in order to make your startup investment choice easier.


Need Free Legal Advice or Assistance Online?


For any Startup Funding and Finances related matter, please Post Your Requirement anonymously and get free proposals OR find the Best Startup Funding and Finances Lawyers and book a free appointment directly.


POPULAR READS

National Girl Child Day | Lawyered


Bid adieu to the mainstream legal career options


Employer and Employee Relation - Post Covid


LexTalkStartups #FaceToFace on Startup Contracts


Rent Assurance Agreement | Download Free Templates


Vehicle Lease Agreement | Download Free Templates


Hiatus & the Legal Sector


Arbitration Amidst Covid-19


Why do we need the Insolvency and Bankruptcy Code?


ABOUT THE AUTHOR


Lawyered Team

Lawyered Team

MORE IN BUSINESS