Most people think that the only way to fund a startup is through Angel or Venture Capital investment (unless you have enough cash to fund your own startup). If statistics were to be believed, majority of the startups and small businesses never receive any VC money. Or rather they don’t need VC money. Then how do they grow and become successful? Well, the answer is, they don’t need large investments to become successful. For example, an architect could be running a small architecture consulting firm and could be very successful at it without the need to scale rapidly.
Hence the first thing that any Entrepreneur should think about is whether they really need angel/venture capital investment. VCs generally like to invest in high growth businesses. They look for average 10-50x potential return on their investment in a 3-5 years period. Does your business have the potential to deliver such results? Whatever may be the case, no VC would fund a company that is still just an idea. They prefer to fund a working prototype at least with a complete founding team and a few customers ready to buy the solution. So it is imperative for a startup entrepreneur to find investment to bootstrap his startup before any angel investor or venture capital fund will even look at their business plan.
There are lot of ways to bootstrap your startup. I will touch upon a few here.
If you have worked a job previously, you may have saved some money. Your employer may have contributed to your Provident fund account. You can withdraw these savings to kick start your venture. Also cutting down on your expenses would help. Statistics have shown that most successful entrepreneurs are frugal.
Sell unwanted assets
Do you have stuff that you no longer require? Well, sell it and raise some money. Be it your old laptop, books, household items like old TV set, music system etc.
Personal Credit lines
You can use your credit cards to offer a short term credit line to your startup. However, only use your credit cards if you are certain to clear majority of the bill by the month end. Interest rates on credit cards are very high and it doesn’t make sense to use it as a long term primary line of credit.
Consulting/Part time job
Often I advice startup entrepreneurs to do consulting gigs to bootstrap their startups. However, you should set some ground rules for this otherwise soon you’d realize that the consulting gigs are taking more of your time that you thought. This could have a serious impact on the startup work. If possible do a consulting gig for a few months to raise enough cash for operations. If this is not possible then have dedicated days in a week/month when you would do consulting. Also try and avoid working from your startup office on consulting work. So what can you consult about? Often it is related to the startup business or something you did at your previous day job.
Asking customers/vendors for a advance/credit
Asking customers for advance and vendors for credit can help you maintain a positive cash flow. Once you build a relationship with a vendor, see if you can a get net-30/60 days credit line. If you are good with your payments, most vendors will oblige. Always be prompt to follow up on due payments with your customers. Often the biggest reasons why startups (or businesses) go into a negative cash flow is because they are not good with their payment collection. When paying in cash, always ask for a discount.
Government Credit Line
What Government extends credit lines? Well, actually they do. In India, you can delay payment of your tax for few months by paying a 1% interest per month. While this is not really recommended, it doesn’t hurt either. If you are really out of cash use this as an option but remember to eventually pay your taxes and the applicable interest. If you delay it too much, there could be penalty added which may turn out to be expensive. Always consult a Chartered Accountant before you take such a step.
If you are really committed about your startup and truly believe in your idea, your family and friends will believe in too (well almost). Ask them to fund you initially. However you should be careful when asking for money from family members and friends. Never ask them to give you money which they can’t afford to loose. Also make them invest in your idea and not you. Make sure they understand where the money is going and how it will help the business (and in turn bring in profits). Keep them updated about the latest development in your startup. This way they will be connected to your startup.