Startup Financing: What Entrepreneurs Need to Know

Purushothama Reddy A, VP – Finance & Legal, Omega Healthcare
Wednesday, December 21, 2016
Purushothama Reddy A, VP – Finance & Legal, Omega Healthcare
Headquartered in Florida, Omega Healthcare is a leading offshore provider of medical coding, billing, accounts receivable management, and healthcare revenue management services to enable healthcare businesses to cut-down their operational costs and increase process efficiency.

Funding a startup has always been a tricky business. It gets trickier when you have young people, with no/minimal experience, as founders of these businesses, and who believe that they have the world's next big thing. While not all of these may go on to become narwhals and unicorns, the growth in the number of startups continues to increase with every passing year. According to a recent NASSCOM study, total funding in start-ups till 2015 is estimated to be $6.5 billion.

However, Indian entrepreneurs continue to face funding challenges due to a variety of reasons, whether they are in the seed stage, growth stage or expansion stage. It would but be prudent to develop a pitch report that can showcase the economic value of the business idea and its financial feasibility. This pitch report should demonstrate knowledge of the targeted product/service line, the size of the market, competitors, roadmap for the future, sales plan, associated expenditure and the pay-off period. By enumerating such details, every entrepreneur will have a clear idea about the kind of investment required at different stages and also the return on investment period.

Since the start-up lifecycle has three distinct stages, entrepreneurs will require a diversified strategy for each of those stages. Following are the different funding strategies that start-ups can look at:

Seed Funding: Seed funding is the earliest round of capital for a startup. It allows a startup to develop a prototype product and generate sufficient interest in the product. Entrepreneurs would be experimenting with various strategies at this stage and will need the money to cover the costs of setting up the business and pay the staff. The traditional ways of raising seed money was, and in some cases, still is, bootstrapping, besides tapping family, friends and peers for funds. Today, there are many other avenues for seed funding. Companies can raise money through a crowd funding campaign on websites such as Kickstarter.com, Indiegogo.com, Wishberry.in, Ketto.org etc. There are also start-up incubators such as TechStart, Y Combinator, Cisco's LaunchPad along with government programmes such as Startup India and Digital India that will help the entrepreneurs grow their businesses. Micro venture capital funds also look to fund start-ups at this very early stage and the project report will help in convincing the investors about the soundness of the business plan.

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