Startup financing – stages, criteria, sources
Startup can be called any company that is in its infancy or just started its activities. Such an organization often introduces an innovative idea in the environment of Internet technologies, in medicine or in the scientific field. All business start-ups need start-up financing.
As a rule, a startup person is a young man between the ages of 25 and 30 who has his own opinion on the implementation of certain business processes. He has an original idea that will knowingly make a profit in the future. And for the implementation of such a scheme requires cash. Therefore, it is advisable to attract investors who will contribute to the formation of the business. And their search is a whole science, let’s talk about it today.
Innovative Technologies and Startup
During the rapid development of the Internet and science in general, many business processes take their modernized look. It is possible to attribute to a startup not only the development of a fundamentally new type of services or goods, but also the refinement of existing ones. Certain models that would be useful in the sale of goods or in management activities.
At the moment, the following areas in Russia are most affected by innovation:
- The science.
- Services sector.
- Information Technology.
The development of new models in any often implies not only the profits that companies can receive, but also the progress they can acquire and take a leading position in a particular area.
Each startup has its own life cycle and goes through a series of stages.
The first stage is the idea itself. It is necessary to work it out carefully. Decide on the target audience, develop a business plan, study competitors, make predictions.
The second stage is the creation of an initial product or service that would be a test.
The third stage is the development of a minimum product that would be an indicator for understanding whether an idea will be successful or not.
The fourth stage is the creation of the main product and its implementation. Capture the market and increase the impact on related market segments.
In order to carry out this whole process, it is necessary to clearly divide the responsibilities. Only the business where the whole team works will be successful. Therefore, it is important not only to find investors, but also to have partners in different areas of activity – from marketing to marketing products or services.
Investment in a startup
For each stage, you may need a certain amount of investment. If at first this amount can be equal to a couple thousand dollars, then it will increase hundreds of times. First you need to find an investor, which is characterized as a business angel. Usually, this is an investment of up to 1 million dollars. Also small investments are offered by banks, for example, Bank, we will talk about them below.
Further, at the stages of implementation of the initial and test products, venture and seed funds are required, their investments do not exceed $ 500,000 million. And then strategic investors are attracted, who invest more than 0.5 billion dollars.
Often, the infusion of cash into a startup implies the purchase of a part of rights by investors. Such a deal is very profitable in the future, if the business is successful. In Russia, there are the following financing schemes:
- Deferred financing. This is the scheme when the contract is concluded: for how long and to what stage the money will be injected. Further, the investor, without additional additions, gets his profit from the company’s share.
- Fan. This scheme is suitable for beginners. The idea is that funding is for a good idea for those who have not yet set up a business process. The investor is willing to pay only if the amount of the investment will be at least 10 times less than the potential profit.
Many criteria can affect whether you can find your own investor. This is the uniqueness of the idea, the presence of competitors, money back guarantees, the cost of the company in the event of a sale.
Where to look for investors?
The main investors for startups are venture funds. But they work only with those companies that have already proven themselves in the market. With those who are already making a profit. To attract such companies is not so easy. The main criterion for them is risk-free investment. Sources of financing for venture funds – insurance companies, pension funds. These are organizations that are not willing to invest in questionable and risky projects.
There is also a kind of investors known as business angels. These are private individuals interested in getting the maximum return on investment. Therefore, they invest in start-up startups a small amount of money, not exceeding $ 1 million. Most of these individuals invest not in one project, but in several, since this is a very risky event. The advantage of working with individuals is that they do not expect short-term profits and do not interfere in the business process.
For most novice businessmen, investors are most often relatives. In Russia, startups, initially implemented with the money of relatives, are second in number. Also, bank loans are often used as an investment in the project; Bank is the most popular in this area.
Startup and Internet exchanges
There are special events and forums that are held in different cities. At such forums, start-up start-ups present their project, and investors evaluate it and give recommendations for development. Such events often unite investors, programmers, scientists, politicians. There you can attract investors and make deals for the investment of your project.
In addition, a potential investor can be found on the Internet. There are lots of sites, exchanges, forums on this subject. One of the most popular in Russia. On such resources, you can post information about your own project, so you can find an investor.
One of the most attractive ways to get money for business development is grants. Many large companies and investors are ready to provide money on a free basis only in order to have a share of the profits from the realization of your idea. Grants are mainly issued in the field of IT-technologies, medicine, science, the space industry.
In Russia, the most popular grant is the Small Business Development Fund. Here you can get about 1 million rubles to start your project. And also about 200 thousand rubles on an annual basis for up to two years.
The most authoritative grant for Russia is considered to be a grant from the Skolkovo Foundation. Investors allocate up to 150 million rubles for the development of a project in the field of space and nuclear technologies, as well as for IT and medicine.
There are regional grants and subsidies from the government. Depending on what direction is developing in this region of Russia, you can claim to receive funds for the development of your own business. Often sponsored by various agricultural and farm enterprises that are able to attract the state to organize subsidies.
For many entrepreneurs, the only option to receive investment is to issue special loans in banks. The main bank in this direction is Bank. This company offers a product for startups called “Business Start”. Bank is a fairly reliable partner for implementing start-up entrepreneurs’ projects.
Bank loan is granted for a period of 6 months to 3.5 years at an interest rate of 17.5-18.5%. You can get a loan of up to 3 million rubles. The advantages of this Bank program, unlike many other programs in other banks, are that an entrepreneur who has no experience in this area can receive money.
Bank itself will prepare a business plan and will advise you in the course of doing business. You need to fulfill only a number of conditions, which include the study of the course of business, posted on the bank’s website. In addition, the borrower must:
- Have age from 20 to 60 years.
- Do not have experience in entrepreneurship or do not engage in entrepreneurship for 3 months before applying.
- Have a share of own funds of at least 20%.
Also, under the terms of the Bank program, the borrower is granted a deferment of payment of up to 6 months. This is one of the few programs that supports startups, but you can also open a franchise company.
Bank is ready to provide a typical business plan to a number of areas that include: hairdressing, transportation, cleaning services, the organization of beauty salons and a number of other projects that can be found on the Bank website.