Most young businesses fail. There are various reasons for this, and financial difficulties are the second most common among them. To solve problems with the "cache" entrepreneurs can turn to bank loans, venture capital funds, business angels, loans from friends, in the end. However, each so-called “traditional” method of financing has its own limitations: obtaining a loan requires collateral or guarantees, venture funds are now in the company at an early stage of development, activity among Russian business angels, and the consequences of loans from individuals are unpredictable. Crowdfunding, crowdinvesting, crowdlending and other alternative financing methods will save a young company from a lack of funds. Here are the advantages and disadvantages of each of them.
Crowdfunding and crowdinvesting
The two terms sound similar and are based on a similar mechanism. These are ways to centrally raise funds from a group of unrelated individuals. However, there are still differences between these concepts.
In the case of crowdfunding, investors generally do not count on cash dividends - they do not become shareholders. There are exceptions: fintech service Revolut announced a crowdfunding campaign last year with rewards in the form of startup shares.
Startups raise money on their own or on special platforms - for example, international Kickstarter and Indiegogo or Russian Boomstarter and Planeta.ru. For their investments, investors receive in return either material incentives - for example, a gadget, the production of which they funded, - or non-material - an exclusive meeting with the startup team.
The main difference between crowdfunding and crowdfunding is that in the first case, equity participation of investors is provided. They become shareholders of the company or co-owners of some object, for example, an office center. Together with the founders, they share risks and future profits. Another difference is the size of attracted investments. The average amount of funds collected from projects on one of the largest Russian crowdfunding platforms Boomstarter in 2017 amounted to 330 thousand rubles, and at the same time, crowd-investing campaigns collected $ 85.5 thousand each. There are also specialized platforms to attract funding in the crowdfunding format - foreign AngelList and CrowdCube and Russian, for example StartTrack.
pros
There is money. Both financing methods are becoming increasingly popular with Russian investors. The total amount of fees increases by 200% per year. Crowdinvesting in Russia is predicted to grow in the next 5 years.
Independence from investors. When raising money by crowdfunding, founders don't have to share their startup with anyone. Investors in this model expect a return on their investment, but according to general director Planeta.ru Fedor Murachkovskigo, their interest is mostly intangible. More often than not, people sincerely want to support a project or their idols.
Minuses
Not so easy. Most of the projects fail to raise the necessary funds through crowdfunding. In this market, competition for capital is high and it is not so easy to raise money without investment in marketing and PR.
Risks and Limitations. Crowdinvesting is not suitable for entrepreneurs who are afraid to give their share to unfamiliar investors. Another disadvantage is the limited range of areas for funding. one of the crowdinvesting platforms, only 8.5% of projects financed over 2 years fell on the IT sector.
Who is it for
Crowdfunding is a good tool for mass market tech gadget manufacturers. This is confirmed by the examples of successful campaigns of the past year. In Russia, crowdfunding helped in the implementation of large creative projects - in the adaptation of the novel "Empire V" for example. Thus, crowdfunding is suitable for technological, cultural and social projects.
Crowdinvesting is suitable for financing large projects, provided that the founder is not afraid to deal with a wide range of investors.
Crowdlanding
Another type of financing, in which money is raised centrally from several investors at once, is crowdfunding. In this model, the money goes to the recipient as a loan. Fundraising is also conducted by specialized platforms. They offer depositors a yield of up to 30%. Crowdlanding has two types - P2P and P2B (Peer-to-peer and Peer-to-business). In the first case, loans are given to individuals, in the second - to companies.
pros
There is no bureaucracy. Crowdlanding excludes the participation of banks, and with them the lengthy procedure for scoring and approving a loan.
There is a suggestion. Experts note that Russians prefer the second financing option between crowdinvesting and crowdlanding.
Minuses
Credit liabilities. This year, for the first time, investors from the company that raised money through crowdfunding in Russia. This case confirmed that a collective loan is, first of all, a loan with all that it implies. Investors will not get the hang of it and will not be willing to wait if the startup faces financial difficulties.
Limitations. Crowdlanding is not suitable for startups that do not already have legal entity... To raise funds in this way, founders will have to turn to P2P lending for individuals.
Who is it for
Crowdlanding can be useful for companies that have stable cash flow but need capital investments.
Lending against crypto assets
In this case, the assets of the company are used as collateral for obtaining a loan. Typically, this method of financing is used by companies that need to increase their working capital. Real estate, equipment and even accounts receivable are suitable for collateral.
However, not all enterprises have assets familiar to credit institutions. The solution for bitcoin and ether holders is lending secured by crypto assets. This market is estimated at $ 30 billion. As with previous methods, fundraising is carried out using a specialized blockchain platform. The loan is issued in fiat money, and cryptocurrencies or mining equipment serve as collateral. Before the loan is repaid, the borrower's crypto assets are in "cold wallets" - this guarantees the security of the collateral.
pros
Access to the "cache". Crypto entrepreneurs are forced to sell their bitcoins in order to maintain operational activities - pay for office rent, staff work, and purchase of new equipment. Lending against crypto assets allows you to save cryptocurrency and get fiat money.
No procrastination. Instead of a banking scoring procedure, the blockchain platform uses an automated calculation of the maximum available loan amount. The borrower only needs to receive fiat money.
Minuses
I need a crypt. The logic is simple: if you don't have a cryptocurrency, you can't get a loan for it.
The development of various industries makes it possible to increase the volume of products, as well as improve their quality. This is just one of the lucrative areas in the introduction of new technologies in business. Each industry seeks to improve or modernize its functionality. These types of optimization bring financial success to any project. More and more young people, having a sufficient level of knowledge, are trying to develop one of the priority areas in business. It can be information technology, programming and so on.
Difficulties of startups
Thanks to such innovations, many companies with branches around the world are developing. However, at the initial stage, such initiative people are not always noticed. This leads to the fact that a business idea, which has a positive economic effect, is lost, and has not received a real implementation. It's all about financing the project. Not everyone can raise the right amount to launch their own startup. Therefore, you have to look for opportunities on the side, attracting depositors, sponsors, investors.
Financing a startup in our country is a complex and multi-stage process. Old-school businessmen are not yet fully open to modern technology and information innovation. Therefore, they do not always meet the offers from young and emerging entrepreneurs. Another snag is the legislative regulation of all business activities. If the system of startups in the West has been developing for more than 10 years, then in the post-Soviet space it only has to go through all the stages in order to implement a model of development and financing of every really worthwhile idea.
What is a startup
If you do not go deep into the economy, a startup is in fact a start-up company that has a good idea for development and can bring profit in the future. However, the nuance of such an organization is that it does not have adequate funding to fully implement its project. This is how young firms created by budding businessmen are perceived in Europe and America.
Funding a startup is a complex and phased process. The problem lies in the individuality of each solution. Depending on the direction of the idea and business model, investing in it can be full or partial. It is not so uncommon for several contributors to become participants and be in a share. In addition, it is necessary to draw up an accurate economic model that allows you to calculate all the possible risks when investing funds and the stages when the cost part goes to zero.
Russian startups are almost indistinguishable from European ones. The only difference is that domestic start-up projects appeared relatively late, which makes it possible to create companies based on the already established experience of Western colleagues. In reality, each system, although it has common roots, has great differences due to financial and legislative regulation, as well as the mentality of the entrepreneurs themselves.
Innovative technologies in business development
Startup funding is especially active in new and less competitive industries. The constant modernization of the digital space leads to the fact that new ideas appear in synthesis with information technology and science. Thanks to this combination, more and more in the domestic market, their own software developments appear.
Computerization allows you to develop your business and raise profitability to a new level. This is the industry in startups that is most attractive for investment. Due to the large number of different types of operating enterprises on the territory of the country, it becomes possible to improve the quality of their work by introducing modern systems and automating many work processes.
Phased development
Funding a startup is a multifaceted process. Here it is necessary to rely not only on future economic indicators, but also on the term of the idea's relevance during its implementation. Often, already at the stage of financing and launching a project, it loses its liquidity, so it is necessary to calculate such a nuance at the planning stage.
Each has its own purpose. It is simple and less costly to create a company and design the very future investment object. It was during this period that a team of young entrepreneurs creates an exhibition model of an investment model for potential investors and those who in the future want to become a participant in the development of this concept.
Types of project investments
Financing startups in Russia has its own characteristics, like any other investment industry. Young businesses are not without advantages and disadvantages. All investment options are divided by the amount of spending. For example, in order to receive an amount of $ 1 million (approximately 67 million rubles) for the development of a project, you need to contact the business angel communities.
These are successful entrepreneurs whose main task is to invest their own funds in various projects in order to further earn money on the development of new production models and information business. This action will allow you to get the opportunity to develop the project to a certain stage. Further promotion may require larger amounts that can be obtained from banks or venture capital funds.
Financing technology
Start-up funding in Russia needs to be protected by civil law. This refers to a specific type of transaction. This makes it possible to legally regulate and empower each party with rights and responsibilities. The main type of investment in startups is rolling.
The conditions for financing a startup of this type are that entrepreneurs invest not in a project, but in a business idea. At the same time, the investment amounts are small and are calculated based on the potential profit in the future. Another form of investment is deferred. By the type of action, it resembles a framework agreement, when the previously transferred amount of money from the investor is allocated for each stage of business development.
Selection of investors
Financing start-up projects is complicated by the fact that you need to independently search for investors. Online platforms are not yet well developed in Russia, where entrepreneurs who have free funds select various start-up sites to invest in them. The founders of a young company themselves, based on the required amount, should look for those who would invest in it.
Venture funds are one of the most common investment models in young but profitable projects. However, they set a number of serious requirements when concluding a contract. Therefore, it is important to assess all the risks and understand whether it will be profitable to cooperate with such structural units in the future, when the company begins to receive net profit.
Promotion through exchanges and the Internet
Funding sources for a startup can also be found online. It is a more complex process, but many successful start-up companies received their first sources of funds through online platforms. There are entire forums and exchanges that are created to connect contributors and those looking for funding sources.
However, each online platform also has a number of requirements. It is worthwhile to familiarize yourself with the concept of patents and copyright in advance in order not to become a victim of scammers who promise to invest after familiarizing themselves with inside information or technological process. Usually, after the transfer of data, such citizens or companies simply disappear.
Receiving grants
Initial financing of startups can also be carried out from the state or regional budget. Large domestic corporations are ready to become investors for many young and ambitious projects. All that is needed is to find the appropriate event and register according to the specified rules.
The way ideas are presented may vary. Therefore, it is worthwhile to familiarize yourself with all the requirements in advance. Grants can go up to 100 million rubles. However, such funding can only count on research institutes that have the opportunity to seriously approach the creation and modeling of the project.
Development loan
How to find funding for a startup if entrepreneurs refuse to invest in it? This is a difficult question. However, banks, noticing the activity associated with the development of entrepreneurship among the young population of the country, began to develop financing programs suitable for them. Large institutions form extended credit limits for business development. All that is needed is to submit a properly designed project.
Funding amounts may vary. It all depends on the assessment of the idea submitted for consideration. It is important to send to the bank not only the model of the future technology itself, but also to conduct a small study aimed at assessing all possible risks. A business plan will also be useful, which indicates all items of expenditure, as well as the timing of the first profit and the exit of the business from a net loss.
Responsibility of the parties
How to spend funding for a startup and develop a project? Practice around the world shows that not always young entrepreneurs who have received large funds for the development of their successful project strive to get down to business right away. There are many high-profile cases of startups being shut down and founders disappearing. As a result, they simply stole money and left for other countries, taking advantage of legislative flaws.
However, today the financing model has largely undergone positive changes due to such incidents. Each of the parties to the transaction has new rights and responsibilities. In case of inappropriate spending money startup participants can be prosecuted. It is also noted that after several such cases, when would-be entrepreneurs received real terms for fraud, the rest became more careful in spending the allocated funds.
What to look for
An investor with full startup funding is a rare element of a young project. But there are also exceptions. Having formed your own project, you need to find a niche for its implementation. Cases when young specialists create a separate company to develop an innovative solution for a specific application in another organization often become successful. This allows you to find a target audience, where the technology will be needed in the future.
When the concept is formed, you can send proposals to take part in the project to everyone potential consumers this technology. This will not only attract attention to the project, but also create competition. According to the rule of the market economy, demand always gives rise to supply.
There are several forms of startup funding. Investors are interested in the most profitable investment of their own funds, therefore, many of them support promising startups not only at the initial stage, but also in the development process. The purpose of funding start-ups in some cases is socially significant activities and the improvement of general welfare. Socially oriented projects benefit from government cash subsidies. Charity is another incentive to support entrepreneurship, which is associated with the provision of funds in the form of grants and subsidies.
In practice, there are two basic approaches to investing in entrepreneurial business projects. The first is the payment of grants for the implementation of a startup idea. The investor's interest in this case is concentrated on intangible gains.
Investment funds for financing start-ups and individual investors are guided by the receipt of future profit from their start-up investments in a business project. This is the essence of the second approach to financing startups in Russia. Investors agree on the conditions for transferring their own funds to entrepreneurs in order to implement a startup idea. As a reward for the amount provided, the businessman usually offers a share in the future profits of the project or the right to partially manage the project. The condition can also be arranged in the form of a standard loan model: the borrower undertakes to repay the debt with interest accrued for the period of using the lender's money.
Variety of funding sources for startups
The above forms of raising funds assume the presence of various sources of financing at each stage of the project. Major investment agents are divided into two groups:
- Private investment funds
- Business angels
Investment funds
Private investment funds are organizations specializing in investing assets attracted from investors in promising projects that generate income in the medium and long term. Venture funds focus on supporting emerging innovative startups. These investments are highly risky. However, before deciding to invest, the investor evaluates the project presented by the entrepreneur in terms of the likelihood of successful implementation. In order to hedge risks, funds are allocated to a number of projects from different areas at once. One of the tasks of venture capital funds is to acquire control over the activities of innovative startups. The largest organizations that finance startups both in Russia and around the world are IMI.VC, Runa Capital, Kite Ventures, ru-Net Ventures, ABRT Venture Fund, etc.
Who are business angels
Business angels are private investors. Funding startups for them is the same as for investment funds - the ability to profitably place their own assets for profit in the future. But the likelihood of receiving funds from such a source is much higher. Business angels are often not competent enough to objectively assess the risk of an investment. An entrepreneur's idea can make the right emotional impression, and funding for a startup is secured.
Business angels are less demanding for a quick return on their investments compared to formal investment funds and commercial banks. The first ones are aimed at long-term investments, therefore, they are sympathetic to temporary difficulties in the initial stages. Business angels are interested in a gradual return on their investments and manage only their own funds.
Internet as a presentation platform
The volume of transactions carried out via the Internet is growing every year. This information is also relevant for entrepreneurs looking for funds to implement large-scale projects.
What is crowdfunding
The World Wide Web allows you to find investors to fund a startup among ordinary people who are interested in the entrepreneur's business idea. Crowdfunding sites offer the purchase of "shares" of a future project, which are entitled to a subsequent reward for an investor from a startup company (see Advantages and Disadvantages of Investing in Stocks and Bonds). If the project plans to launch a unique product, the “shareholder” has the opportunity to receive a copy of it as a gift. Money is transferred by interested parties, including free of charge. Crowdfunding is also an opportunity to attract the attention of a future target audience to an ongoing project.
Presentation is an effective way to engage your audience
In order for people to believe in your success and realize the value of their own investments in your startup, it is important to clearly demonstrate the promise of your idea and its relevance. To raise the necessary funds to launch the project allows its external attractiveness for the investor. When posting a fundraising announcement on a crowdfunding site, it is important to highlight all the positive features of a business idea. The main rule: any statement about goals, methods of implementation and criteria for future success must be specific. The numbers and graphs clearly demonstrate your own confidence in success - remember this rule.
Raising funds through the stock market
To attract tangible cash injections from outside, you can turn to the stock market for help.
A little about financial instruments
The stock market presupposes the presence of agents interested in acquiring financial assets that bring the highest returns with the least risk. You can choose from many different instruments of varying degrees of liquidity: stocks, bonds, derivatives, etc. Investors acquire the proposed assets for one of two purposes:
- resale of assets at a higher price in a future period
- long-term investments with the aim of obtaining permanent income
IPO as a way to attract investment
A common method of attracting external funding for a startup is an IPO (Initial Public Offering) - an initial public offering of a company's shares on the stock market. By purchasing them, the investor contributes to the capital of the startup company. IPOs are carried out by both relatively "young" business projects and already developed firms. Public offering of shares carries the risk of losing control over project management when a large share of the capital is concentrated in one shareholder. Aspiring entrepreneurs should avoid this.
IPO (Initial Public Offering) - the first public sale of shares allows you to raise money necessary for the development of the project
Bank loan and government subsidies
Alternative private and professional investors are:
- commercial bank loans
- government subsidies for certain areas of business
Lending to startups
It should be borne in mind that this method of obtaining funding is associated with a formal procedure for "protecting" a business project. Banks are the least risk-prone sources of investment, therefore, as a guarantee of solvency, the borrower is obliged to provide information on the condition of assets (real estate and other property), as well as on the availability of permanent earnings. Depending on the conditions, a loan from a commercial bank assumes full or partial exemption from payments during the initial stage of the project. This allows the entrepreneur to reduce costs in the process of establishing a project.
The size of the interest rate on the loan depends on the amount of borrowed funds and the purpose of obtaining financing. Startups that are at the initial stage of implementation are provided with amounts on average not exceeding 2 million rubles. In the future, the bank revises the degree of risk of the project based on the success of its start.
Government funding for startups
At the country level, several large subsidy and grant programs for entrepreneurial projects are currently being implemented. The state policy in the field of entrepreneurship support is related to the activities of JSC Rusnano and State Corporation Rostechnology. Startups are subsidized through these organizations. The priority areas at the moment are innovation projects and agriculture.
The state ensures the operation of its own investment funds (Investment Fund of the Russian Federation, Skolkovo Fund, etc.). Funds are redistributed on a competitive basis both between the constituent entities of the federation and between individual socially oriented projects. Innovative start-ups are most likely to receive government grants in the Russian Federation, since the priority goal of budgetary policy now is the development of high-tech industries.
To raise funds at the initial stage of the implementation of a business idea, it is required to convince the investor of the future success of the project. Depending on its scale, an entrepreneur chooses a source of funding for a startup. It is important to take into account the peculiarities of individual forms and sources of financing so that investments with the lowest costs bring income in the short and medium term. An entrepreneur always relies on his own strength, so he must correctly calculate the risks at each stage of the implementation of a startup idea. This will allow you to achieve success in any endeavor!
Developing Button of Life, we dived deeply into the Russian venture capital market, learned a lot of interesting things about it, and we think that our experience will be useful to everyone who starts a startup. I want to present you with a typology of the main participants in the startup market: those who give money; those who need them; those who know how to spend them correctly; those who bring everyone else to each other. (Read about the Life Button startup.)
Entrepreneurs
The statistical norm of entrepreneurs in society is 3-5% of the population. But in our country there are about three times less of them. The current graduates of universities do not want to become entrepreneurs, and this is logical: after all, an entrepreneur is a opportunist and opportunist, and now the peculiarity of our market is such that more opportunities to earn money are presented in government agencies - this is where potential entrepreneurs go. Among those who nevertheless decide to start their own business, I distinguish the following categories:
1. Students of the last year of universities are the most representative category of startups. They learn about the startup movement from teachers and peers, and they enthusiastically go to startup parties. They quickly catch on to ideas - and just as quickly cool down: a small fraction of them become owners of their own business.
2. Programmers, some of whom want to become new Zuckerberg and are looking for an idea or like-minded people for an existing idea, and the second, less ambitious part, wants to join an interesting team and help it achieve fantastic success.
3. Office workers who are looking for new opportunities to have fun or, after reading beautiful success stories, set off on a risky voyage through the sea of \u200b\u200bstartups.
4. Intra-corporate startups - fast growing and fashion directionsuccessfully developed in corporations of an entrepreneurial type.
Investors
I ranked the funding sources according to the ease of getting money from them.
1. Three F - family, friends & fools. Translated into Russian, they turn into three "D" - family, friends and fools.
3. Business angels. These are individuals who, professionally or amateur (fashion, adventurism, desire to gain experience, to be involved in great things), invest in startups. Investing in startups is becoming trendy. But there are few professional "angels" in Russia. I think you can count them on the fingers of two hands.
On the one hand, the appearance of a large number of amateur angels is good, there is more money on the market. On the other hand, this money is not as “smart” as that of professionals. It is actually difficult with an amateur investor: as a rule, he does not have clear rules of the game, immunity and tolerance to failure.
"Angels" are good and bad. Good motivation is to help a startup (you like the idea, the team, you want to amuse your own ambitions), and if it works out, get rich. Good "angels" do not particularly care about the size of the share they receive. Therefore, they easily agree to the terms of the convertible note. They will not share the skin of an unkilled mammoth. From the evil "angels" already at the first meeting, you can hear something like: "I'm not greedy, and I don't care what share I have, if only the project works. But the specifics of the business are such that I risk real cash, and you invest only talent and time. In short, let's do this: I give $ 100,000 in return for 51% and another 25% in collateral - for your own motivation. If you reach the KPI, they are returned to you, if not, then they worked poorly. " My advice to you is to run away from such investors. What happens after several rounds of investment - will you feel like this is your company? Ultimately, the hired manager may end up with more options than your stake.
4. bring not only financial receipts and PR, but also allow you to feel the taste of victory, which increases team motivation at the stage when the product is still in development and sales are not encouraging. In addition, this is a mini-test of an idea and an opportunity to get feedback from experts and investors.
5. Business accelerators are a mix of a competition and a venture fund. The winners of the competition receive seed funding and all kinds of support (office, mentors, contacts, access to sales channels and partners) in exchange for the share that the fund / accelerator that provided funding receives.
6. Venture funds are divided into seed and later funding funds. There are very few of the former in Russia. Until recently, there was generally only one - AdVenture, and even that went into the second category. 2011 was very supportive of the startup community: as many as four accelerators appeared (Glavstart, TexDrive, InCubeAccelarator and Farminers), which are essentially seed funding funds.
Funds of later financing, in my opinion, are closer to private equity funds, as they expect from startups not only R&D, alpha or beta products, but also a stable upward sales dynamics.
Venture funds are not only created by the lazy now; they are a very fashionable trend. There are representatives of venture funds who have not yet started shaving. I met one representative who didn’t even know what a break even was — a smart guy from the Big Four, just with no experience in venture. The industry is young, growing dynamically, and the staff does not have time to mature.
7. Strategic investors - birds on the Russian venture capital market are still rare. They arrive when startups are no longer actually startups.
Investment Brokers
Attracting investment is an important part of a startup's activities, sometimes this process takes more time and resources than developing the business itself, and often a business cannot be developed without attracting investment. It's good if you have a team member who can communicate with the investor in the same language. Otherwise, it will be necessary to learn from mistakes and it will be difficult to attract money.To speed up the process, you have a choice: either to attract a person with experience and knowledge to the team who wants a share of at least 10%, or to attract an investment broker to the project, for whom money in startups is a craft. And here a pleasant surprise awaits you - the appetites of an investment broker are much less than that of an individual: a fair range of their remuneration is 3-5% of the attracted amount.
Consultants / experts / mentors
At the start, when the internal expertise of the team is limited, consultants, experts and mentors are very helpful. You can get acquainted with them in business incubators, at start-up parties, at competitions. Often these are the people who help startups survive. Moreover, their help is usually free. But if you see that the expert's influence on the project is significant, his potential has not been exhausted, you want his deeper participation, you can agree on a success fee or even a share in the project.
The average market success fee for raising funds is up to 5% of the attracted amount. If an expert helps with the development of sales channels, it is worth negotiating remuneration from those contracts that he personally brought to the project. Typically, it is calculated as a percentage of revenue.
In my opinion, it is dangerous to negotiate a direct percentage of the proceeds. After all, you need to take into account that depending on the volume of the transaction, the marginality of the product will change (volume discounts). If you sell a large volume with a margin of, say, 5%, then a 10% “helper” reward will result in a loss. Here it is better to make a matrix of the dependence of the expert's remuneration on the product margin or price.
Well, if your Expert Advisor is cool and its contribution is so great that it cannot be attributed to any part of the cash flow, then you need to give a share. It all depends on the expert's resources. I know that experts who bring in connections and developed sales channels get up to a quarter of the company.
Business incubators
The Business Incubator provides startups with office space and essential services, consulting, accounting services, etc. free of charge or on preferential terms. An important element of an incubator is the existence in an environment of their own kind with common problems and concerns, the exchange of data and ideas, and, finally, a competitive spirit.
Noubar Afeyan, a respected US venture capitalist and lecturer at MIT Sloan and the Skolkovo Business School, once said that Incubators are for sick babies, meaning that a strong startup will survive on its own. But I think incubators are very useful for any newborn startups. And if a startup is strong and can survive on its own, then with an incubator it will shoot even faster and stronger.
There are many business incubators now. I am especially fond of the InCube incubator, which has become the most advanced and active thanks to the Greenfield project team. They themselves are one of the main elements of a startup party - in fact, its organizer.
Startup hangouts
Startup parties are events of various formats, the purpose of which is to exchange ideas, search for like-minded people, team members, etc. There are three main formats for such parties:
Weekend format - people get together to exchange ideas, team up and work out a business model and make a prototype over the weekend. The Greenfield project has such a format, it is called Harvest. At Glavstart it is called Startup Weekend, and the Start movement works in this format.
Pitch presentation format - when more mature projects make a pitch to experts, and they give them feedback and recommendations. The Greenfield project holds such events called Feedback.
Format of evening meetings and discussion of exciting issues. Have you got a crazy idea and want to know the opinion of others or test the reaction of a potential user? Then you can visit poSEEDelki from Greenfieldproject.
In general, the Russian venture capital market, in my opinion, can be characterized by the principle "a lot, but a little":
A lot of money, but little real funding; many ideas, but few smart startups; many smart and talented people, but few teams.
Investors complain about the lack of well thought out ideas and balanced teams. They say that ideas are worthless, and most importantly - teams: a good team will make even a bad idea good projectand a bad team will ruin anything. And startups complain that investors have died on Russian soil. They say that we have a super idea and we ourselves are not bastards, and for some reason investors are in no hurry to give money - they require deeper study, prototypes, first sales ... And this is exactly what investments are needed. So it turns out a vicious circle.
It seems to me that we do not have enough seed stage venture capitalists. Most funds are looking for mature projects ready to accept substantial investments. My forecast: in 2012, the Russian venture capital market will show significant growth thanks to emerging strong players such as Glavstart, TexDrive, InCubeAccelеrator, Farminers,. Before our eyes, a living space of new ideas and a venture financing market is being formed. Like any young market, it has its weaknesses. But where others only find difficulties, opportunistic entrepreneurs see opportunities. And this is terribly interesting.
Many startups have great ideas, but sometimes they don't have enough funds to implement them. Therefore, someone still goes ahead and achieves what was conceived in any case, while others refuse it. We believe that if you have a great fresh idea, a well thought out business plan, but don't have the funds, then you should find funding from outside parties or organizations. Below is a list of available options for financing a startup project.
Remember that not only the method of funding, but also the timing of funding a startup project must be correct. Raising money thoughtlessly can lead you to dangerous situations.
Before a new business owner can raise capital for his startup, he must analyze various funding sources to find the one that is most compatible with your needs, requirements and the stage of your project.
Funding for creating a product and bringing it to market can be obtained from business angels who are ready to invest their funds at an early stage of a startup's development. As a rule, such funding does not last long.
There are other financing options when you can receive funds for the development of your business for a long time from the so-called financial institutions.
Funding and fundraising options for your startup project
Invest your own savings
When you can afford to spend your own funds on the creation and development of your startup project, this will be the best option, since you will be the only recipient of the profit.
Help from friends and relatives
If you do not have sufficient funds of your own, then you can turn to your friends and relatives for help. If you have established yourself as a reliable person, then you have a chance to receive funding for a startup project from this source. But make sure you take money from someone who can afford to lose it, as the number of startups that fail is quite a few. Also, be prepared to discuss issues related to your business in a family get-together.
Help from the bank and other financial institutions
You can also take a consumer loan from a bank by submitting your business plan. Another option is to obtain a secured loan. Some microfinance companies provide loans, but at very high interest rates.
Incubators and Accelerators
Many developed countries have incubators and accelerators set up by governments, educational institutions, or large corporations. You can refer to them with your idea. In case of a positive decision, you can receive not only funding for a startup project, but also an office, equipment, a place in laboratory premises. The development of your startup project will be supervised by the smartest people in the world of startups, you will receive advice on promoting and managing your business. You can become part of a huge network by meeting potential clients and partners.
Crowdfunding
Crowdfunding (English crowdfunding - "public funding", "crowd" - literally "crowd") - a method of collective funding based on voluntary contributions (Wikipedia). The initiator of crowdfunding asks to finance his project, the product of ordinary people. For this, specialized Internet sites are used.
The project development process is publicly covered. Contributions are made free of charge, although people may be promised some kind of bonuses. If within a certain time the required amount or a part of the amount agreed in advance, then the money already received is returned to their owners. The downside is the long term for collecting money, the money will go to the startup only after the final collection, you need to constantly promote your project.
For the second round of funding a startup project, other options are needed. Longer term.
Venture capital
If you have successfully completed the launch phase of your product, are already receiving initial revenues, have a professional team, and a clear strategy to eventually sell the business or enter the IPO market, then you need funding from professional venture capitalists (VCs).
Keep in mind that venture capitalists strive to get their money and profits as quickly as possible. They are a great source if you plan to grow rapidly and need funding to achieve it.
Venture capitalists are usually willing to invest in the range of 20% of a completed startup project. They scrutinize the business they may need to invest in rather closely. Typically only 1-2% are approved. Prepare to be flexible if you want to do a deal with some venture capitalist.
Bail financing
Long-term loans can be secured by commercial banks against property or assets. The collateral can be real estate, any property, shares, gold, and you can also use leasing. A loan for a future business can also be obtained under the guarantee of a legal entity or individual.
Equity financing
Equity financing is the attraction of additional financing from outside, when the investor becomes a co-owner of a block of shares participating in the stock market turnover, and then shares the profit with the main investor. The main benefit of equity financing is that the business is not required to return the money. Instead, investors hope to get their investment back from future profits. The main disadvantage of equity financing is that investors become co-owners of the business and thus gain a voice in business decisions.
Initial public offering (IPO)
Also referred to as “initial public offering”. IPOs often involve small, young companies looking to expand capital, but it can also be large companies looking to go public. IPO has its own regulations and rules, because the general public becomes participants in the development of the company.
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