Finding the funds

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Finding the funds

 (Source: online.scu.edu.au)

You’ve got a great idea? GREAT. You’ve already thought of executing it? Even better. And yet, are you nervous that you won’t be able to move ahead with your plans because you don’t know how you are going to manage the funds? That fear is natural.

It’s no surprise that receiving funds can be a difficult task in Nepal because we haven’t yet reached a point where people are ready to invest in ideas. But that doesn’t mean entrepreneurs and startups cannot get funded. Entrepreneurs can look at various sources to secure seed money for their startups. These come in the form of debt or equity or grant, and each of them has its own unique characteristics that will define how the company will work financially. Entrepreneurs must understand the difference between the nature of risks involved in paying interest by taking a debt and diluting shares by giving the company’s equity.

But the procedures for getting debt financing in Nepal can be a hassle. Without collateral, banks and other financial institutions hesitate to invest in the early stage of your venture. Even if they do decide to risk their collaterals, the interest rates fluctuate often and are high. That forces Nepali entrepreneurs to think about the high interest they must pay, which limits the scalability and sustainability of the startup.

It’s no surprise that receiving funds can be a difficult task in Nepal because we haven’t yet reached a point where people are ready to invest in ideas. But that doesn’t mean entrepreneurs and startups cannot get funded.

There are other alternatives, and entrepreneurs must weigh the values of each of the alternative and even look to combine these alternatives.

 

Bootstrapping

 

(Source: www.converzion.com)

Bootstrapping simply means financing your own venture. If you have money in your bank account, you can  use that to pay the initial bills. If you have a job, then keep your job and use your salary or wages to finance your startup, and work on your startup in your off hours. There are also tech startups who take freelance projects to finance themselves. It’s going to be hard to balance things out for sure, and you will have to give up your social life. But the model does have upsides. You will have full control over your business and the flexibility to run it the way you want to. Because the venture is fully financed by yourself, you neither have to pay debts nor share your profit with other stakeholders, which makes things financially rewarding too.

 

Peers

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Friends and families are a common source of financing for startup businesses. When you don’t have savings, they are the go-to people who’ll help you materialise your idea. People you trust or who trust you may offer you low-, or even zero-, interest loans for a longer repayment period without much collateral to back them.

There does exist a problem with this model, however. Entrepreneurs tend to be undisciplined while taking loans from families and friends because they think that the loan providers are not as strict about how they provide loans in the manner that other investors in the market are. Thus, to overcome this mindset on the part of the borrowers, it is necessary for them to treat the loan providers as they would any external debtor, and to work formally with written arrangements so that both parties can be held accountable.

 

Crowdfunding

 

(Source: www.jcount.com)

Crowdfunding is a growing trend across the world. It is a model wherein people raise funds from large numbers of people investing small chunks of money. Today, this is done primarily through online mediums. Platforms such as Kickstarter, IndieGogo, Pozible, Crowdrise, and many others, allow you to showcase your ideas, and if people like them, they can invest in your venture in return for either equity or interest or some kind of reward; they might even work in accordance with a grant-based model.

Platforms such as Kickstarter, IndieGogo, Pozible, Crowdrise, and many others, allow you to showcase your ideas, and if people like them, they can invest in your venture in return for either equity or interest or some kind of reward; they might even work in accordance with a grant-based model.

However, as exciting the prospects promised by this model might be, in Nepal, we still don’t have provisions to connect our PayPal accounts to our bank accounts, as Nepal Rastra Bank doesn’t allow this right now. Thus, entrepreneurs who do opt for crowdfunding need to get the help of people abroad to retrieve the funds.

 

Government Funds

(Source: www.malaysiasmeloan.com)

We have seen very little commitment from the Nepali government to specifically develop the startup ecosystem in Nepal—that is until now. In the recent budget announcement made by the government of Nepal, a bullet of the document states:

“A startup fund will be established to support the innovative small and medium scale entrepreneurs lacking capital and to support inventors and promote innovation by providing startup capital. Government of Nepal will contribute Rs 500 million as seed money to this fund and private sector and non-resident Nepalis will be invited to contribute to this fund.”

While the statement has not indicated for which industry the funds will be dedicated, still, it seems, Nepali entrepreneurs can apply for this seed money.

 

Venture Capitalists

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Entrepreneurs can also pitch their ideas for venture capital funds. But before you do, you need to prepare yourself to create a cohesive and experienced team whose work distribution makes sense and that can show your financial projections, along with other necessary analyses of your venture and your marketing and operational strategies. Based on them, venture capitalists may provide funds in return for partial ownership of the firm. They will also bring their values and experience to the startups when they invest.

Although there aren’t many venture capitalists in Nepal, things are changing with the number of business incubators and accelerators rising, which could lead to more venture capital funds.

But securing financing is only a part of your venture’s journey. Once your startup gets the money, you might turn complacent. You need to be aware of this trap, and you need to keep growing your venture with even more zeal and enthusiasm.

*First published on M&S VMAG

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Guest Wednesday, 20 June 2018