How to Raise Opening Capital for a Business
Tanishka Khokhar | March 16, 2021, 11:50 p.m.
To successfully step your foot in through the door in the world of business, raising your opening capital is an essential step. Now, what exactly is opening capital? This term may be unfamiliar to those who have only recently introduced themselves to the idea of starting a business.
Opening capital is the difference between your opening assets and opening liabilities. The significance of the word ‘opening’ here is that it is what you start your business with. Opening assets are the assets invested into the business in the first leg of its operation and opening liabilities are the liabilities incurred on these assets at the same time.
There are several ways to raise your opening capital, let’s take a look!
1. Boot-Strapping:The first and foremost way of funding your business is introducing personal assets (cash, machinery, etc.) as capital. In short, self-financing the entrepreneurial venture is the easiest method of kick-starting your business. By itself, boot-strapping is not enough to support a business venture which plans on further expansion and development in the market. Hence, regardless of how essential and common the method of bootstrapping is to finance the venture, it is important to seek other financing methods such as incubators, etc.
2. Angel Investor:Angel investors are people who invest in business ideas that they deem to have potential. These are individuals who have enough resources and funds to support a business. The Balance Small Business says, "Angel investment is a form of equity financing–the investor supplies funding in exchange for taking an equity position in the company. Equity financing is normally used by non-established businesses that do not have sufficient cash flow or collateral with which to secure business loans from financial institutions." They further expand on the topic while explaining the pros and cons of getting an angel investor.
3. Public Funding:Most public companies can raise their capital through the issue of shares to the public. In India, this is a good financing method that can last up to 3 years and is regulated by the Securities and Exchange Board of India (SEBI). To call upon the public to contribute to the capital, there are several steps that need to be taken; the first being receiving approval by the SEBI. It is important for the Securities and Exchange Board of India to determine the records of the company in order to ensure that future investors are aware of all material information and do not get duped. However, public funding is only a short-term financing method as compared to other methods such as taking loans from financial institutions, etc.
4. Incubators:There are several organizations and programs such as Venture Catalysts, Startupbootcamp, etc. which act as incubators for startups. They fund the startups which they believe can create a market standing for themselves through financial help. One of the most renowned incubators being LaunchX where high school student entrepreneurs build real companies and are funded sufficiently through the incubator itself. They work together to form a team and LaunchX not only provides funding but also mentorship from the Massachusetts Institute of Technology (or MIT). LaunchX has helped bring into the market highly competitive companies such as Auesome and Piolock.
5. Venture Capitalist:Venture capitalists provide professionally managed funds to startups that have the potential to grow into successful businesses. There are renowned venture capitalists such as Accel Partners and Blume Ventures.
