Startups, are you bootstrapped or funded?

fundingAn idea is born. Rohit and Kartik have come together to ignite something of its kind which will transform the way social media is being used for promoting businesses. With the website going live, and page visits rising with time, the online encouragement is acknowledged and confidence kicks in.

Rohit, an IITian from Kharagpur, says, “We have started exerting a pull on the minds and this is what we exactly needed to do. Now, if only we can set fund raising meets with known names in seed funding or angel funding, that would be it.”

Cannot a startup flourish without seed funding? Is it mandatory to support your implementation of idea with a fund cushion?

Idea itself does not get funded, but business prototype does

It is obvious that there lies great uncertainty whether a business idea will actually solve certain problems it is setting out to solve or will it create a new set of problems.

It should be understood that a mere idea cannot bring in funding. Only a business prototype can. Entrepreneurs should use their experience to tailor the prototype according to the specific unknowns present in the intended product or business line. In general, an iterative series of prototypes will be designed, constructed and tested as the final business idea emerges and is prepared for scale up.

Being funded is surely a good start, but not a parameter of success

Eureka!! After two years of a roller coaster ride, our efforts have been acknowledged and we have been funded. You surely have a reason to celebrate and an excuse to dine out, recalling the times of struggle. Again, this is just the beginning. Being funded is surely a good thing, but not a guarantee to success. At best it can be an impetus to expand your business.
The point of concern is where should you allocate the expenses so as to increase the overall profitability of the company? An innovative idea if implemented and executed well can sail a business.

funding-1Funding is approved only after stringent due diligence

Every investor approaches due diligence differently. Some angel investors may request information in a detailed manner all at once, while others may simply request information at different times or stages. Regardless of an investor’s method to obtain information on a potential company, it is a proven fact that exercising thorough due diligence is indicative of more profitable returns. The following documents may be requested in due diligence, if we focus only upon the legal mandates –

  • Financial Statements of the company for every financial year ended
  • Audit Reports of the company for every financial year ended
  • TDS and Income Tax Regulatory Compliances and return filing status
  • Service Tax Regulatory Compliances and return filing status
  • ROC Annual and Event Based Compliances and annual return filing status
  • Local Registration and Return Filing Status – Trade License, Professional Tax, VAT and CST.

Investors would always emphasize on a law compliant company as compared to a profitable business with non-compliances in several mandates as applicable. It requires a simple logic to understand that since investing in a company makes them the shareholders of such a company, they are accountable for the non-compliances of the company.

To put down the finishing lines here, chances of a funded business flourishing are always more. But the adversities of a bootstrapped business, and the so-called invented alternatives of twisting and turning the veins of the business, comes with a lesson which cannot be learnt or resolved with an already in-place capital base.

Visit Taxmantra.com for comprehensive accounting, legal, regulatory, taxation and other compliance related assistance. Alok can be reached at alokpatnia@taxmantra.com.

Alok Patnia

Alok Patnia

Alok Patnia founded Taxmantra.com to understand and address the pain points of individuals, businesses and startups. He is an expert in handling taxation issues, has great insights on the business startup issues such as choosing right business entity and also has vast experience in the field of business maintenance services such as accounting, auditing, company law compliances, service tax and other related fields. He is a qualified Chartered Accountant and a commerce bachelor from St. Xavier’s College having post qualification exposure with Ernst and Young and KPMG at Bangalore.