6 Trends in Financing Startups and Small Businesses
In today's business scenario, startups and small businesses have options to seek funding from seed investors, angel investors, venture capitalists, alternative lending, traditional banks as well as government initiatives. The adoption of digital technology has changed this space forever for better.
Most of the startup leaders and small business owners shall agree to the fact that raising finance is very important for them either to start the business or to expand it; at the same time, it is one of the most challenging parts of their business. Traditionally, businesses had limited ways of raising funds, which added to the difficulty of the fund raising process.
With the advancements in technology and the entry of new players, there are several changes taking place in this space. As the financial technology (FinTech) continues to evolve, the financial services players now offer better consumer experience at lower costs. Moreover, with the entry of new players and the increase in competition in the financing space, for smaller businesses getting finance either in the form of debt or equity is now becoming convenient and efficient than before. You can also seek the help of company financing consultants/ experts to find out what works for you better in terms of company financing.
If you are looking forward for financing your small business and are curious that what is the recent scenario is like, keep reading!
Seed Funding and Angel Investments
With the development of digital technology and its rapid adoption, it has now become easier for the startups to pitch their business plans, seek funding and connect with seed investors as well as angel investors. There are now various seed and angel investor networks in the market that allow the startups and investors to connect digitally through websites and mobile apps. These networks provide startups and investors a lot of options in the market to work with players who fit their expertise and strategic interests. Also, the technology has made the process of investment and deals more transparent, efficient and effective due to easy flow of the information and seamless communication. These investors may invest individually or in a group of a few investors.
In recent times, there is a consistent rise in the crowd funding platforms. It is useful to fund the startups, any specific projects or initiatives either in the form of lending or equity. There are various options on the crowd funding platform such as peer-to-peer lending, peer-to-business lending, business-to-business lending, equity investment, fixed reward-based investment or donation. The businesses can look for and reach out to the crowd funding platform that are in line with their requirements and provide them seamless investment experience at minimum charge rates.
Venture Capitalists now leverage technologies such as artificial intelligence, machine learning, blockchains, etc. to identify the right companies for investment. It allows them to identify the winner among competitors and also analyze if it fits in their overall investment portfolio. Through the application of technologies such as data analytics and cloud computing, they are now able to calculate the accurate valuation of the startups for investment. Predictive analytics also help them to make accurate predictions considering not only static data but also dynamic environmental data including regulatory information and any change in the industry policies. The utilization of technology in the investment process reduces the chances of human intervention, human error and biases.
With the technology adoption in FinTech space, several online players that offer lending services to the startups. These platforms are alternative modes of lending and may not be necessarily guided by the same regulations as the traditional banks. Hence, these lenders can offer the loans to startups within a few hours of processing and clearance, of course after proper verification as per their operating procedures. The startups that are not able to get funding from traditional banks may reach out to these online lending platforms to receive funding.
Funding from Traditional Banks
Traditional banks being heavily regulated have a stringent process to provide loans. Banks may not offer lending services to all the businesses that seek loans. However, due to the competition from alternative lending, banks are looking forward to improve the services and experiences for their customers. These days, banks are considering various ways to either invest in technology in-house or to partner with FinTech firms. Banks are now focusing to provide seamless digital customer experience and also the insights on the transactions.
Witnessing the global competition, governments across the world are taking various initiatives to help the startups and small businesses in their countries. For instance, Government of India has taken several initiatives such as StartUp India to provide incubation, mentoring and funding to the startups. There are several initiatives to provide loans to small businesses such as Mudra Loan Schemes. Moreover, there are also project specific lending schemes such as lending for technology upgradation. Startups and small businesses may also look for the governments initiated funding and mentoring for their businesses.
It is not only important to receive the funding, but also important to make it tax efficient. You may seek the guidance and help from tax consultants/ experts to work out the best ways to ensure that the funding process is tax efficient.
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