Determine the right option for your business: From US venture capital firms to Emirates National Bank of Dubai
Any company’s startup and scale-up processes generally require a considerable sum of money. Resources, as well as types of financing, significantly differ from one country to another. This situation might confuse entrepreneurs all over the globe and raise numerous questions on how to determine the correct funding source.
Let’s explore funding options available for entrepreneurs across different countries to help determine which funding source to choose for their startups.
Government Grants and Loans
Many nations provide government grants and loans for newly established businesses. This type of provision enables entrepreneurs to access non-dilutive funding. Non-dilutive funds are the ones that do not require selling any equity.
United States: The US Small Business Administration (SBA) provides loans that have relatively good terms and low interest rates. Some of the available programs include SBA 7(a) and SBA Microloan. These programs offer funding of up to five million dollars. Certain states also have some local grant programs that support specific industries.
Canada: The Canadian government offers many grants under its Industrial Research Assistance Program (IRAP). Additionally, the Business Development Bank of Canada (BDC) provides funds for small business loans. These programs are particularly useful for new technology and innovation-driven startups in Canada.
European Union: The European Union provides grants to small and medium-sized enterprises (SMEs). EU offers schemes such as Horizon Europe for research and innovation to SMEs. Local governments also provide interest cuts on loans to promote startups.
Venture Capital and Angel Investors
Equity financing is a crucial aspect of startup funding options for entrepreneurs. It consists of venture capital (VC) and angel investments which enable enterprises to earn significant returns.
US, Silicon Valley: Silicon Valley today has the world’s greatest collection of venture capital pools to invest in promoting growth technology startups. Established scalable business models can approach well-established VC firms like Hercules Capital, Andreessen Horowitz, GSR Ventures, etc.
India: VC firms in India, such as Sequoia Capital India, Accel, and Tiger Global, have been aggressive in investment towards new start-ups in the past few years. Besides these, the government has also promoted VC investments through the ‘Startup India’ initiative by offering tax exemptions and easing regulations.
Singapore: Singapore has firmly established itself as a Southeast Asian venture capital hub. Government-backed funds like ‘Temasek’ and ‘Enterprise Singapore’ have encouraged investment in local startups. The country has been successful in developing a conducive regulatory environment for local and international VCs.
Crowdfunding
Crowdfunding has become the rage around the world as an alternative source of funding option for entrepreneurs. This enables them to raise money directly from the public, mainly through Internet-based platforms.
United Kingdom: There is a rising trend of crowdfunding in the UK and it has made Crowdcube and Seedrs the leaders in such regards. These platforms are monitored by the Financial Conduct Authority (FCA), building trust and giving assurance to backers.
Australia: The Australian Securities and Investments Commission regulates crowdfunding. Australian platforms such as Pozible allow entrepreneurs to raise early funding. Crowdfunding is very popular for creative industries and product-based businesses in Australia.
Germany: German platforms such as Startnext and Companisto crowdfunded millions of startups. Although it is more commonly used for consumer products, equity-based crowdfunding continues to grow, giving entrepreneurs added flexibility.
Bank and Financial Institutional Loans
Obtaining a bank or financial institutional loan can be tough for early-stage startups as banks fear the risk. However, it is a secure global funding source for entrepreneurs. Banks, internationally, are introducing specific small business loan products to sponsor businesses with huge growth potential.
Japan: The Japan Finance Corporation provides low-interest loans to start-ups. It targets innovative start-ups. Japanese government loan regulations are more lax compared to others. Thus, becoming an easy funding option to seek by the entrepreneurs running their operations in the country.
Brazil: The Brazilian Development Bank (BNDES) offers low-cost credit lines to entrepreneurs. One has to go through a lot of bureaucracy to get such a loan as the country ranks pretty high for corruption compared to others. However, successful applicants get good loan terms.
United Arab Emirates: The country has seen a tremendous surge in small business banking products over the past few years. Institutions like Emirates National Bank of Dubai (NBD) have a range of loans catering specifically to startups in Dubai and Abu Dhabi. The country’s tax exemptions also create an environment where businesses can easily thrive.
Accelerators and Incubators
Accelerators and incubators provide mentorship, resources, and even seed funding to entrepreneurs to further grow their businesses.
Israel: The Israeli innovation ecosystem, “Startup Nation,” has many accelerators such as Techstars Tel Aviv and Google Launchpad. Thus, entrepreneurs here get funding with access to a global network for rapid business growth.
South Africa: Funding and support in South Africa include sources like Startupbootcamp and Grindstone for startups. This is particularly helpful to entrepreneurs in overcoming challenges in the African market.
Other Common Means of Financing for the Entrepreneur
Family and Friends: Friends and family financing is probably the most common source for every early-stage entrepreneur. It may be a less formal method of funding as is mostly involved with lower interest rates or more flexible terms of repayment.
For example, Dropbox, the cloud storage company, was founded in 2007 by Drew Houston and Arash Ferdowsi. They raised US$15,000 from family and friends to get started, and the rest is history.
Bootstrapping: Self-funding through personal savings or reinvesting early profits is quite effective at maintaining full ownership. Bootstrapping is particularly helpful for entrepreneurs who don’t want to divulge their share of equity.
Meta, Apple, and Dell, some of the biggest tech giants in the world are good examples of companies funded by bootstrapping. All these companies had humble beginnings and started with limited capital and resources.
Peer-to-Peer Lending: Platforms like LendingClub directly connect entrepreneurs with individual investors, providing more accessible forms of loans.
Angel Investors: The high net-worth individuals who have invested capital with very early-stage startups often in equity and are given a seat on the board of directors.
For example, Kunal Shah, a famous Indian Angel investor has funded startups like Unacademy, Razorpay, Slice, Mensa, and Spinny.
Conclusion
Funding options for entrepreneurs vary significantly across different countries, depending on the local laws and economic policies. The knowledge of these will help entrepreneurs choose the appropriate funding source for their businesses and startups. Thus, increasing the chances of business success.
