Even with their hard work, ambition, and dedication, women entrepreneurs looking to raise funds sometimes get the short end of the stick. Sadly, women deal with gender biases more often than most think, especially when seeking to take on leadership roles and gain financial trust. So how do you find the right way to acquire investments to establish your own venture?
In conversation with TC46, Abhinav Angirish, the founder of Invest Online, shares some elements of fundraising, advice on tackling challenges, and tips for women entrepreneurs to raise funds successfully.
1. What are the key elements to consider before approaching investors?
Remember, investors receive several proposals from entrepreneurs all the time. You have to think out of the box to stand out from hundreds of startups that are vying for their investments. The number one thing that qualifies you is your experience in the industry. Investors look for management with a track record. They are extra cautious here.
Financials is another important element that you must not ignore. You must have your financial (actual as well as projected) in order. And finally, your product or service must have a unique USP. The uniqueness of the product can help it to create a whole new market, thus, benefiting the company as well as entrepreneurs.
2. Why do women entrepreneurs still face difficulty in raising funds?
If we examine the entrepreneurial trend, only 14% of businesses are run by female entrepreneurs. There could be several reasons for such disparity. Traditionally, business is viewed as a venture that requires risk-taking ability, something that has been considered as a male domain. Though things are changing rapidly, a lot needs to be done. The government policy is designed to encourage female entrepreneurs. The shift might happen gradually.
3. How do you fundraise for a startup business?
The startup ecosystem is extremely flexible. It begins with yourself. You can raise money from your friends or relatives. There are several government schemes to encourage entrepreneurship. You can check with your local bank for schemes like “MUDRA.’ If you have a very good idea, you might want to approach angel investors. Angel investors help the idea to germinate into a viable practical business. Once this is done, you can approach venture capital companies for funding.
4. Are friends & family a good source of funding?
As many as 40% of startups rely on family and friends for initial funding. This is the easiest source of funding since people usually do not look for Return On Investments (ROI) or interest payments. However, this should be a last resort. Since it can easily strain the relationship forever. There is another risk, for example, if your friend has loaned you the money from his emergency account, and if he requires it back within a few months, you won’t be able to repay. This will stall him as well as your plans. When you borrow from family or friends, you have no idea where the money is coming from. When you borrow from the bank, you know it is coming from a loan account that has been set aside. This also makes you more aware of your responsibilities as a borrower.
5. What is a bank looking for to help them decide to loan money to a business?
Banks operate in a highly conservative manner. They are wary of lending to new business. They look for the “Five Cs” of credit — capacity, collateral, capital, character and conditions. They may also ask for letters of reference and Collateral. If you do not have an established business, banks may even ask you to ‘bootstrap’ your business and raise initial money using your network.
6. What is an angel investor? Is this a worthy option for women entrepreneurs?
By definition, an angel investor is someone who provides financial backing in exchange for ownership in the company. A doctor or a lawyer can be an angel investor or someone who is a high net worth individual that invests in emerging companies. Angel investors help the startups take their first steps, they play the role of nurturers who exit once the company grows.
For a female entrepreneur, angel investors are a perfect choice. They can help them test the waters for the idea. Since the angel investor is not a money lender in a strict sense, he has a flexible approach. Angel investing is popularly known as a quick road to funding.
7. Could you share 5-8 key tips for women entrepreneurs to raise funds?
Raising capital is a difficult process. One must have a keen understanding of one’s business and be prepared to answer a barrage of questions from the lenders. You must develop skills to articulate your company’s vision. You must have a keen sense for numbers. Financials form an important part of the business. You should learn how to read the statements and projections.
Besides understanding your company’s key metrics, you must also understand the estimated ROI that investors are interested in. When you’re sourcing capital, it’s important to be assertive and state your successes. You must be ambitious and passionate about problem-solving and building products.