- On May 2, 2015
Answer is both. Teen entrepreneurship is one of the most focused areas of today’s business world. It is very interesting to see such enthusiastic ideas and passion by the young start-ups. At what point our young generation turned to take risks and to build up a safe zone for their own? The base line of the matter is low salary in the market, government promotion for start-ups; changed economic condition etc. underlined the entrance of venture capital investors. At present there are more than hundred start-up investors in the market. The real question is why investors more interested in start-ups, which having just an idea or a prototype? Usually investors assure his capital protection before he agrees to invest. As we can see very few start-ups are running effectively, most of them funded by their circles or running start-ups raising funds from outside after showing their history and present business. But most of the new turn-outs are based on a single idea/product, which may take long time to book profit.
What really the problems faces by these start-ups? Funding is not the real problem of an ideal start-up. Dealing with investor’s expectation is more crucial than finding a way to tap competitors. While dealing with both side, young start-ups shivering to meet both ends due to the unbalanced portfolio, lack of clarity, shrink strategy, narrowed long term goals, poor diversification strategy, and inadequate market analysis etc. There are many options to start a new platform, but it determines by the need and market access.
Investment from personal circles: if your business lies in service sector or at the testing level, it is more preferable to take funds from your personal circles rather moving for seed/angel funding. At the initial stage of your business, one need to spend more time to understand the market, product refinement, setting up of goals, strategy and expected future outcome. Once it run, you can find the overall requirements in a single shot. After clearing the base line, to scale up, start-ups can select whether go for crowd funding or angel funding options.
Angel funds: Angels are individual rich people. The word was first used for backers of Broadway plays, but now applies to individual investors generally. Angels who’ve made money in technology are preferable, for two reasons: they understand your situation, and they’re a source of contacts and advice. It is more important to have a chance to access their contacts rather locating only in money part. But most among them invest with an exit strategy. Investors are keen to return their capital back safely. For start-ups it will create considerable pressure to fulfil the expectations of their investors on time. Most of the start-ups are facing this tragedy because youngsters are being part of these new establishments, won’t have enough experience to hold pressure, clear vision to sustain and moving with different gears to scale up. Obviously it is difficult to reach a safe zone within a short time span. Experts says that while making agreement with investors, it is better to create by the start-up firm and negotiate as well before giving shake hands.
Seed funding: it is similar as angels in that they invest relatively small amounts at early stages, in step by step. It is named as ‘incubation’. For a start-up, this platform is easy to do all ground work, before you go for actual launching. Here you can access basic services, office space, advice and base funding. But in reality out of 100 start-ups only very few are making relatively positive outcomes. Basically seed funders also companies, there idea may be different from what you have. Naturally their ideas, interests will reflect/ deviate/conflict with your strategy/ way of thinking. Your dependency may be the root cause of unwanted exploitation. Also these investors are private giants who really want to tap future possible threats to their businesses from young ideocrats rather having a real social service.
Venture capital Fund: generally, VC firms are like seed firms in that they’re actual companies, but they invest other people’s money, and much larger amounts of it. VC investments average several million dollars. So they tend to come later in the life of a startup, are harder to get, and come with tougher terms. Invest large amounts; the money comes with more restrictions. Most of the terms only come into effect if the company gets into trouble. For example, VCs generally write it into the deal that in any sale, they get their investment back first. So if the company gets sold at a low price, the founders could get nothing. Some VCs now require that in any sale they get 4x their investment back before the common stock holders (that is, you) get anything, but this is an abuse that should be resisted. The most noticeable change when a startup takes serious funding is that the founders will no longer have complete control. Ten years ago VCs used to insist that founders step down as CEO and hand the job over to a business guy they supplied. This is less the rule now, partly because the disasters of the bubble showed that generic business guys don’t make such great CEOs. But while founders will increasingly be able to stay on as CEO, they’ll have to cede some power, because the board of directors will become more powerful. As long as everything moving perfectly, you won’t face any criticality, but when it turned in would be a danger to future perspectives of you.
If you having just an idea, first of all, it is advisable to research in maximum depth, once you clear this round you can create a strategy based long term goals and nearest future outcomes. On the second stage, teen entrepreneur can choose whether to go for public funding or private funding. If you concentrate on manufacturing stream, it is better to opt Angel funding, but it would be much better if you have personal connection with them. In service sector, for starting and basic functioning, it is better to choose funds from family or friends because service sector industries gradually take time to scale up and it can reduce high end pressure. Also you may need to change strategy once you entered in to the industry. On both streams, once your business set up and getting good feedback, you can plan for the expansion methodologies through venture capital funds or IPO.