Understand Different Ways to Fund Your Startup Irrespective of the size of business, funds become very crucial for any startup company. Startups not only need funds for running business activities smoothly, but also for constant business expansion. Historically, bank loans have been a popular funding option for startups. However, many formalities, strict paperwork, and other mandatory requirements make bank financing a tricky proposition for startups. Over the past decade, IPO, VC funding, and PE funding have emerged as interesting, effective, and popular funding options for startups.
Initial Public Offering (IPO): A startup company would generally need funds to expand its capital, its business, or for diversifying its product/business portfolio. IPO is one of the best ways it can generate the required funds by sharing part of the ownership in the company with the investors. It is literally raining IPOs at the Indian stock markets. IPOs are becoming a very popular option for entering the stock markets or for adding to one's existing portfolio. An IPO is an initial public offering of shares of a private company to the public at large. A startup can float an IPO to list and trade its shares publicly on a recognized stock exchange such as the BSE (Bombay Stock Exchange) or NSE (National Stock Exchange) for the first time in its history. In an IPO, a company offers part of the ownership to the investors to the extent of shares purchased by them through the IPO. A startup company may want to set up more factories, diversify its business, or move into other sectors for which it would need capital. Thus, it can use IPO as an effective way to generate that capital. Funds raised through the IPO are used for business expansion, which improves the profitability of the company, making your investment lucrative in the long term. In some cases, a startup company can use proceeds of the IPO to fund its working capital needs, which leads to better operational efficiency, leading to long-term benefits for you as an investor. Certain companies float an IPO to repay their debt, which improves their overall business profitability leading to long-term benefits for you the investor.