The roadblocks to raising funds: Understanding Start-up challenges

You have a brilliant idea, a solid business plan, and the drive to bring your Start-up to life. But as you begin to mould that idea into reality you need start navigating the world of raising funds to meet any new challenges that threatens to derail your dreams.

From convincing investors to take a chance on an unproven idea to navigating the complex legal and financial landscape of raising funds, the road to securing and raising capital for your Start-up can be fraught with obstacles.

Let's understand the different challenges a Start-up may face while beginning their journey. 
 

1. Competition for limited funds
 

When raising funds for a Start-up, one of the biggest challenges is the competition which is particularly fierce for early-stage Start-ups. It can often require more track records and proven successes that larger, more established companies have.

The competition for limited funds may also make it more challenging to attract investors' attention, who may be inundated with pitches from various companies. Additionally, it can drive up the valuation of Start-ups, making them more expensive to raise funds and potentially diluting the ownership stake of founders and early investors.

2. Unproven business model
 

Start-ups with unproven business models face unique challenges when raising funds. Without an established market presence, these Start-ups struggle to convince investors of the viability of their business model.

Another crucial challenge for Start-ups with unproven business models is the need to provide convincing evidence that their idea can generate revenue and profitability. It requires careful market research, thorough product or service testing, and a clear understanding of the target audience. Without this evidence, investors may view the Start-up as risky or untested, making it difficult to raise funds.

3. Lack of track record or history
 

Investors may be hesitant to invest in a company that does not have a proven track record of success or a clear history of generating returns. Without these, Start-ups may have limited credibility in the eyes of potential investors. It can make it more difficult to attract early-stage investors looking for a high degree of certainty and proof-of-concept before committing their capital.

Without a clear history of financial performance, establishing a realistic valuation for the Start-up and raising funds can be difficult as investors may not be ready to take on too much risk. 

4. Lack of collateral
 

Start-ups often face difficulty raising funds due to the lack of collateral, including physical or financial assets used as security against potential losses. Without collateral, lenders and investors may perceive the venture to be a high-risk, making it more challenging to raise funds.

It can limit the Start-up’s access to traditional funding sources, such as banks or venture capitalists, and result in higher interest rates and fees for those that can secure financing. 

However, IDFC FIRST Bank has the perfect solution - IDFC FIRST Wings. It provides customised solutions to support the unique needs of Start-ups at every growth stage. For instance, venture funded Start-ups can benefit from having working capital to scale up their business. They can access lending up to Rs. 5 crores without physical collateral. The lending limit and eligibility is determined based on an internal credit assessment. 

5. Long and complicated application process
 

Has this question ever occurred to you – ‘what’s the biggest challenge for most businesses when going online?’ 

One major challenge is the time-consuming and lengthy application process for raising funds, which can divert valuable resources away from core business operations. It can result in missed opportunities and slow growth, hindering the Start-up’s competitive ability in a dynamic business environment.

Fortunately, IDFC FIRST Wings offers easy documentation with its working capital solutions in the ‘growth stage.’ The minimum requirement for the number of documents needed for processing will depend on the specific context and purpose of the documentation. Click here to know more. 

6. Underestimating the amount of capital needed
 

When Start-ups underestimate the amount of capital they need, they may need more resources for raising funds for essential business aspects like marketing, hiring, or product development. It can limit the Start-up’s ability to grow and achieve its goals.

The consequences of limited resources may lead to a shorter runway for the Start-up, leading to financial difficulties and even bankruptcy. Investors may also be reluctant to fund Start-ups that have underestimated their capital needs. Instead, they would prefer Start-ups with a realistic and comprehensive understanding of their financial needs.

Underestimating capital needs can also pressure the team to achieve more with fewer resources. It can lead to burnout, high turnover rates, and a decline in morale. When a Start-up cannot provide adequate resources for its team, it may create an environment that is not conducive to success, resulting in lost opportunities and decreased productivity.

7. Stringent eligibility criteria for funding
 

Stringent eligibility criteria for funding can limit a Start-up’s ability to raise funds and achieve its goals. Start-ups may need to spend more time and resources trying to meet the eligibility criteria instead of focusing on growing the business. It can put the business at a disadvantage and cause it to fall behind. 

Additionally, strict eligibility criteria may discourage Start-ups from pursuing innovative ideas or taking risks. It can limit their creativity and willingness to experiment, thus hindering innovation.

In conclusion
 

Raising funds is a significant challenge for Start-ups, and there are several obstacles they may encounter along the way. Underestimating the capital required can lead to financial struggles and potential failure, while stringent eligibility criteria for raising funds can limit access to capital, delay growth, and reduce innovation. 

With FIRST Wings by IDFC FIRST Bank, Start-ups can overcome several challenges in raising funds and explore customised offerings, including working capital solutions, fundraising opportunities, mentorship programs and more. IDFC FIRST Bank supports businesses, so you can succeed fearlessly.  

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