Raising capital refers to establishing capital from investors or venture capital sources by any firm. When any company wants to be more extensive, it can raise additional capital. Usually, extremely small or small company capitals come from three sources- friends and family, Business Angels and venture capitalists. Medium enterprises most of the times go with debt financing, equity financing and sometimes from the government too. There are many schemes provided by the government for such enterprises which lead to improvising in the economy of India.
The methods and processes involved in raising capital for long term and medium term are listed below-
A. Issue of shares
B. Issues of debentures
C. Loan from Financial Institutions
D. Loans from commercial banks
E. Public deposits
F. Reinvestment of profits
The methods and processes involved in raising capital for short term are as follows-
Above are the most common sources of startup capital for businesses. Every entrepreneur should know the game before being willing to invest their own money and proceed towards implementing business plan.
“It’s often said, raising money is not actually a success, it’s not actually a milestone for a company and I think that’s true” - Marc Andreessen
We shall now proceed to the discussion of some of the major concerns faced by organizations in raising capital-
The current problems being faced by organizations in raising capital
One of the biggest challenges of funding is accepting rejection. Usually, the startup entrepreneurs do not end up with a good response. Investors are really not interested in startup or small-scale industries as they see very less potential.
The main trouble that small businesses face while approaching for funds is the problem of uncertainty. Usually, small businesses do not have any past record that investors or lenders can analyse to decide whether or not to provide the small business with the required fund needed for expansion.
Usually, small and medium firms have to pay a higher rate of interest in banks as compared to big and established firms. Banks and financial institutions ask for personal guarantees also.
The stock marketers tend to lay or attach little value to it because they may not have confidence in small business offers. This will make the firm to issue more number of shares which dilute the firm’s earning.
It becomes difficult for small businesses to find investors who are willing to invest. Investors are more likely to invest in bigger and more attractive firms.
Strategies to resolve the current issues
Grants by the government should be given to individuals for a specific project or purpose. There are some conditions which are to be followed for grants to be obtained.
Funds from informal network of friends and family members is often ignored as a source of fund for small and medium-sized companies if well harnessed .
Venture capitalists provide money to start-ups in the expectation of abnormally high return.