Budding Entrepreneurs: First get a right business plan
21 November, 2011
You got a game-changing idea, have necessary skills and what's more, you even have some seed money. However, if you are still struggling to raise a single paisa for your venture, it is time you better check before your next move.
FIRST AND forecast is to check whether you have got the right business plan. Many-a-times budding entrepreneurs have ideas but don’t have a proper business plan. I recently came across a young technopreneur with game changing ideas, which even got recognition from his state government. He had even applied for patent registration and already had a proto-type ready at hand. He wished to pitch with a VC but didn’t have a business plan. On my suggestion, he developed a business plan and shared the same with me before sending to VC. His business plan talked lot about the technical aspects of the innovation as well as the investment needs. However, he forgot to mention about the Income i.e. Sales and he expected a VC to invest one million rupees in his project.
Deciding about a Bank loan and a VC fund
Most of the times budding entrepreneurs, who have a good business plan in hand, hope to get an opportunity to pitch the same with an Angel investor or a VC. Majority of them think that raising a VC fund is much easier than raising loan from a bank. In all likelihood they have never been to a bank. Many of them even don’t know the difference between a bank loan and VC funding. The financing options are mainly Debt Financing & Equity Financing, and both of them have advantages and disadvantages for budding entrepreneurs. Bank loan is debt financing and VCs provide equity financing. Debt financing is the money borrowed from a commercial bank and is to be paid back with interest. Equity financing is the money lent in exchange for ownership of the company.
Requirements: Borrower needs to show the bank that he would be able to invest seed money and the project would be able to generate sufficient profits. Borrower must demonstrate to the VC that company is in high growth industry and there is potential to produce a large return on investment. Commercial Bank asks for collateral and or personal guarantor while VCs don’t ask for collaterals but they have a bad way of interfering.
Does your Business Plan attract a Government Scheme?
In order to boost entrepreneurs, government has funding, subsidy and other attractive schemes for various sectors. It is important to check if your business idea can attract any such scheme. My advice to budding entrepreneurs with great ideas who are chasing VCs for long time with no success would be to make a viable project first. Find out the government schemes, meet the nearest bank manager and see if he can consider the proposal under CGTMSE scheme.
Most of the times budding entrepreneurs, who have a good business plan in hand, hope to get an opportunity to pitch the same with an Angel investor or a VC. Majority of them think that raising a VC fund is much easier than raising loan from a bank. In all likelihood they have never been to a bank. Many of them even don’t know the difference between a bank loan and VC funding. The financing options are mainly Debt Financing & Equity Financing, and both of them have advantages and disadvantages for budding entrepreneurs. Bank loan is debt financing and VCs provide equity financing. Debt financing is the money borrowed from a commercial bank and is to be paid back with interest. Equity financing is the money lent in exchange for ownership of the company.
Requirements: Borrower needs to show the bank that he would be able to invest seed money and the project would be able to generate sufficient profits. Borrower must demonstrate to the VC that company is in high growth industry and there is potential to produce a large return on investment. Commercial Bank asks for collateral and or personal guarantor while VCs don’t ask for collaterals but they have a bad way of interfering.
Does your Business Plan attract a Government Scheme?
In order to boost entrepreneurs, government has funding, subsidy and other attractive schemes for various sectors. It is important to check if your business idea can attract any such scheme. My advice to budding entrepreneurs with great ideas who are chasing VCs for long time with no success would be to make a viable project first. Find out the government schemes, meet the nearest bank manager and see if he can consider the proposal under CGTMSE scheme.
About The Author
Mr. Raj K Pathak has been passionately promoting entrepreneurship through various media platforms for over two decades and is well known for conceptualizing and producing India's first Television show titled BUSINESS MANTRA for small business and entrepreneurship.
Connect with the columnist: pathak560@gmail.com
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