Funding mechanism for a startup

Syed Rabius Shams

Money begets money and the simple math is that if you have money, you can use it to get more money
through investment. Your intellect will kindle money or your great endeavour will bring money. Let's
poke the query when all's said and done.

Zahirul Hasan, a Bachelor graduate in Accounting from the Rajbari Govt College, is keen to run a startup.
He doesn't yet find any idea, nor does he has the financial capability to set up a venture. Zahirul's
determination pushes him all day long for what to do, how to do and how to manage the investment.
Whereas, his parents interest is that he should be a career banker instead of doing business. So, Zahirul
faces double dilemma i.e. lack of finance and family's concern.

Nijhum Zamen, a first-year honours student at the Kushtia Islamic University, wishes to do something
with her own creativity. She participated in a training session from the Design Corner of Bangladesh
Small and Cottage Industries Corporation (BSCIC) to start a boutique shop of her own choice during her
university admission while living in Dhaka. Nijhum wanted to do something parallel to her study. Though
Nijhum's parent is willing to give her the mental support but they are not in a position to finance for her
business. She is a bit stuck now to move forward due to lack of capital for running a startup like a small
ladies' cloth shop near by the campus area.

Shuvo Karmokar is the Chief Executive Officer of a startup named Gitanjon Production and Event
Solution. He with three of his friends is dedicated to establishing their venture. They are facing scarcity
of finance for expanding their business. Asked why they need money for their business expansion, Shuvo
replied that since clients want smartness and lucrative presentation, they needed investment. They also
need finance for business cards, company profile, client's lists, a dynamic website, social media site and a
full-fledged studio, he added. Gitanjon already conducted some events including arranging some wedding
ceremonies, photography sessions, some music videos and AVs etc. Shuvo realises that if he could
arrange for some investment, he could run his startup smoothly. These types of requirements are basically
needed in almost all cases in their earlier stages of venturing business.

So, we see that raising investment for a startup is one of the greatest hurdles to starting a business. Since
money makes the business go, not only Zahirul, Nijhum and Shuvo but also every entrepreneur is worried
about the initial stage of their startup. In our country perspective, funding is the greatest challenge for
entrepreneurs rather than other countries, although funding seldom determines the success of a venture. In
a research, carried out among 1,270 young people in Bangladesh who have at least one university degree,
more than 42% participants reported the lack of fund as the major reason for not being able to start a
venture. Frankly speaking, there is no solid funding mechanism in Bangladesh for early stage startups.
The self-serving early stage financial platform is the first step towards augmenting the startup funding
scene.

You may have heard about debt (a straight loan) where the lender gets an interest rate and fees, whereas
equity is where the money raised gives the investor an ownership interest. This is common in the sale of
stock to a limited number of investors or participation by venture capitalists. Some may prescribe for
bank loans. Nonetheless, usually, banks provide loans only to businesses with operating histories. My
suggestion is, you shouldn't try going to a bank to get it when you've just started a business. John Marder,
by profession a banker, said one of the worst mistakes you can make is to ask for more money than you
can afford to repay. In this stage, let's have some taste of alternatives, strategies and things to think about
in your search for a financial rally round. There are some entities' initiatives in the country that serve for
funding or for raising equity.

Let's see who they are and how they go about finding the money to make the startup work.
EMK Center (Edward M. Kennedy Center for Public Service) is a partnership between the Liberation
War Museum, Bangladesh and the American Center of U.S. Embassy Dhaka. The Centre sponsors a series
of startup events that encourage students and fresh graduates to come up with new business innovation. It
aspires to see many of them to come out as successful business entities and encourage other potential
start-ups to come forward and establish themselves. The EMK Center seeks online application with the
name 'talent hunt' for innovative ideas and after subsequent scrutiny the authority judges for auspices
and/or partnerships.

Pujee is a social venture which believes that with an evolving startup ecosystem future growth of
Bangladeshi startups depends on access to finance and peripheral support services. It envisions a dynamic
ecosystem with increasing participation of Venture Capital (VC) firms, angel investors and other equity-
based funding sources that support entrepreneurs in raising funds. The venture also believes in the
democratisation of tools, knowledge and information for facilitating effective fundraising - especially for
entrepreneurs without necessary technical savvy. pujeebd.org is an alliance of some startups where the
key initiator is LightCastle Partners supported by the EMK Center.

Shetu is a platform where it brings the startup idea, passion and commitment to reality. The podium is
guided through a rigorous validation process coupled with access to the right resources assisting
transforming the startup idea into a great business. Toru is an 'Innovation Hub' that facilitates the
transformation of game-changing ideas into impactful solutions for greater social and economic inclusion.
It encourages social innovations through entrepreneurship and ensures social equity. The idea tree
nurtures promising ideas into prototypes by integrating market insights and design development,
ultimately creating a product or service that is beneficial to the entrepreneurial ecosystem.

Let's see some other funding mechanisms that exist to support fundraising or investment:

Angel Investor: An angel investor, also known as a business angel or informal investor or angel funder or
private investor or seed investor, is an affluent individual who provides capital for a business startup,
usually in exchange for convertible debt or ownership equity. Venture Capital: Venture capital (VC) is
gradually gaining momentum in Bangladesh with huge potential to accumulate in the fund for
entrepreneurship development. It is an alternative method of financing for enterprises that do not qualify
for bank loans or financing by financial institutions (non-banking). There are several VC firms in the
country, namely BD Venture Limited, Bangladesh Venture Capital Limited (BVCL), Venture Investment
Partners Bangladesh Limited (VIPB), SEAF Bangladesh Ventures and US-based Fenox Venture Capital
etc. These firms help startup entrepreneurs to reach their full potential and fulfil their dreams through co-
financing, mentoring and partnering in their earlier stage. Usually, VC provides finance and technical
support to enterprises to prop up their growth by participating in some sort of shareholder in the venture.

Crowdfunding: The crowdfunding mechanism which is the newest of its kind in Bangladesh to tap into
this market aims to empower ideas and help the creative community, entrepreneurs and makers of all sorts
to make their ideas happen through raising funds in a collective way. Projekt.co is a crowdfunding
platform in the country that gives innovators, artists and changemakers the opportunity to raise funds
from their friends, family and awe-inspiring projekt.co community for a project they want to create.
Crowdfunding Bangladesh, Crowdfunding Association of Bangladesh and Crowdfunding Soft are some
of the Crowdfunding Facebook groups who work in fundraising for various issues for promoting startups.

Government Initiatives: There are several government initiatives for funding for small and medium
enterprises in the country. Among those, Innovation Fund of Access to Information (a2i) Programme,
Prime Minister's Office, ICT Division, Bangladesh Bank Equity and Entrepreneurship Fund (EEF) are to
be highlighted. There is some other funding mechanism and these are for larger entities not suitable for
startups. For instance, bartering, which is to exchange one commodity for another, can provide a source of
financing. Some company does merger and acquisition, strategic alliances for overcoming financial
scarcity.

Networking:
Networking an event sounds good initiative for knowledge sharing and getting the financial franchise.
Networking Night, recently initiated by Hubdhaka, is an inventiveness entirely dedicated to networking
which is first ever gala of its kind in the county. Although connections are what take you to places and
help you to achieve your goals but making connections is hard work. It requires lots of hustle. Hence, an
event like Networking Night is a perfect place for startups, freelancers and entrepreneurs to get to know
each and create opportunities for future collaboration. Drink Entrepreneurs Dhaka, Dhaka Toastmaster
Club and Soul Sisters (female only) arrange monthly basis get-togethers where there is a lot of scope of
the business expanding hub. Attending these types of networking would surely boost up a milieu for
funding.

One thing must be kept in mind that before going for fundraising, one has to have a pitch deck. Since
investors will ask you various questions, the pitch will help you a lot in answering those queries. And
financier or investor will see whether the business is at present in operation and be generating revenue
though it may small scale. However, In relation to this, my first recommendation is that personal savings
should be considered the primary source of funds for starting a business. If you haven't started already,
start now to begin accumulating investment through personal or friends and family (F&F) savings and
then think for a startup. Sometimes such a discussion arises with F&Fs who want to be your partners.
Consider this first because it will increase the value of the business and will get a trusted support.

The Writer is a freelance Journalist, CEO of NewsfeedPR and a fellow alumnus of International
Exchange Alumni of U.S. Department of State. He can be reached at: radiadhk@gmail.com