Month: July 2016

4 things you need to know before you invest in Startups

4For small-business entrepreneurs startup is a very popular model to follow. Many do not have the privilege to gain money form big sources. So, they often have to depend on closed ones for the funding. This is why, if you are choosing a startup option you must be careful about certain things. First of all startup is a risky business. It is highly important to have total understanding of the risks involved with the enterprise. You should also have backup plans for mitigation if anything goes wrong. Let us discuss four important things to remember before getting into startup business.

  1. Consider the high failure rate

According to a reliable survey around 50 per cent of new startups fail within their first five years. You might not find any science to calculate the cause of this failure. This is because there is a huge amount of uncertainties involved in this business. The top three can be listed as less market demand, cash flow crisis and not working with the right team. To avoid it you should take help from an experienced investor.

  1. Comprehend the structure

Before making investment you must comprehend the structure of your business. You should find out the liabilities and your source of profits. If you see the level of liabilities is higher than that of profits, you better rethink about starting the business.

  1. Long time waiting for returns

There is a chance that you might have to wait longer than usual to see profit in your business. This is difficult to explain as so many variables work in this part.

  1. Have planning of exit strategy

This is important because once you start the business you might not be able to quit in the middle of it as you might start getting dividends despite success.

So, you should keep the above points in mind before starting a startup.

Taxation Worldwide (which country attract most foreign investments)

3In the world of trades across the borders taxation plays a huge role. All countries have their distinctive taxation policies. It comes in the form of various methodologies, such as corporate tax, individual income tax, payroll tax and sales tax which includes VAT and GST. These taxes are more or less applicable in most countries. However, worldwide taxation rate has an impact on the investments made in the country. We see government often relaxes taxes at borders so that foreign investors get encouraged to do business. Foreign investment has profound impact on a country’s GDP.

Taxation is a necessity for earning currency for the government. To run and develop the country the government needs a huge funding each ear. It files a yearly spending and earning budget every year. A huge chunk of money of this budget comes from various forms of taxations. But countries across the globe consider socio-economic reality while setting tax rates. The developed countries tend to impose heavier tax on its people, because there people have higher per capita income. On the other hand, in developing countries the governments try to keep the tax rates at a tolerable rate so that people find it convenient to carry on their businesses. Export and import duties and tariffs also play an important role in this matter.

The country that have flexible export and import duty rates encourage more foreign investment. However, to attract most foreign investment a country needs to fulfill certain conditions. It has to ensure a stable political environment. It also has to ensure a growing economy with low wage rate. It has to have plenty of skilled, semi-skilled and low skilled working people. In this case, a report published by Ernst & Young, ranked India as the most attractive investment market. 32 per cent international investors rated it thus in the year 2015.

What is a pre-money and post-money valuation?

2Post-money and pre-money valuation concepts are fundament concepts of financing of companies. Here valuation means how much the company worth. Both concepts are important because it has to do with how much your company need to sell in case of equity financing, meaning the shares you need to sell to raise money from the investors. The concept of pre-money and post-money valuation has to do with how much my company worth before funding and how much the company worth after funding.

So pre-money is going to be one thing and post-money valuation is going to be the other. Time separates the both states. Let us put it this way, the field of business is always busy with buying and selling stuffs. In terms of putting shares of the company in the stock market, this buying and selling happen constantly. Now, pre-money valuation clearly indicates the company’s total value before it puts its share in the share market to get money from investors.

For example, you might have a company which worth $1 million before you put its share up in the share market for raising fund. This state is indicated by pre-money valuation system. Suppose, you have managed to raise $500 thousand by selling shares. Now the worth of your company stands at $1.5 million which is $500 thousand more than previous value. In this case the shareholders would have 33% share of the company.

Again, if you can manage to raise $1 million from the shareholders by putting the shares of the company on share market, the total value of the company would be in total $2 million. That is the post-money valuation. In this particular case you are owning 50% of the company. This is the basic idea of pre-money and post-money valuation.

What is the “lean canvas model”

"lean canvas model"Lean canvas model is generally refers to a business model that is a very smart and elaborate one. It does not look like traditional business model with more detailed discussion. Instead, it is one of the simplest ones that touches on the most basic business components. It helps you understand your business at the beginning level. You reflect each part of your business through this model and have clear understanding as to how your business is going to look like. We have to remember this model is for particularly for the startups. The model gets even bigger and more convoluted as the business develops over a certain period of time.

Lean canvas business model has basically nine components where you put your put your basic business ideas and information. In other words, in each part you reflect your concept of your business. It is like the initial sketch of the business. Let us discuss each of the nine boxes that carries specific business strategies.

Box number one contains Customer Segment where you have to mention your target customer. It also has Early Adopter option where you mention the name of your basic customer base. The second box has two blanks to be filled in i.e. Problem and Existing Alternatives. You can put mention the product alternatives in the latter box. In the third box you need to mention Unique Value Proposition which can declare the moto of the company that would trigger your customers to make buying decision. Number four and five contain Solution and Channels. In box number six you need to mention Revenue Streams, meaning the sources of your revenue. Box number seven requires information regarding cost structure. Box number eight and nine has Key Metric an Unfair Advantage.

This is not the entire business plan, rather just a bunch of assumption as to what you think what your business would be.

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