#3 Startup Funding

Startup Funding

How many ways can you borrow in Business? Bonds, Debenture, CD & Commercial paper

Your business is set and you need money to expand it

How will you get that money?

you have 2-3 options. 1. You go to investors who do less valuation of your company

Due to which you have to give more share of your company

You disagree to this and come back home

Next thing that comes to your mind is IPO

You have to give more shares of your company to public in that

You again disagree to it as you have trust in your business model

And you think that “value of my company is really more”

“my company’s potential is high” and due to which you don’t get agree in that valuation

So here only one thing is left, i.e, DEBT

If we understand in terms of simple hindi,it means to “borrow something”

Here there are 3-4 ways, first is “loan”

You go to bank and say that you need money

When bank sees your proposal they say that it is very risky

So they deny to invest

Inshort,they don’t give loan to you

Next is he goes to his friends and asked him for some amount of money

You try to get it from them but as the amount is very large you don’t get it from there

So now you take help of share market to get money

We call this as DEBT

First thing that comes here is BOND. So what is bond?

Bond is a kind of loan in which you take loan from someone in return of specic return

Like you take loan of Rs.100 and promise to return 10% of it,so at year end you return him Rs.10. This is BOND

Bond is basically secure as there are boundations on it made by Govt

Those companies whose credit rating is less can give bond

Next thing is Debenture. Now what is it? It is also a type of bond but here security is less

If some company gets diluted then first bond ones get money and then the debentures one

Debentures ones are also liable but first bond ones gets money

In debetures,there is more return than bond

In bond where you get 7-8%,in debentures it is even 25-30% as well

But keep one thing in mind. More the return,more is the risk

You can buy debentures worth Rs.10 also,you will get debentures of many companies in the market

But for bond you have to do investment initially atleast of 5K

If you go to sell bond,you can make a loss

But in debentures you normally make profit

While you are going to sell your bond worth 5K,why that person will buy? You are giving only 7-8% return on that

He would rather say to invest in FD. That is why,good investors don’t take bond

Bonds are taken just for security

One more thing is here,i.e. Cerificate of Deposit,It is a kind of FD but unlike FD in which you get loan against it,you will not get loan against CD

Next is Commercial Paper. It is also a type of loan but minimum amount here is 5 lakh

Return on investment is high but initial investment is very high

So in share market you will see people buying and selling debentures

Whenever we talk about debt in share market,it is debentures only

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