“An entrepreneur without funding is a musician without an instrument.”  -Robert A. Rice Jr.

Major problem faced by aspiring business owners, “idea exists but capital isn’t”.

Today’s booming startup world, though finding is seen as an obstacle numerous contemporary methods have been adopted by entrepreneurs

Recently, online lending services such as On Deck and Kabbage have become a popular alternative to traditional business loans. Speed is the advantage that these online lenders enjoy in comparison to the traditional lending methods. Starting from processing an application till issuing the funds would be done within days which is unimaginably adorable and flexible as well. In contrast, the traditional loan process can take months to complete. This technology or can be even meant as innovation has brought in a varied amount of change in business environment. Funding has been made so simple and easy through these online lenders. Hats off tot their idea and support that would have contributed a lot to the booming startup world.

Financing is no more a pain of you adopt  factoring or invoice advancing services for your business. You can sell your accounts receivables to a third party at a discount for immediate cash needs. Factoring is a methodology that Fundbox (small business cash flow Management Company) adopts frequently for its customers. Through this methodology, receivables are no more considered to be a drawback for your cash flow.

Presale is next big wave spreading among the startups. Selling your products before launch is a highly effective way to raise the money needed for financing business. Bittylab, manufacturer of air-free baby bottles benefits greatly from presales. Presales is being strongly adopted by IT and other service companies as well, where they get clients and customize their products or services as per their needs.

If you are blesses with a friend or relative who holds some spare cash and who can trust you in return, you have another potential way to finance your business. Borrowing from friends and family presents an interesting alternative to traditional forms of financing. The major advantages that one would gain through this method is no-interest payments, can stay away from bank contracts, can avoid queues and lot more.

The next method would be “double dipped”. Here comes a live example for it Problemio.com, a mobile app that guides to plan and run a business through 300,000 entrepreneurs was launched by putting in the revenue generated from Comehike.com.

Home equity loans are favorable as they are offered at comparatively low interest rates with better flexibility, though the home is under risk.

If you believe in luck then you get funded. Black & Denim was funded by winning a B-Plan contest.

To get a clear idea on startup funding, it generally has the following phases

• Angel funding
• Venture Capital
• Private equity
• Public equity

Angel funding is basically done by a group of angel funders who contributes or in better words invests their money into the startup which has just been born. The risk involved here is way too high as probability for instability is very high. The investors in this phase would also be engaged as a well-wisher or one of the board member for the start up. The funding obtained here would help the start up to initiate its activities.

The second phase would be venture capital, this stage would exist for 3 – 4 years. The risk involved in still high but less than angel investors. The funding obtained here would be help to commercialize the company’s activities and to start looking for profits.

The next phase would be private equity where the company would get into a position to own well-furnished financial statements. So, the risk habituated in this phase would be less as investors can analyze the company in terms of their statements. The investors will be able to forecast the company’s performance with a good amount of clarity.

The next phase would be public equity this is where company prefers to get listed and may opt for an IPO.

Funding & Deals

BlaBla Car, certified as Europe’s hottest startups obtained a funding of $200million. Bla-bla car has received a really appealing welcome from people as it would provide comfort at less cost to travelers.

Holachef enters the lucky list: Holachef is handpicked to be Ratan Tata’s 14th startup investment at undisclosed amount.

Amazon joins Indian startup stories: Amazon, the company that has spent more in advertisements in FY 2014 – 2015 in India has pitched its leg into Indian startup market by grabbing a minority stake around  in QwikCilver Solutions.  QwikCilver holds about 90% share of the gift-card market in the country. The company has been succeeded with 500% growth in past two years.

Infibeam to get listed: Infibeam is set to become the first e-commerce company to get listed in India. Infibeam has been approved by SEBI to raise Rs450 crore through IPO. This funding is being planned to be put in building a virtual retail marketplace “Buildabazaar and to create a cloud data center”

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A team works behind every investment plan of any company. The major work of this team would be analysing the worth of the investment that the company is planning to undertake. Capital budgeting is an interesting stream in finance. Companies adopt this stream when they prefer to take up new investments or expansion. Capital budgeting is also termed as investment appraisal.

To put in a detailed fashion, suppose a company is planning to expand the production, introduce a new plant, planning to enter a new market, expand its services, merging or acquiring etc., these investments has to be analysed to its depth to determine the profitability. This work will be done by the capital budgeting team.

How will the team analyse an investment? There are some highlighting methods to be adopted for this. One of the most commonly used tool is net present value – the team would determine or manipulate the cash inflows for further years and take that as a benchmark for analysis. We usually say, money has time value. So these determined cash flows will be converted to its present value of money. So the final value of cash inflows obtained will be compared to the cash outflow (i.e) the invesment to be made.

The next highlighting tool would be payback perid – this tool would help the team to determine the period taken to break even (i.e) the number of years to get back the investment made. Followed with it, the focus can be made on the next tool Internal rate of return (IRR). This tool would help the team to determine the minimum rate of return to be obtained to attain breakeven. So, any percentage above the IRR would lead the company to gain profits. Since major capital would be employed for these projects, proper analysis should be done to ensure the company’s profitability. So, in general the team would analyse with more than one tool to decide on an investment option.

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Quantitative Easing is a monetary policy which is unconventional in nature and by dint of which the central bank of the nations tend to increase the money supply in the economy thus lowering interest rates by buying back government securities. Financial institutions are deluged by the capital and this promotes lending and liquidity.

RBI buys and sells bonds with Government of India (GOI)  in order to stabilize the economy. If GOI wanted to reduce the fiscal deficit to be incurred due to high unplanned expenditure, then GOI would plan to sell government bonds to RBI. RBI would buy the bonds and provide money to GOI which would help the government to keep going efficiently and also to reduce the fiscal deficit.

Quantitative easing can be done with other banks and financial institutions as well. Banks may buy government bonds from RBI, which leads to reduction in money supply and lending. This would lead to increase in interest rates. Similarly, if RBI wants to increase the money supply the bonds has to be bought back by RBI from all finanicial institutions through which RBI can drop in money into the economy. Increase in money supply would lead to decrease in the interest rates and eventually decrease in inflation. But this decline will resist only for a short period of time which later will generate inflation.

Few economies in the present scenario have resorted to using QE as a pragmatic approach to  revive from the catastrophic stance which they are witnessing on account of their declining balance sheets thus lending necessary credence to the efficacy of QE. However, few governments have expressed their strong disapproval towards QE despite of the dismal economy and balance sheets which appeared lugubrious than ever. This article will draw the necessary light towards one such economy.

China

Peoples Bank of China (PBOC) has instilled a 50 basis points reduction in its lenders reserve ratio resulting in injection of 600 billion yuans into the economy. However the biggest banks of the country still have to hold 19.5% of the deposits locked up. Their lending rate is 5.6% which far exceeds the rate that most of the nations practicing quantitative easing has resort to. The main reasons underlying these reductions were the depreciating Yuan, capital outflows, deflation risk and also the economic slowdown which the nation is witnessing. These steps adopted by China have laid the cornerstone for improving the economy which demands a strong backing by a stalwart fiscal policy.

However there lies a fallacy that superficially parallels this to the QE approaches adopted by USA, Japan and Europe. The main reasons behind these could be stated as follows:

Firstly the monetary policy adopted by the nation was quantitative and regulatory in nature by agency of which they decide the amount of money supply in the nation. The unconventional gambit adopted by PBOC was their pledged supplementary lending, which however is not a potent deviation from the tools adopted by them to relend over the past two years.

Secondly, it exaggerates the monetary stimulus of the nation. The loosening process of the PBOC is to replace the cash that has paved its way out of China and not majorly to infuse new capital into the economy.

The need for QE in China has not reached its zenith mainly because conventional monetary policies still hold a firm base in the nation unlike nations who have resorted to QE. PBOC deter the use of unconventional tools for easing as the relending process espouses the notion of avoiding money slash over the economy and certitude could not be laid on the ability of the financial markets to allocate credit to the segments as desired by the policy makers. Their main aim is to prevent credit boom by lowering the credit cost of the firms needing it and thus striking a balance between outright easing and targeted easing.

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Chinese markets are highly in talk for past 2 days, just because Chinese market’s index fell unexpectedly around 30% from a 52- week high value. The unbelievable fact is that as per Street’s prediction this fall was no where nearby to China. As China was on a growing pace investors found China to be an attractive ground to play, which eventually led Chinese markets to rise by 150%. To attract better investments and to enrich the economy China reduced interest rates almost 4 times in the same year. This was identified to be the major reason for the unexpected fall of Chinese markets. Other major contributing reason is that brokerages bought shares worth billions of dollars and also almost 28 companies has planned to enter IPOs in a couple of months. Though Government has taken its best possible way to manage the markets, it didn’t work and so investors were not happy as well.

Street says that defensive shares are more in Indian market than Chinese markets. Defensive stocks include FMCG, pharma, infotech and health care which sums up to be 31% in India compared to 20.8% in China. But, cyclical stocks are more in China than India. China being a major player in commodity market, showed a major decline in copper prices and oil prices as well.

China being a large manufacturing hub, fall in Chinese markets would affect international trade. Production process in China may get interrupted which reduces the imports done by China as well as the exports. So countries involved in international trade with China would get affected in terms of supply and receive basis.

But the positive point towards Chinese issues is that investors may now find China to be risky which may eventually lead to withdraw money from China and to invest in emerging markets. India being the attractive one among the emerging markets investments may flow into India which would contribute to a rise in FDI and FIIs. So, Chinese crisis may affect India in terms of positive and negative terms.

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Exchange rate regimes are methods adopted by a country’s authority to value their currency with respect to other currencies in foreign exchange market. Exchange rate regimes includes various different methods which can be adopted by countries based on their macroeconomic stability and performance. Countries can have one or more exchange rate which will be mentioned as unitary or multiple respectively.

The most common regime is floating exchange rate. Under this methodology, country’s currency will be decided by the market forces (i.e.) in terms of demand and supply. Some examples of floating exchange rate is dollar, British pound, euro , yen etc. Managed float regime is same as floating rate regime but with the intervention of central bank. In both floating rate regime and managed float regime fluctuation in exchange rate happens every day, but in managed float regime central bank steps in to keep the deviation under a range by buying and selling their currencies. By 2014, 82 countries used managed float.

Fixed exchange rate is that the value of currency with respect to other currency or to a basket of currency remains the same. Example: China. Fixed exchange currency can be adopted if the macroeconomic performance is stable.

Crawling bands is a methodology in which the value of the currency is allowed to deviate within a range around the central value. Other methodology called as conventional peg which pegs the domestic currency with either other currency or to a basket of currencies. Central banks intervene either directly or indirectly to ensure the pegged rate doesn’t get fluctuated beyond ±1.

If the exchange rates are fixed or almost fixed it falls under the category of hard peg and similarly if the exchange rate is fluctuation it is categorized as soft peg (i.e.) soft pegs are comparatively flexible. These are some of the exchange rate regimes followed by country’s to manage their currency’s value.

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“Bitcoins – Bit + coins”, bit electronically represents digits, coins represents currency. So the term as a whole can be interpreted as digital currency. Image making purchases with virtual currencies, such a scenario is no way far from today. In fact it is already in existence outside India. Merchants prefer them, as the commission incurred is less than credit cards. They are implemented only for electronic purchases as of now. Facility to transfer bitcoins is also into existence.

How it works?

Bitcoins are not managed by any force, in other words “decentralized”. Every transaction will be recorded as a transaction log in a database, named as block chain. Block chain holds the details regarding transactions of every single bitcoin. Block chain will be regularly monitored by employees designated as “miners”. Miners verify, correct and update the transactions. Miners also ensure security and confidentiality for the data transacted.

Bit coins are produced by mining. 1.5billion+ bitcoins are in circulation till today. They are highly volatile and traded like any other foreign exchange currency. Speculators as usual buy bitcoins at lower price and see profits by selling at higher price. Bit coins are volatile as they lack liquidity and they are generated in a very limited numbers.

Say user A has to transfer bitcoins to user B. Every user will register with an address to buy and sell bitcoins. Once user A transfers it to user B, block chain will be updated by the ownership of bitcoins shifted to user B’s address. Every bitcoin user should hold a “bitcoin wallet” which can be obtained in laptop, mobiles, online etc.  So, a transaction is transferring bitcoins between bitcoin wallet. Every transaction will be initiated only after a mathematical proof is obtained from the sender. The mathematical proof verifies the sender’s address which is similar to a private key in cryptography. Also, bitcoins are ensured that they are safe and secure on their way to receiver’s wallet. Bitcoins are on its way to revolve ecommerce soon.

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“Greece Crisis” is a frequent term that that is seen and heard around us. Though, Greece is heard popularly these days, problems emanated towards Greece long ago. The main factor that contributed towards Greece crisis is unemployment. In 2013, unemployment rate was 28%. The unemployment rate created a scenario of difficulty in levying tax from the population. This eventually led to reduction in tax revenues to the government.

Greece if it would have chosen drachma as its currency rather than falling under euro, it could have printed currencies to cover up its debt though that would have declined its value terrible in the global market. But, at the end of the day it’s debt would have reduced which brings in a situation to focus on improving the country’s scenario.

Tax rate was 42% at which Greece was levying its taxes and Vat was almost 23%, this led the government to collect tax from public. So, government has no other go other than restructuring its debts which eventually led the debt burden to reach 177% of GDP.  Greece obtained bailout money which made people question where did the money disappear? But though Greece utilized the bailout money to pay back its debt it still was not able fulfill the debt underlying and so the bailout money was not even brought into economy.

Greece has failed to repay its loans to IMF on Tuesday which was about $1.7 billion. In general financial terms this incident meant to be “default” though IMF treated it as an arrear. Greece also owes 3.5billion to European Central bank, the condition of this debt will be known in July.

How will India be affected due to Greece crisis? Though direct impact is not expected, indirectly companies that exports to Greece would experience a hit. Companies like Tata Steel, Tata motors, Cox & Kings exports a major part to Greece. Also, if Greece decides to move from Euro zone then that may have a impact on euro which may lead to capital outflow in India. Policies are being designed by RBI and GOI to face the consequences that are on its way.

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Companies may frequently raise capital for various reasons say expansion, to merge or acquire other company, to meet standards and still more. Today’s business environment influences a force to bring in innovative and fresh methodologies to raise capital rather than using old methodologies. The new and innovative methods provide better efficiency in raising capital with comparatively less efforts and cost incurred. Lets see some methods that are becoming familiar among corporate now a days.

Private Placement – A methodology being very familiarly implemented by major corporate also meant as non – public offering. The securities under this methodology will be sold only to a chosen set of investors (i.e) securities will not be open for public. Private placements are experienced to be cheaper compared to public offering in case of capital sourcing.  334 companies have opted to implement private placement in the FY15 which ended up with generation of  Rs.4.32 lakh crore almost 60% more than previous year.

Private investment in Public entity (PIPE) is a category of private placement where a public company’s securities are sold to private entities.  In this methodology, either a private company or a mutual fund or investors will help the public company to raise capital by purchasing their stocks at a discounted rate from the current market price.

Next methodology being preferred recently is Employee Stock Ownership Plan (ESOP). This ESOP is considered to be one of the highly innovative strategies where ownership interest is distributed among the employees. Stock’s ownership will be transferred to the employees as a part of their remuneration. The stocks can then be sold after an employee leaves the job. This methodology brings in a motivation among workforce. Major shares will be distributed among the top management, which provides them authenticity to involve in decision making.

These capital raising methodologies are being monitored by Securities exchange board of India (SEBI). SEBI keeps eye on every capital raising events and companies has to gain SEBI’s permission to raise a capital beyond a particular limit. SEBI also frequently come out with regulations to ensure qualified sources of capital.

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Real effective exchange rate is released by RBI on monthly basis, which is determined to be a valuation for Indian currency in terms of other foreign currencies. REER value is determined in terms of consumer price index (CPI) and whole sale price (WPI). But by 2014, India has decided to evaluate the REER only in terms of CPI.Current CPI evaluation of India indicates the differences that occur in inflation for every period that would be held as a foundation to calculate REER effectively. REER helps an economy to decide on its competitiveness in terms of other currencies. REER will be usually evaluated in terms of 6 currency basket and 36 currency baskets also in trade weighted and export weighted methodology.

Now let us see now REER can be interpreted as – Say for example REER is 107%, it means that Rupee is overvalued by 7% (i.e) if USD/INR rate is Rs.64, its original value would be 7% less than the spot value somewhere around Rs.68 (approximately). Similarly, if REER is evaluated to be 95% it means that rupee is undervalued by 5% so a fair chance exist for the USD/INR value to reduce by 5%. REER is generally calculated with the exchange rate and CPI values of both the currencies that occur in currency pair. USD/INR = Rs.64 is a currency pair where USD is the base currency and INR is the dependent currency which represents 1 USD = 64INR.

With reference to REER economy’s movements can be predicted, say for example if RBI releases REER value to be around 95% which means that rupee value would appreciate and dollar depreciates, though it is good to Indian economy foreign investors would face a bad luck which may lead them to withdraw money from Indian economy as a step towards prevention. Also undervaluation of currency would flash a ray of bad luck to exporters as their return would decrease but an enlighten factor for importers as they can expect the rate to become flexible. If REER is estimated to be 100% it literally means that spot price is evaluated properly and USD/INR deserves the current market price.

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In recent decades, real estate has experienced an unimaginable boom in India which was even recognised globally. Real estate is proved to hold second highest employer which is supposed to grow by 30% in upcoming years, succeeded by agriculture at its lead position. Real estate can be segmented into 4 slices – retail, housing, commercial and hospitality. Real estate will retain its kick until the thirst for space exists in the country. The thirst is researched to be more in corporate where demand survives for office space. Research has also claimed that NRIs would be a major source of investments in real estate. It is now being believed that land and gold are investments with good returns. Real estate in India is projected to reach $180 billion by 2020 with a CAGR of 11.2%. Housing segment alone contributed around 6% of last year’s GDP.

In such a booming scenario, individuals consider real estate to be considered to be a preferable investment in India. Individuals generally choose to go for housing loans which would also provide tax benefits. Construction of new house, modifying existing house can be funded through housing loans. But buying plots are more in number than building homes. Even people prefer buying plots in bulk and would either wish to sell it in individual or would even prefer to build apartments in near future. So, in such scenarios land loans can be opted.

Land loans are preferred when a vacant plot has to be bought, which holds same interest rates and procedures though some minute differences exist. Individuals can even opt for land loan to buy vacant plot and then go for housing loan in near future to build their dream homes, though a stipulated period will be mentioned by most of Indian banks. Land loan can be obtained to a cap of 70% of plot value while home loans can be obtained upto a cap of 80 – 85% of asset value. Major drawback is that one can never claim tax benefit from land loan and also tenure is allowed to be 15 years whereas for home loan it is allowed upto 30 years.

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