Entering the Indian market is filled with wonderful prospects for development, but the main stumbling block for many business people is finding adequate funding for an idea to become a viable business venture. For those who plan on exploring the techsphere, those who want to sell physical goods or want to form a company with service-based products, seeking funding will always be an important step in the process. The start-up culture has emerged in the recent past in India, but as the economy grows, more investors support start-ups and funds, like Angel Investors and Venture Capitalists, are available today. I will then review all the sources of funding for a startup business in India and different forms of funding such as bootstrapping, loans, Angel investors, Venture capitalists, Government grants and crowdfunding.
Startup Ecosystem in India
This has made India one of the best places in the globe for startups to grow at a fast rate. The stat launched some months back shows that there are now over seventy-five thousand startups in India, which have greatly enhanced innovation, employment opportunities and the economy. The Indian government has also put forward some measures to boost the startups and entrepreneurship like a program called “Startup India”. Therefore, the country has various funding opportunities depending on the development of a startup, from seed funding to growth funding. Keeping abreast with the various funding alternatives and knowing when to make use of each is an important feature that any entrepreneur should possess.
But how the funds are going to be raised will depend on the kind of development that your business firm is in. If you are in the first stage, the funding factor may be oriented on various aspects you need during the development of the product, the market investigation phase, and the introduction of the brand into the market. When you are starting a business and as the business grows you may require more capital, perhaps to expand operations, hire more people, or even to upgrade technology. In this article, we will discuss the various ways to raise funds for a new startup in India, as well as approaches, both conventional and peculiar.
1. Bootstrapping: Self-Funding Your Startup
Out-of-pocket means using one’s own money, income, or money from friends and family to fund a startup company. This is one of the most popular and easy methods of sourcing capital for a business venture, particularly during the embryonic stages of the business, when the volume of capital required may not be huge. Some of the benefits of bootstrapping include full control over your business, the liberty of making decisions on your own, and no need to part with equity to any investor.
Nonetheless, using bootstrapping means that you will not have to give up owners’ control over the business, but there are downsides to it as well. The main disadvantage is the possible financial pressure, which the use of the given service may put on your individual … While arranging funds from your pocket, there is a possibility of draining personal data in case the business does not generate good profits. In addition, growth might be a slow process if you cannot attract external capital. Hence, bootstrapping is more appropriate for small-scale industries or service-oriented start-ups that do not require heavy investments.
2. Angel Investors: Financing from Individuals
Angel financiers are those individuals of very high wealth who are willing to invest money into newcomers in exchange for both equity and debt. They are mainly existing business people or specialists in a given industry prepared to bear large amounts of risk in order to gain large amounts of profit. Apart from the financial aspect, angel investors bring business ideas to the table, practical experience and connections.
This process requires a business plan, a vision to present to the angel investors and proof of your startups growth capabilities. Unlike the traditional VCs, the angel investors finance a start-up at its early stage most often when the company still has no record of performance or earnings. Hence angel investors are likely to be more lenient than institutional investors when offering their funds. However, the trade-off is that you will need to give up a portion of your business’s equity, which may result in losing some control over decisions.
One of the key advantages of working with angel investors is the ability to receive funding quickly. Since angel investors are individual financiers, they may have a faster decision-making process compared to institutional investors. There are several angel investor networks in India, such as the Indian Angel Network (IAN) and Mumbai Angels, which help connect startups with potential investors.
3. Venture Capital (VC): Funding for High-Growth Start-ups
Venture capital or VC financing is probably the most used type of funding for start-ups with high growth prospects. VC firms generally act as financial investors, providing significant amounts of capital in exchange for an equity stake, and are commonly more interested in companies that are already creating revenue or have a very low development stage. Venture capital is the right kind of funding for startups that are already in the growth or expansion cycle and require a lot of funding to push up their growth. However, it should be realized that venture capitalists have high-risk tolerance coupled with high expected rates of return. Hence, venture capitalists look forward to exiting in about 5 to 7 years. Exit strategies include the sale of a business, merging the business with another company, and listing the business on the stock market. To gain VC funding, a startup must have a credible business model, management team, product or service that can be scaled and the ability to turn profitable.
Venture capital can take time to raise because Venture Capital firms take time to do research before they invest. However, the funds given by the vcs can also help startups to increase the pace of growth, enter the global market and acquire a competent talent pool. Major VC firms operating in India comprise Sequoia Capital, Accel Partners Company, and Tiger Global Management.
4. Crowdfunding: Raising Funds from the Public
It was defined that crowdfunding is one of the new and effective methods of financing the development of start-ups, which attracts many people to financing new initiatives, usually through the Internet. In this model, venture capitalists and friends challenge their ideas through the Internet page of crowd funding and those who like the idea of a venture contribute small cash towards the project. Consequently, the backers may be offered gifts or products before other people get them or a share in the company, depending on the type of crowd-funding model.
In India there are many websites for crowdfunding some of them are Ketto, Milaap, Wishberry etc which is applicable for different types of business category. But it would still strongly demand marketing and managing backers to make the crowdfunding go through. However, not all the projects in crowdfunding get financed and so, it is a risky strategy for the businessmen.
5. Government Schemes and Grants for New Born Startups
Several policies and schemes have been launched by the government of India for the growth of enterprising and strengthening of startups, particularly focusing on innovative technology-based and social causes organizations. As a part of its financial support, the government of India has initiated many schemes, some of which are Startup India, Mudra Yojana, Stand-Up India, Atal Innovation Mission, etc.
The Startup India plan was unveiled in 2016, offering incentives like excise duty and FDP rollback, as well as simplified instituting methods and funding. Likewise, Mudra Yojana provides microcredit for start-ups and micro enterprises in the manufacturing, trading, and services sectors. Another government initiative at AIM is somewhat similar to Idea Factory and aims to elevate innovation and assist startup firms, especially those operating in the technology and research zones.
Besides the financial assistance, the plans offered by the governments also include the concerns of having a mentor, meeting people and ensuring the honouring of the legal frameworks. These schemes are more advantages for startup companies that fulfills the criteria and in line with government policy of promoting startup companies.
6. Bank Loans and Financial Institutions
As much as bank loans are older methods of financing they still do hold their ground as a source of financing for new startups in particular. Indian Banks and other places of financial credit provide several products which makes possible to give loans to small businesses and startups. Such loans are; Working Capital Loans, Term Loans and Small Business Loans.
In order to get a loan from a bank, a startup you need to prepare: Concept and business plan with financial outlook, credit history. If one is planning to borrow a loan, then one should be ready to go through a lot of paper work and documentation till he or she is approved for the loan.
Conclusion
Venture capital funding for a startup in India is not easy; it needs to be done properly, with knowledge and guidance about the available funds and a proper business plan. Starting from bootstrapping and reinvesting profits, taking the funds from various external sources, including angel investors and VCs, or even applying for governmental grants, every type of funding is not entirely problem-free. The finance structure also depends on various factors based on the stages and needs of the business and the objectives set up to be achieved in the future.
For new entrepreneurs and also when expanding, the concept of tapping different sources of funding and getting acquainted with the sources of funding that may fund your business is crucial.
Related Service
