Funding is the money that every startup needs. Often, there are many questions on startup funding in India such as –
- How to raise startup funding in India?
- Who are the investors for startup business in India?
- How to attract angel investors?
- How to make a startup pitch deck?
- What are the different types of startup funding in India?
- What are the stages of startups and sources in funding?
- What are the startup funding support systems?
- Why do investors invest in startups?
Startup funding is the financial investment every company needs. It’s good for product manufacturing, product development, expansion, sales and marketing. Most startups choose not to raise funding from third parties. These are funded by the angel investors.
Why Funding is Important For Startups?
A startup requires funding for one and other purposes. It’s crucial for a businessman to raise funds for their startups. Founders maintain a detailed business and financial plan before approaching investors. There are many steps involved in it such as –
- Prototype Creation
- Product Development
- Team Hiring
- Working Capital
- Legal and consulting services
- Marketing and sales
- Raw material and equipments
- Licenses and certifications
- Office space and admin expenses
Let’s look at the types of startup funding processes
Equity Financing – It involves selling a company’s equity in return of a capital. Just a portion of it. There’s no repayment of the investment of funds. Plus, there’s no guarantee against this type of investment. Startups need to provide a portion of their ownership to the shareholders in this case. Startups are not under lesser pressure to adhere to the repayment deadline. These are the ones trying to achieve the growth targets. This is an opportunity of capital growth for the investors. Equity investors always prefer to involve themselves in various decision making processes. There are many sources in equity financing. Some of them includes –
- Families
- Self financing
- Venture capitalists
- Crowdfunding
- Incubators or Accelerators
Equity financing is one of the most common ways of startup funding in India.
Debt Financing – It’s a process of borrowing money where paying back is with interest. The funds invested are repaid within a specific time frame. That too with an interest. Financer is the lender who has no control over the operations of the business. For this, you might need to provide a business asset as a collateral. Startups must constantly adhere as per the repayment timeline. This might result in generating more cash flows for interest repayments. There’s very less involvement in decision making in debt funding. Sources of debt financing includes Banks
- Non-banking financial institutions
- Government Loan schemes
Grants – It’s a financial award that’s given by an entity to the organization. The goal is to provide an incentivized performance. There’s no repayment of the invested funds. For the financers, there’s a risk of the startup not meeting the goal. Especially, for which the grant is provided. For startups, there’s a risk of not receiving that portion of grant. It can be due to many reasons like dishonest investors.
Stages of investors for startup business in India
There are many sources of funding. But, the source must match the stage of operations in a startup. Raising funds from external sources is also a time-consuming process. It can take 6 months for conversion. Let’s look at the basic steps of startup sources and funding –
- Ideation
- Validation
- Early Traction
- Scaling
- Exit Options
Let’s see what do investors look for?
The offer of a startup must be targeting a customer problem. It must meet specific requirements. Angel investors also look for a great team. Their passion, skills and experience is evaluated. The market size along with the obtainable market share is taken into consideration. You must also display a true picture of the competitors. Plus, how you’re going to compete. Your vision, mission and goals must be clear in a startup pitch deck. No matter how good your services or product is, make sure the end-use is amazing. This must be proven in front of the angel investors. The audience, product mix and conversion must be presented to the angel investors.
Hope you’re clear on ‘How to raise funds for startups in India’.
