How do you, as a startup can, get funding? 12 easy options for startup funding.

How do you, as a startup can, get funding? 12 easy options for startup funding.

With numerous tech firms going public and roughly 42 companies becoming unicorns in 2021, India’s startup ecosystem has come a long way. According to the Indian Tech Startup Fundraising Report 2021 published by Inc42, Indian entrepreneurs raised $42 billion in cash over 1,583 deals in 2021, with 2,487 different investors participating in startup funding. Software-as-a-service (SaaS), e-commerce, financial services, and consumer services all got a lot of money.

Indian companies raised $116 billion in investment between 2014 and the end of January 2022.

This shift is also reflected in India’s social environment. Shark Tank India, a reality show in which entrepreneurs pitch their businesses to real-life investors (dubbed “sharks”), has captivated audiences. As you can see, obtaining startup capital from a shark necessitates being proactive in selling your idea, whether through a prototype or a strong business plan. 

The most common funding sources are venture capitalists, angel investors, banks, and other financial institutions. On the other hand, few firms choose to self-fund at first and then seek outside capital as they grow.

Startup fundraising raises funds to cover a company’s operating expenses, such as product development, marketing, office space, and inventory. In later stages, a company may seek funding to launch a product, expand into new markets, or go public.

Bootstrapping is the first step. As your company expands, you’ll need money for operations, expansion, marketing, and production.

In the first stage, you seek seed funding from angel investors, then comes venture capitalists, and finally, an initial public offering for your company, depending on the location of your company and its profit potential (IPO).

The three sources of startup funding available are Equity, debt, and government subsidies. Each funding type has its advantages and disadvantages, but they are equally effective and essential. Let’s get to know more with an example; Equity finance has no payback requirements, but it can be considered the most expensive type of financing as it requires you to give up a stake in your company. 

The startup funding ecosystem has moved beyond angel investors and venture capitalists. Depending on their needs and stage, startups can raise funding from various investors and locations. This article will look at 12 different ways to fund a firm.

What is a Startup?

A startup is a company that is still in the early stages of growth. One or more entrepreneurs form a startup to provide a product or service for which they believe there is a market. 

A startup is just a new firm that has recently been established. However, several business schools worldwide have developed a new academic definition of a startup in the last five years.

According to the report, a startup is “a transient company established to look for a repeatable and scalable business model,” according to the report. “A permanent organization designed to carry out a repeatable and scalable business model,” on the other hand, is what a firm is.

As a result, startups are looking for a compelling business model, whereas businesses have one and are focused on successfully implementing it. This divide influences the nature and requirements of both types of organizations.

The founders’ goal is to build a dedicated co-founder team with the essential skills and competencies to test the initial problem/solution fit and product/market fit before developing the company into a substantial company and self-sustaining enterprise.

So, in addition to the innovation process itself, from idea to value-generating product and business model, startups also require a dedicated and robust founding team, which must develop into a real growing business and organization that captures the value created as a great company.

A great company is an autonomous entity that is no longer reliant on any single person or organization and in which all necessary knowledge, values, strategies, intellectual property, and other intellectual property are permanently embedded in its existence, allowing it to operate, improve, and build value for customers, shareholders, and other critical stakeholders while remaining financially stable thanks to the value of the solutions and products it creates.

What are the many types of startup funding, and which businesses require it?

Finding startup capital may appear to be a fruitless and dismal endeavour. With the appropriate expertise, though, you can look in the suitable locations for the right kind of money – and bring your startup to the exact spot it needs to be.

There are many different sorts of startup funding available. While each source of fundraising will yield you money, no two are alike. When reading the following descriptions, consider your existing situation to determine which sort of startup finance is the most excellent fit for you.

Angel Investors

Angel investors are those who make investments in small businesses.

Individuals or groups of individuals with significant experiences are known as angel investors. The majority of them are experienced business owners who have started a firm. They are aware of the issues as well as the opportunities.

These are cash-rich investors willing to put their money into your startup at the seed stage. They screen the startup, conduct research, and determine how much the entrepreneur has invested before investing. Once they are convinced, they provide funding in exchange for convertible debt or equity participation in your firm.

Angel investors mentor young entrepreneurs. They do, however, invest less than venture capitalists and anticipate more significant returns. Kunal Shah, Rajan Anandan, and Ritesh Malik are well-known individual investors.

Angel investors invest in a wide range of sectors. According to the University of New Hampshire’s Centre for Venture Research, angel-funded enterprises were in the seed and startup stage for the first time in several years in 2020. The overall amount invested was $25.3 billion, up 6% from the previous year.

Having an angel investor means you won’t have to repay the funds because you’re granting ownership shares in exchange for money. Angel funding is often reserved for enterprises that have progressed past the startup stage. These businesses have shown potential in terms of profits, but they still require funding to develop new items or expand. Because an angel’s money is on the line, they may be more willing to mentor or invest directly in your business.

Platforms & Angel Networks

Through angel networks and platforms, angel investors pool their funds to invest in enterprises. Because they function as a group, these investors may provide more considerable sums and control risks. The platform is given stock in the company and is rewarded if it succeeds.

Some of the most well-known sites include AngelList, Venture Catalysts, and LetsVenture.

Funds for Venture Capital

A venture capital fund is a financial institution that invests in new businesses with a good chance of succeeding. This is when a company’s funding proceeds to the next stage. As an institution, venture capital funds invest vast sums of money in a company’s growth and expansion while continuously monitoring its progress to ensure that its investment yields long-term returns.

Venture capital funds receive shares or equity-linked securities from entrepreneurs in exchange for funding. Micro VCs invest in early-stage firms in exchange for a piece of the company’s stock.

Micro-venture capitalists

Micro VCs are venture capital firms with fund sizes ranging from $60 million to $70 million. Micro VCs invest in early-stage firms in exchange for a piece of the company’s stock.

Venture Capital for Corporations

Another sort of VC is corporate venture capital (CVC). CVCs are giant multinational corporations that invest corporate funds in young, innovative startups for various reasons, including technology, talent pool, and market acquisition.

CVCs assist businesses with resources such as marketing expertise, strategic advice, or a line of credit. Being associated with well-known brands might help a business in gaining traction.

CVC invests money in exchange for a piece of the company’s ownership. Indian CVCs include Mahindra Partners, Reliance Ventures, and Times Group’s Brand Capital.

Small businesses often submit many applications to venture capital firms, making it difficult to garner their attention. Getting a referral from a financial professional is the best way. You should see a banker, lawyer, certified public accountant (CPA), or another financial expert. One of these professionals will almost certainly be able to recommend you. Some venture capital firms specialize in a single geographic region or one or two businesses. This is something that your financial advisor can help you with.

Funds that invest in venture debt

For entrepreneurs, Equity is a costly source of finance. As a result, non-banking financial companies (NBFCs) provide debt funding to VC-backed startups under a hybrid scheme known as venture debt funds.

Grants & Funds from the Government

When the Indian government established the ‘Startup India programme in 2016, funding for Indian businesses expanded beyond angel investors and venture capitalists. Startups that register for the programme are eligible for subsidies such as an 80% discount on patent costs and a three-year income tax exemption.

The government disburses the funds as loans through the Small Industries Development Bank of India (SIDBI) Fund of Funds Scheme. The fund invests in venture capital and alternative investment funds (AIFs) that invest in early-stage companies. Last year, the government also introduced the Startup India Seed Fund scheme, which gives financial assistance to early-stage businesses.

Incubators and Accelerators

Incubators and accelerators are analogous to startup prep schools, but all other funding options are for already-existing enterprises. These four- to eight-month programmes provide funding and a place for entrepreneurs to interact with investors, mentors, and other startups.

In most cases, accelerators and incubators are located in big cities and need an ownership stake in return for their services. Individual entities or large corporations, or big tech companies are in charge of these programmes.

A few popular accelerator programmes for Indian entrepreneurs are Y Combinator, GSF Accelerator, Microsoft Accelerator, Google Launchpad Accelerator, and JioGenNext.

Family office

If you need help finding your business, the first place to seek is usually ventured capital, which comes after exhausting all other options, such as family and friends.

The family office is a financing alternative that is sometimes ignored. Private firms that manage investments and trusts for a high-net-worth family or group of families are family offices.

Family offices are renowned for being secretive and misunderstood, but understanding how they invest in new companies and their application criteria could be the key to gaining funding for your business.

Family offices are more patient than angel investors, allowing businesses to invest more time, money, and resources into their businesses. Getting in touch with the correct family office, on the other hand, is crucial. Around 140 Indian family offices have invested heavily in the startup environment.

They have been actively involved in 50+ such deals every year since 2015, according to Praxis Global Alliance and 256 Network study. By 2025, Indian Family Offices are expected to contribute 30% of the $100 billion raised by Indian entrepreneurs.

Banks

Banks Despite the numerous new funding options available to Indian businesses, bank loans are still a viable option. Banks offer a variety of loans, including equipment loans, startup business loans, and working capital loans, all with varied terms. Every stage of a company’s development can be financed with a loan.

Banks frequently want additional collateral in various sources of income for an idea-stage company. Two well-known banks and non-banking financial organizations (NBFCs) that provide loans to Indian entrepreneurs are Fullerton India and Omozing.com.

Crowdfunding

Another less popular startup funding option is crowdfunding. A group of retail investors seeking alternative investments gathers on a platform, reads the business plan, and invests in the startup of their choice. Every investor puts a set amount of money into a business idea to make a more significant profit (peer-to-peer lending).

Another possibility is equity crowdfunding, albeit its legality in India is unclear. Scams and disagreements abound in the crowdfunding sector. India’s Securities and Exchange Board has issued a warning against unregistered digital crowdfunding platforms.

Indiegogo, SeedInvest Technology, Mighty Cause, StartEngine, GoFundMe, Patreon, GripInvest, and ImpactGuru are some of the most well-known crowdfunding sites for entrepreneurs.

Financing based on revenue

Revenue-based financing allows a business to receive its future revenues in advance, which it can use to fund inventory, advertising, and marketing. The payment part is customizable and is based on a percentage of a company’s monthly sales. Various revenue-based lending organizations have emerged in India in recent years to meet the revenue demands of enterprises.

Velocity, GetVantage, and Klub are just a few revenue-based funding companies for Indian startups.

Final Thoughts

Should you raise venture funding or bootstrap your startup? It’s a personal decision. It is determined by several factors, including the stage of the firm, its goals, and the amount of funding required.

As a result, it’s critical to comprehend these startup funding options and their trade-offs. Whatever path you take, make sure to weigh all of your startup funding choices, much like a shark. It’s critical to your company’s long-term success.