Introduction
If one had to imagine what a typical founder looked like before the mid-1980s, the image would probably be of someone grey-haired.
(With unattainable net worth, expertise, and years of experience under their belt).
The Silicon Valley boom caused a revolution in the image of the founder along with the work culture.
The new CEO was now a young, tech savvy professional and the business s/he ran was called a startup.
While the startup model dominated the Western ecosystem for decades, it’s seeing an exponential rise in India only now.
In fact, startup founders have managed to rope in a revenue of $2 billion in 2017. But this is nothing compared to a staggering $7.8 billion in just the first 4 months of 2021 alone!
This just goes to show that the Indian startup ecosystem is attracting the attention of native and non – native investors more than ever.
How do they go about securing funding? Here are 10 ways :
Routes
1. Bootstrapping
Here, the company is started from the ground up by the entrepreneur’s own savings. More than 80% of the startups are funded this way. This is why it is better to not quit one’s day job and save up to support the startup with zero outside support.
2. A Friend in Need (and a Family indeed!)
Friends and family who believe in the startup idea become the first sources of capital to start the company.
If the idea doesn’t have a long term plan and a sustainable structure, it’s better to not approach one’s close ones.
A less common option, then, is Trade Equity or Service – e.g. your coder classmate can code your site in exchange for marketing services you can provide them
3. Incubators
An incubator is a collaborative program aimed to solve the various startup pain points by providing workspace, funding, mentoring, training, networking, access to loans, and much more.
College campuses increasingly contain incubators to nourish the early startups from a new natal stage.
4. Loans
One of the most difficult processes to obtain a loan occurs when a startup business needs it. The eligibility criteria requires heavy documentation in the form of high levels of credit, cash injection from the owner, and collateral.
These pain points are giving rise to new financial technologies to help startup founders get funding.
5. Grants and Local Contests
Government or private sector can provide a huge boost to the startup ecosystem with startup business grants. Organizations like Nasscom, Unlimited India, the Department of Science and Technology, and more help with grants in various sectors from technology to healthcare, and agriculture to housing.
There are special grants and local contests for small scale founders and intersectional groups.
Example – As per the “Chunauti”- Next Generation Startup Challenge Contest around 300 startups working in select areas will be identified and provided with a seed fund of up to Rs 25,00,000 along with other support.
The government has earmarked a budget of Rs 95 crore over a period of three years for this programme.
6. Crowdfunding
The process of crowdfunding has been getting seamless and accessible with emerging financial technologies
Example – Tyke Invest is a platform over which anyone can start funding the choice of their startup by creating a profile, going through various pitches, signing a T Safe agreement, and hitting the invest button.
This cutting-edge platform lets anyone invest in exciting new startups as the initial amount is a mere ₹5000. Even an average student or an office goer can co-invest with the pro angel investors and VCs of the game.
7. Small Business Credit Cards
Business credit cards offer a range of benefits including expense management, cashback, rewards, travel expenses, and much more. Having a dedicated card for one’s money-making enterprise helps to keep business and personal finances separate.
8. Angel Investment
Startups who need access to funding typically approach angel investors who are high net worth individuals aiding the business with a significant amount of capital. This capital is usually provided to startups in exchange for some equity in the startup.
Angel investors don’t often require immediate returns and understand that growing a startup into a profitable business can take a long time.
The funds that you can obtain from angel investors may be able to help create a more secure foundation for the startup.
This type of funding is typically sought after one’s own funds are exhausted. Since angel investors usually gain ownership equity in the startups they invest in, there won’t be any interest tied to the investment.
9. Venture Capitalism
Startups that are able to show a long-term growth potential can get a form of financing known as venture capital.
A percentage of the company is bought from the founders. This way, the founders don’t have to commit to recouping the loan along with the interest rate. If the startup were to fail, they’re not obligated to repay.
Venture Capitalists are well to do investors who provide monetary benefits, managerial expertise, or technical help to the growing business. The main downside is that the investors usually get equity in the company, and, thus, a say in company decisions.
10. Initial Public Offering (IPO)
An initial public offering is a process of giving shares of a high velocity private corporation to the public in a new stock issuance. Startups must meet the prerequisites by the Securities and Exchange Commission to hold an IPO.
IPOs are an opportunity for the company to seek capital by offering shares through the primary market. It can be perceived as an exit strategy by the early investors and the company’s founders.
Conclusion
It’s advisable to carry out one’s own due diligence process before going for the funding options which suit the needs of one’s business.
Clarity in the mind of the entrepreneur is a crucial part of the process before seeking funding. Finances are usually needed for one or many purposes.
Funding may be needed for prototype creation, product development, working capital, legal services, raw materials, equipment, office space, licenses, marketing, sales, and much more.
Before approaching investors, it is important to have a detailed financial plan in hand along with the business plan to have a clarity of perception on the purpose for seeking the funds.
