11 Ways to Raise Funds for Startups in India
StartUp Funding
Arranging sufficient funds when beginning any business is a difficult task, but an exctiting part of the journey is starting a business in India. Innovative tech to ecological ventures, the starter ecosystem in India is excelling. Unfortunately, getting the funds required is a major roadblock. Luckily, there are a few options available in India for Entrepreneurs to source for startup funding. Below are eleven Modern and Traditional Funding options available in India.
1. Self Funding (Bootstrapping)
What is Means:
Bootstrapping is financing your business through savings you have or revenue you earn from your initial sales. This is known to be the most common starting point for most entrepreneurs, especially those individuals looking to have complete dominion over their business.
Advantages:
– Complete ownership and power
– No debt or equity dilution
– Cultivates a culture of financial responsibility
Disadvantages:
– Growth may be hampered with insufficient capital.
– Exposing yourself to high financial risk.
When to Use:
This approach is best suited for early stage enterprises with minimal costs, or those validating a product, or service, prior to looking for an external source of funds.
2.Friends and Family
This financing means:
Startup Funding venture. Raising money from personal contacts during the startup phase of a venture is common because formal investors will likely decline and choose not to invest.
Advantages:
Startup Funding can be raised quickly. Funds can be raised with no to very low interest. Funds can be raised with little to no emotional cost.
Disadvantages:
Startup Funding can be raised at the cost of personal relationships. Funds can be raised at the cost of relationship abstraction because of the absence of a formal agreement.
Suggestion:
For the sake of affording the other parties to be at ease, formal agreements have to be made, and terms and conditions have to be explained in order for the rest of the parties to understand how they will be affected.
3. Angel Investors
This means:
Angel investors are the accredited investors with a higher net worth. They give money to a startup funding in exchange for a share of the equity. They usually provide a fair amount of mentorship and connections that can be very useful in the industry.
Some of the notable Angel Networks in India are:
Indian Angel Network
Mumbai Angels
Chennai Angels
Advantages:
Startup Funding and guidance can be provided at the same time. Funding terms can be varied and flexible. They can potentially invest in the startup in the future.
Disadvantages:
There will be a dilution of equity. A strong pitch can be a requirement to invest in the venture.
Best for:
They are best for Seed stage funding that has a minimum viable product, and also, a few early sales, or for startup funding concepts that exist.
4. Venture Capital (VC)
What it Means:
VC companies invest a pool of capital from several investors in early-stage high-potential companies in exchange for equity. These firms usually offer more support in terms of guidance and advice, scaling, and multiple rounds of financing.
Prominent VC Firms in India:
Sequoia Capital India
Accel India
Matrix Partners
Kalaari Capital
Pros:
Substantial amount of money for growth.
Reputation and brand establishment.
Mentorship and networking.
Cons:
Time-consuming approval process.
High equity dilution.
High expectations.
When to Approach:
After getting traction and having a scalable and sizeable market opportunity.
5. Funding Incubators and Accelerators
What it Means:
This is a support program for startup funding that includes seed funding, mentoring, workspaces, and investor introductions. Incubators help develop a company more in its early stages, while accelerators help scale a company that is more established.
Well Known Programs:
Y Combinator (global, supports Indian startups)
T-Hub (Telangana)
CIIE IIM Ahmedabad
GSF Accelerator
Pros:
Access to a large network.
Mentorship and training.
Investor exposure.
Cons:
Highly competitive process.
Very short duration of programs.
Who Should Apply:
Mentoring and funding focused support is for startups in the ideation or early stage.
6. Government Schemes and Grants
What it Means:
Entrepreneurship is supported by the Government of India through programs linked to initiatives such as Start-Up India and Atal Innovation Mission.
Popular Schemes:
– Startup India Seed Fund Scheme (SISFS)
– MUDRA Loans
– Stand-Up India Scheme
– SIDBI (Small Industries Development Bank of India) funding
Pros:
– Non-dilutive capital (grants).
– Low or no interest loans.
– Support infrastructure.
Cons:
– Lengthy application process.
– Bureaucracy and compliance.
Ideal For:
Prioritized sectors like agriculture, health, education, and technology in early stage startups.
7. Bank Loans
What it Means:
Traditional bank loans are and will remain a reliable funding method. Certain banks have special loan schemes for MSME and startup funding under priority sector lending norms.
Options:
– Working capital loans
– Term loans
– Overdraft facilities
Pros:
– No equity dilution.
– Structured repayment.
Cons:
– Collateral is required (in most cases).
– Stringent eligibility criteria.
– Interest burden.
Suitable For:
Startup Funding sustaining cash flow or having tangible assets.
8. Crowd funding
What it Means:
Crowd funding is raising small amounts of money from a large number of people, generally through the internet. It is useful for consumer-facing products or social ventures.
Types of Crowdfunding:
– Donation-based (e.g., Ketto, Milaap)
– Reward-based (e.g., Wishberry)
– Equity-based (e.g., Tyke, LetsVenture)
Pros:
– Market validation.
– Public exposure and marketing.
Alternative to VC
Drawbacks:
1. Campaign promotion requires considerable effort.
2. Funding target may not be achieved.
3. Fees associated with their platforms.
Ideal Candidate
Innovative product or strong community engagement for startup financing.
Corporate Venture Capital (CVC)
Definition:
Major companies fund aligned with industry sector startups to support innovation and enter new markets. Unlike traditional VC’s, CVC’s also offer funding with strategic partnerships.
CVC Examples
Investments by Reliance Jio into startups.
Tata’s health tech startup investments.
Mahindra’s investments in mobility and agri-tech.
Advantages:
1. Collaborative strategic direction.
2. Availability of distribution and infrastructure.
3. Prospective long-lasting partnerships.
Disadvantages:
1. Less independence.
2. Company interests may take priority.
Best fit
Agri-tech, health tech, edtech, deep tech or fintech startups that support large corporates.
Revenue-Based Financing (RBF)
Definition:
RBF allows investors to offer capital in exchange for a percentage of future income until a predetermined return is delivered. This is a great option for startups that do not want to dilute their equity.
RBF Players in India
GetVantage
Velocity
Klub
Advantages:
1. No equity loss.
2. Payments are flexible and based on revenue.
3. Rapid funding approval.
Disadvantages:
Higher costs are associated with this option than normal loans.
Only works for revenue generating startups.
Best fit
SaaS companies, eCommerce ventures and D2C brands.
11. Initial Coin Offering (ICO) and Token Sales (Web3 Startups)
Meaning:
By offering digital tokens, blockchain startups are able to raise funds via an ICO in either fiat or crypto. This method is highly speculative and regulatory in nature, and has become popular in many countries.
Benefits:
Global access to investors.
Liquidity is instant.
Traditional middlemen are unnecessary.
Conclusion
There is no single approach to raising funds for a Startup Funding in India. The optimuem funding source is a function of your startup’s stage, industry, growth potential, and long term goals. The majority of entrepreneurs that achieve profound success use a combination of different funding methods, beginning with bootstrapping and advancing to angel investment, venture capital, or other funding alternatives as their company grows.
For information, please visit – DigitalAssistance
