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11 Ways to Raise Funds for Startups in India

How to raise funds for startup

Many thinkers, inventors, and entrepreneurs have a business idea which can bring social change. The new products and services can solve the major problems in the society. You could build low-cost tools for improving education or a platform to connect the marginalised communities and other bodies. The Indian government made the Startup India initiative to foster and nurture the Indian startup ecosystem. It has various benefits, such as tax benefits, simplified compliance, IPR fast-tracking, etc. You might have a great startup idea, but it needs funding to bring it alive. This article helps you to learn about stages and different ways to raise funds for a startup. 

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startup is a company, at its initial stage of operations, established by one or more entrepreneurs to produce a unique product or service. Before collecting the funds for your startup, ensure you finish all your groundwork, such as developing business strategy, execution and growth plans, and understanding the funding requirements. Choose one of the following ways to raise a fund for your startup. 

1. Investments from Close Network

It is easier to borrow money from family, friends, and a close network who trust you than investors or banks. They most probably invest in your startup as they believe in your dream. Getting legal advice from family and friends is a good idea if you intend to take a loan from them. The advantage is you can give back the money flexibly. However, borrowing money could break the friendship and create a bad climate for the family. So, keep the promise and put your efforts into repaying the money.

2. Government Schemes

The Indian Government launched various loan schemes to benefit the start-up enterprises. It understood the importance of startups for innovation and economic growth. It keeps supporting women entrepreneurs, educated youth, individuals from the SC/ST category, villages, rural areas, etc., which boosts India’s overall economy. Various ministries and departments developed schemes to provide financial, infrastructural, and regulatory support for startup enterprises. Following are some of the schemes introduced by the Government of India.

  • Smart Farm Challenge by STPI.
  • Startup India Initiative.
  • Dairy Entrepreneurship Development Program.
  • Pradhan Mantri Mudra Yojna.
  • Startup India Seed Fund.
  • Digital India Bhasini.
  • ASPIRE
  • Startup Leadership Program.
  • Chunauti.
  • Qualcomm semiconductor Mentorship Program.
  • Aatmanirbhar Bharat App Innovation Challenge.
  • STPI
  • Samridh Scheme.
  • Digital India Genisis.
  • Drone Shakti

3. Find an Angel Investor

Individuals who have surplus money and are interested in investing in new startups in return for equity are called Angel Investors. The major risk in getting funds from angel investors is that they plan to get higher returns as a profit. The popular Angel Investors in India are Ratan Tata, Kunal Shah, and Sanjay Mehta. Startup owners can establish a direct relationship with investors for funding. Though investors expect a good return on investment, they are motivated by a good business idea and proposal. So, make sure to research and validate the idea thoroughly. It must have innovative aspects and the space for profitability. 

4. Venture Capitalists

Venture capitalists (VCs) play a significant role in the startup ecosystem by funding early-stage companies with high growth potential. VCs are drawn to startups that articulate clear and ambitious long-term goals, demonstrating a robust, resilient business model and a strong and competent team. VCs invest in startups expecting to secure high returns, typically made in exchange for equity. Unlike angel investors, VCs engage in long-term partnerships, aligning their success with the startups. VCs often avoid investing in a startup’s initial or later stages when the competition is high. In essence, venture capitalists contribute capital and strategic guidance for business development.

5. Bank Loans

Banks in India provide traditional loans to startups based on their creditworthiness and business plans. It provides two forms of funding for startup enterprises: loans and working capital loans. While the process can be lengthy, securing a bank loan offers stability and allows entrepreneurs to retain full ownership. However, getting loans from private or public sector banks becomes challenging if you don’t have a financial history or good credit score.

6. Startup Incubators and Accelerators

Joining an incubator or accelerator program provides startups with mentorship, resources, and networking opportunities. These programs often exchange equity for support, fostering rapid growth. It combines a communal workspace and a mentorship development centre to kickstart the startup into growth mode. They offer various value-added services like utilities, workspace, and legal assistance. Yet, the competitive nature can make entry tough, and startups might find their vision influenced by the program’s objectives. 

7. Crowdfunding

Crowdfunding is a method to collect funds from multiple investors through social media sites or web-based platforms for various purposes. It includes social causes, disaster relief, charities and raising funds for startups. In India, online web portals for crowdfunding are available: Indiegogo, Ketto, Milaap, GoCrowdera, Catapooolt, FundRazr, Kickstarter, GoFundMe, Fuel A Dream, and Impact Guru. This democratised funding model can bring validation and a diverse investor base.

8. Bootstrapping (Self-Financing)

Bootstrapping is a risk-free way to finance the startup and expand it. Entrepreneurs will rely on their savings to establish the startup. It relieves the pressure of getting paid back the money or giving equity to the other party. While it grants complete control to founders, it could limit the scale and pace of growth. On the positive side, bootstrapping fosters financial discipline and resource optimisation.

9. Freelancing

Entrepreneurs can fund their startups by offering freelance services in their domain. This provides immediate income and allows for skill development. It will help you to gain money in the early stages of your startup. However, balancing freelancing with building a startup can be demanding, and there’s a risk of diverting focus from the core business.

10. Grants & Competitions

Participating in grants and competitions can offer non-dilutive funding and industry recognition. Winning such opportunities enhances credibility and attracts further investment. Nonetheless, the competition can be fierce, and the application process demands time and precision. And, make sure you are comfortable with the grants agreement, if there are any. 

11. Strategic Partnerships

Collaborating with established companies for mutual benefit can infuse funds and resources into startups. Strategic partnerships can create new markets and technologies. Yet, aligning goals and maintaining a balance in the partnership can be challenging, requiring careful negotiation and communication.

Stages of Startups to Raise Funds

A Startup must go through different stages to become a profitable business. The major kickstart for a startup is funding, which we have discussed above. Below, we detail the stages of the growth of startups and the appropriate type of funding for each stage. 

Pre-Seed Stage

In the pre-seed stage, entrepreneurs find the business idea and work to establish the startup. You can find informal ways to get a fund at this stage since it needs a small and limited amount of money. You can get funds from a close network, like friends and family, who believe in you and your business idea. Also, Bootstrapping (Self-financing) and Grants are the best funding types at this stage.

Seed Stage

In this stage, entrepreneurs are ready with their prototype and strive to establish their product’s potential demand. They put out the product or service in the real world and see how it works. It’s called Proof of Concept (POC). After the POC, entrepreneurs launch their products in the marketplace. Incubators, government schemes, angel investors, and crowdfunding are the best modes of funding at this stage. 

Series A Stage

In the Series A Stage, entrepreneurs launched their products in the marketplace and got an early success. It includes the performance indicators such as customer base, app downloads, monthly recurring revenue, and active users. This proves that the startup is doing well and eligible to obtain funds. You can get funds from the Venture capitalists and Bank loans to develop from this stage. It helps you to improve product development, expand the customer base, and open various branches. 

Series B, C, D, and E

Businesses will start generating better revenue and be stable in this stage. They require funding to develop the business further. They can devise new marketing strategies, hire new employees, form a team, and build new departments with the funds. At this stage, funds can be gained from venture capital and investment firms since the business has attained a stable position in the marketplace. 

Exit Stage

This is the last stage of a startup, where it is transitioning from a startup to a big company. In this stage, the entrepreneur either merges the startup with another company or sells the business to a bigger company for a profit. They can go with an IPO (Initial Public Offering) to sell their shares to the public. The public funds help the business grow further and obtain a greater profit. 

Conclusion

Getting a business idea for a startup is not the end. It needs adequate funds to give life to the idea and bring the product or service into the marketplace. We hope you got the information about different ways to get funds for your startup with this article. As we are given the stages of growth for a startup, pinpoint where you belong and choose the suitable type of funding. Skira Corporation developed the startup kit to ease the registration process for startups.

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