Published On: November 9th, 2020
A start-up is an enterprise that is created by one or more founders to create and sell a new product or service. By its essence, with initial support from the entrepreneurs or their friends and family, the traditional start-up appears to be an exiguous operation. This support that is being extended is termed as funds and the process is referred to as start-up funding.
Image Source:- Legaldhanda
‘Funding‘ applies to the funds needed for a company to start and operate. It is a financial commitment for product creation, processing, extension, sales and marketing, office spaces, and inventory in a business. Most start-ups opt not to raise third-party funds and are funded solely by their investors to avoid leverage and dilution of equity. Most start-ups, though, collect capital, especially as they become larger and scale up their activities.
here we will be learning more on funding with this Ultimate Guide of Startup Funding in India to boost your business from 0 to 100 in quick time.
Let’s have an overview of – what is start-up funding, its impact in India, the process involved in start-up funding, types of start-up funding, stages involved in start-up funding, start-up funding rounds in India, the companies backing up start-ups in India, and how to approach such companies.
Table of Contents
What exactly is start-up funding?
Start-up funding is the capital needed to start a business. It can come from several outlets and can be used to help the start-up go from concept to the real market for whatever reason.
Process of Start-Up Funding in India
Start-ups in India are becoming very popular. To grow the Indian economy and encourage young entrepreneurs, the Government of India has initiated and encouraged the Start-up India initiative to recognize and encourage start-ups under the leadership of PM Narendra Modi.
Types of Start-up funding in India
For an entrepreneur to pivot their market strategies and explore untapped opportunities, financing becomes the unavoidable step. There are 7 types of Start-Up funding options in India.
1. Bootstrapping Your Start-up
Bootstrapping means the start-up is self-funding. This choice is perfect for those entrepreneurs who have just begun their business. For first-time entrepreneurs, getting financing can be a challenging challenge until they display some success and a business strategy that can make money in the long term.
2. Crowdfunding Your Start-up
Crowdfunding the start-up involves collecting funds at the same time from more than one person. It requires more than one investor in this funding option. Based on certain criteria, such as the business proposal, aim, financial plan of action, and expectations to make profits, i.e. being successful, these investors provide a set amount of financing.
Crowdfunding benefit includes the fact that other seasoned players in the ecosystem trust in the start-up concept. From the first level itself, it may help you improve support, i.e. making the project into a full-fledged organization. Also, getting your company crowdfunded at the early stage will get you the right feedback.
3. Through Angel Investment
Heavenly attendant financial specialists are those people that are consistently watching out for promising new companies and offer subsidizing in return for a convertible obligation or possession value in the start-up. These people can work alone or in gatherings of organizations to screen new businesses, share research, pool their speculation capital, just as to give exhortation to their portfolio organizations.
Aside from offering cash, heavenly attendant financial specialists can likewise offer coaching and guidance for your start-up.
4. Through Venture Capitalists
Venture Capital (VC) is a kind of start-up that subsidizes to support the beginning phase of new companies that are rising organizations and are regarded to have high development potential or the ones that exhibit high development esteem be it as far as several workers, yearly income, or both.
5. Raise Funds Through Bank Loans
The customary methods for taking a bank credit can likewise be one of the suitable subsidizing choices for new companies. Under this choice, business people can raise assets through the accompanying sorts of bank advances:
- Term Loans
- Working Capital Loans
- Asset-Backed Loans
6. Raise funds by Incubators and Accelerators for companies
Raising assets through hatcheries and quickening agents is valuable for beginning phase new companies as these choices are promptly accessible in pretty much every significant city. The projects of Incubators and Accelerators ordinarily run for 4-8 months of the term during which a start-up originator is acquainted with different coaches, financial specialists, and other budding business visionaries that have enlisted for a similar program.
When choosing the right software for their project, business visionaries can look for the perfect match. A few new businesses may profit by being in a hatchery, while others could be good for a quickening agent. So do your exploration and pick shrewdly.
7. Through the ‘Start-up India’ activity
The Start-up India venture by the Narendra Modi driven government can be another choice to raise assets for your business. As a component of this activity, the administration of India has set up a Fund of Funds with an absolute corpus of Rs. 10,000 crore ($1.6 billion) to enable new businesses and assemble a powerful biological system by supporting them to develop through advancement and plan.
Using the Small Industry Development Bank of India (SIDBI), this cash is circulated. As suggested by DIPP’s October 2017 status report on the Start-up India site, around $92 million (INR 605.7 Cr) has just been supplied to SIDBI from the store, and up to this point, 75 new companies have received subsidies from 17 AIFs. Two money commission periods (2015-2020 and 2021-2025) have reserved the whole Fund of Funds portfolio for redistribution. To even think knowing, the Start-up India Action plan could be too volatile.
Stages in Start-up Funding in India
There are various stages involved in funding a start-up. These are explained in detail below.
1. Self Funding
A business person ought to discover how much sum he/she can contribute from his/her own pockets. This stage includes fewer complexities and documentation, and even your loved ones possibly prepared to loan at a less expensive rate.
Seed-capital is a venture made at the fundamental phase of the start-up. This helps the business in recognizing and making an ideal course for their start-up. Assets raised at this stage are utilized for knowing the clients’ requests, inclinations, and tastes, and afterward planning an item or administration likewise.
At the point when the organization’s eventual outcomes or administrations arrive at the market, investment financing comes into the image. Notwithstanding the items’ productivity, each business considers utilizing this stage that further includes different rounds of financing:-
- Series A:- The Series A contribution, which is the very first funding round, does not require additional funding. Start-ups have devised a clear strategy for their product or service at this point. It is often used to market and improve the reputation of your brand, breaking into new markets and helping to expand the business.
- Series B:- If a corporation depends on investment in Series B, it indicates that the product is advertised accurately and that the product or service is ultimately bought by the consumers, as decided earlier. Such financing allows an organisation to pay wages, hire more people, develop the facilities, and create it as a global competitor.
- Series C:- A start-up should earn as many funding rounds as possible, there is no cap on that. However, the founders, as well as the buyers, are very vigilant about financing this round during the Series C investment. The further rounds of funding, the more the equity of the firm is released.
4. Initial public offering
At the point when a start-up chooses to raise assets from the general population including institutional speculators just as people, by selling its offers, it is known as an IPO (Initial Public Offering). The initial public offering is ordinarily identified with ‘opening up to the world’ as the overall population presently needs to put resources into your organization by purchasing shares.
There are various well-renowned start-ups in India that have gone through these stages and made out to be major successes. Zomato, which was established in 2008, it is one of the most well-known start-ups with total financing of about 755.6 million dollars and is perhaps one of India’s most promising food technology start-ups, which has become an international enterprise.
You may think that Uber is creating a storm right now, but as we speak, Ola Cabs are taking over India. Established in 2010, presently with overall funding of about 3.8 trillion dollars, Ola is another major successful start-up. Paytm is another successful start-up. This start-up is a financial service that enables individuals to pay each other for funds. Established in 2010, with overall financing of about 2.2 billion dollars, it seems to be ruling all of India.
Start-up funding rounds in India
Funding rounds for entrepreneurs are a collection of transactions that generate money for a new venture. As a start-up expands and becomes profitable, each funding round acts as a stepping stone for greater growth.
Funding rounds typically begin with an initial pre-seed and/or seed round, which then advances from Series A to Series B, C, and beyond. Depending on the size of the company and customers, a fundraising round can take anywhere from three months to over a year. About six months and one year, the period between each round will differ.
Funds are offered by founders, often angel founders or venture capital funds, who then receive a stake in the start-up.
Start-up funding companies in India
In India, the start-up industry is booming and Venture Capital Firms or VCs remain one of the key elements of it. Statistics have demonstrated that, due to the lack of adequate funding, even the most outstanding start-up ideas with a strong team struggle in the early years of their service. More than 650 venture capitalists have shown successful involvement in Indian start-up investment since 2015.
How to get start-up funding in India?
In India, successful start-up financing opportunities would help you assist the company with the necessary criteria for financing. There are various options to get funding for start-ups in India. These include Crowdfunding, Self-funding, Venture Capitalists, and Angel Investment.
Among all this companies, Colitco stands apart from the crowd. Through positioning their tales, their business plans, and helping them hit the right collection of Angel Investors , Venture Capitalists, Retail Investors, Sophisticated Investors, private equity players, etc.
Colitco helps entrepreneurs get the right eyeballs before the right investor audience. So, Colicto is certainly the best place to consider for any aspirant who plans to step foot into the business world. Colitco have a plan drafted already and is ready with a roadmap to a successful business.