“Startup” is a newly coined term for new business players who are entering the business frontier. They are on the rise. With the third-largest startup environment globally, India is predicted to develop by 12–15% annually on average over the next year. As of December 31, 2023, there were 1,17,254 Department for Promotion of Industry and Internal Trade (DPIIT) recognized startups, thanks to the government’s persistent efforts. It is estimated that these well-known companies have significantly impacted the economy by directly producing around 12.42 lakh new employment (Source: Startup India, Government of India Website). And the money they require to fulfill their business needs is called ‘Funding.’ It is a monetary investment made in a business for the purpose of product creation, growth, marketing, sales, and office space. To avoid debt and equity dilution, many Startups don’t opt for Funding from outside sources and instead rely only on their founders for Funding.
Nonetheless, some Startups do fundraising, particularly as they expand and intensify their business. If you are an entrepreneur trying to figure out why you need Funding, what kinds of Funding are out there, and how to get money, this article is for you.
Why Startups Need Funding?
Who doesn’t like money?
As a Startup, funds play a crucial role. But, being an entrepreneur, one needs to understand why and when the fund needs to be raised. A detailed financial business plan should be ready before approaching any investor.
- Product development, website/app development, or prototype creation
- Team acquiring
- Legal and advisory services for your new venture
- Equipment and raw materials Certifications and licenses
- Working capital
- Sales and Marketing
- Office space and additional administrative costs
In this course, a TV show named Shark Tank India is featured to help startup businesses with monetary funds against equity. The government of India also has a separate wing named Startup India under the Department for Promotion of Industry and Internal Trade. The department is set up to catalyze startup culture, building an inclusive and robust ecosystem for entrepreneurs in India.
Types of Funding
Startup funding is done for various reasons and by various means. They can raise funds through Bootstrapping, FFF (Friends, Family, and Fools), Seed Funding, Public Funds, Crowdfunding, Angel Investors, Bank Financing, Venture Capital, Private Equity, Leasing, and Factoring or Invoice Discounts.
Bootstrapping: Bootstrapping is a self-funded business model where entrepreneurs start their company with personal savings, borrowing or investing from FFF, and initial sales without relying on investors or public funds.
FFF: 35-40% of startups receive annual capital from friends and family, often the first source of financing for their business projects.
Seed Funding: Seed financing offers investors shares in exchange for capital, providing initial support for new companies offering innovative products, services, technology, or market niches.
Public Funds: Public funds are government expenditures on public goods and services programs, tracked by the Public Account of India, where the government acts as a banker. India’s public finances include, for instance: Pradhan Mantri Mudra Yojana (PMMY), Startup India Initiative, Startup India Seed Fund Scheme, ATAL Innovation Mission, and more.
Crowdfunding: Crowdfunding is a popular financing method for startups and projects, involving a crowd and funding to collectively raise funds from various sponsors.
Angel Investors: Angel investors provide financing to startups with high growth potential, offering capital and knowledge in exchange for future profits, typically resulting in a shareholding in the company.
Bank Financing: Bank financing instruments enable companies to access capital for daily operations, but companies must meet requirements and offer guarantees to become financing creditors.
Venture Capital: Venture capital financing is provided by private funds to companies with high growth potential, managing and contributing capital from individuals, companies, or institutions, and investing in innovative startups.
Private Equity: Private equity funds invest in various types of companies, typically with larger amounts and a larger percentage of the companies they invest in.
Leasing: A lease is a contract stating the terms of renting an asset owned by one party to another, with four types: gross, modified, triple net, and bond lease.
Factoring or Invoice Discount: Credit-based companies can easily access financing options, while those selling for extended periods require immediate capital and liquidity to meet accounts receivable.
IndiaIT360 Startup Connect: IndiaIT360 is a dynamic B2B digital platform connecting IT OEMs, Startups, and Channel Partners with corporate CIOs of India and SMEs to enhance their business growth. The platform helps Startups to connect with investors and support them in Startup Funding. With IndiaIT360, IT Startups can create an E-Catalogue and showcase their IT products/services range and case studies to venture capitalists to get funding.
Looking for the best funding option?
The Startup funding possibilities are numerous, but the most important thing is which medium you are comfortable going forward with. Do a well-crafted market survey, get to meet investors, and take a closer look at all the available funding sources before beginning. All the best!
