Getting funds for a startup is very important. But it can also pose some challenges in front of new entrepreneurs. Entrepreneurs who plan to set up a new business need to find investors. Capital is needed to start a business and keep it running. Moreover, you need to raise funds from investors and other sources. Let’s explore the options and schemes for startup funding India has.
What Is Startup Funding?
We can define startup funding as the money needed to start a business. Additionally, business owners need cash and use it to operate the business. It also helps in marketing and funding the future growth of the business.
Importance of Startup Funding in India
Funding is crucial for startup businesses. Furthermore, you can use the funds to support a startup. Failing to get finance or investment can fail your startup or business.
Funds help in paying the salaries of workers and employees. It helps in manufacturing products and doing business promotion. Additionally, the fund money helps in sales and marketing.
Entrepreneurs need money to do research and launch products in the market. Capital helps in buying space for offices and factories. Furthermore, you need funding for hiring professionals. The funds that you receive from investors help in expanding a business.
Understanding The Indian Startup Ecosystem
There is a bright future for startups in India. India has been on the path to developing a startup ecosystem for the past few decades. Additionally, new business owners get support from the Government. They get funding from investors. There are multiple sources of startup funding in India for a business owner.
India has a vast number of talented people and professionals. There is an environment of support for businesses in India.
According to the Tracxn 2022 Annual Report, startups received funding of about 24.7 billion dollars in India in 2022. Fintech and retail were among the best-performing businesses. The startup ecosystem of our country is the third largest in the world.
India has seen the emergence of many startups in the last decade. There is a perfect ecosystem for startups in India. However, much is yet to be done to take the businesses to the global level.
Key Sectors and Industries in the Indian Startup Ecosystem
Sunrise sectors are the areas in which a business proliferates. The electric vehicle or EV industry has a lot of growth potential. Clean energy is also a sunrise sector in which the Government of India gives incentives. They are encouraging Industries and businesses to develop products of solar panels.
Efforts are made to promote turbines and energy storage devices. The Government of India is also encouraging the production of drones. India has a good scope for Agriculture, EdTech, and social entrepreneurship startups. The most profitable sectors are pharma, healthcare, HR, retail, fintech, and OTT platforms.
Types of Startup Funding
Startup funding is of many types, like Equity Finance, Debt Finance, and grants. Equity financing is when you sell some of the equity of your company.
Debt financing is financing in which you borrow money from someone and return it with interest. A grant is a financial reward. Startups get it for achieving a goal or as a prize for their performance.
The other types of startup funding are as follows:
1. Bootstrapping
When you finance your own business, it is called bootstrapping. The money is used as an investment for your business.
In this, you avoid using venture capital. You don’t take a loan to finance your business but get capital from existing sources.
Pros
- You are your business’s sole owner without giving anyone a share.
- You have complete control over the business.
- You can pass on the business to the next generation or keep it in the family.
Cons
- There is a high chance of the failure of the business due to a shortage of money.
- You may not be able to grow your business into a large enterprise.
- You need to do a lot of hard work on your own for business success.
2. Friends And Family Funding
The advantage of taking money from family or friends is that you get money in the initial stage of your business. When starting a business, no one is ready to invest their money in your business.
Pros
- Family and friends help you when you need money.
- People who know you well trust you and are ready to give you money in small amounts.
- You do not have to pay interest to them. Your acquaintances provide you with money at a low interest.
- They can wait for a long time for the repayment.
Cons
- If you fail, you lose your friends and family members’ money.
- If the business fails, you may also spoil your relationship with them.
3. Angel Investors
Angel investors are people who have financial capital. Moreover, they are ready to give money to your startup. Such people will invest about five Lakh to two Crore Rupees in your business. Angel Investors provide you with money in exchange for equity. They are usually small-scale private investors.
Pros
- The investors have experience in business and equity.
- They are not afraid of taking a risk by funding your business.
- They give you money for longer and are patient with you.
- The investors guide you and provide full support.
- They are available for networking with potential buyers and clients.
Cons
- Angel investors have very high expectations from a business they fund.
- They want a high rate of return from your business.
- Funding can be slow.
- You give some control to the investors through equity.
4. Venture Capital
If a business is expected to grow long-term, it can benefit from venture capital. Furthermore, Venture Capital is a type of private equity. The reputed and established investors give funds to finance your startup. Moreover, those who invest money by providing you with Venture Capital get above-average profit.
Pros
- You get a massive amount of funding.
- The investors can tolerate risk.
- Investors give you support.
- There is faster growth in this type of funding.
Cons
- Investors have high expectations and standards.
- You have to give a share in your company to the investors.
- There is a problem with grabbing the right deal.
5. Government Schemes For Startups In India
The current decade of the 21st century will be considered the most favorable time for business. Additionally, there is an environment for promoting startups and entrepreneurship success in India.
The Government of India is promoting and supporting startups on a colossal scale. If you are wondering how to raise startup funding in India, consider checking out the available government schemes.
The Indian Government has announced many schemes for business owners. It includes the following startup funding schemes:
- Atal Innovation Mission
- Startup India Seed Fund Scheme
- Startup India Initiative
- Software Technology Park (STP)
- Dairy Processing and Infrastructure Development Fund (DIDF)
- Micro Units Development Refinance Agency (MUDRA)
- Credit Guarantee Fund Trust for Micro and Small Enterprises
- Multiplier Grants Scheme (MGS)
Preparing For Startup Funding
First, you need to define the business model you will follow clearly. You also need to do market research and make a business plan. Decide your management team. Get initial seed funding.
Determine the best business idea that you find profitable and worth following. Define your value proposition. It is a statement of what advantage your customers get from your products.
Write a good business plan outlining how you will develop your business. It also includes how you will operate your business and achieve future growth. Do market research with people who will be your potential buyers. You can do the market research in-house or by hiring a professional. Have the best CEO and co-founder. Hire talented and skilled professionals in your startup.
Approaching Business Investors
Investors are people or organizations who are ready to give you funds. They see the potential for growth in your business and fund you readily. It can be challenging to find investors when you are setting up a new business. Most investors fund you when they get equity in exchange for the money they invest in your industry.
You can choose an investor that you want to fund your business. It includes personal investors, angel investors, venture capitalists, and peer-to-peer lenders. You may face challenges with the final deal or agreement with an investor. However, if you are confident and patient, you may be able to get investors.
Make a good elevator pitch and presentation for investors to attract them to your business idea. Do networking and attend startup events. Use online platforms and social media to connect with investors.
Conclusion
Startup funding is the most crucial factor determining your business’s success or failure. The initial funds you get for a business help you start and pay for the operation costs.
India has a vast potential for startup businesses, with the Government supporting, funding, and encouraging entrepreneurs and startups. The Indian Government has launched many types of schemes to give incentives to business owners. The sunrise sectors especially have a bright future.
Entrepreneurs can get startup funding from personal contacts, angel investors, venture capitalists, etc. They need to plan properly before starting to launch a business. It includes doing market research and making a good business plan. They must learn how to raise funds for a startup business in India.
Investors respond and invest when they see scope for growth in your business. Business owners need to motivate themselves to keep striving to get funding and for the success of their business.
Be determined to face the challenges that come your way and overcome them with your mental strength and resolve for success. Do not be afraid of taking risks, as it can give you huge business success.
Have faith in your abilities and take action without the fear of failing. Your team’s hard work and efforts will help you launch and grow your startup.
