19 Ways to Fund Your Startup in India
No bird soars too high if it soars with its own wings – William Blake
As your dreams begin to take wings, funding becomes the inevitable wind beneath those wings. You could muster up your own sources for this funding or take outside help. There are various funding options available to startups today than were available in much of history. StartupAsh brings you an exhaustive list of such option. Let’s get started.
1. Bootstrapping: This is the oldest and the most preferred form of financing your startup. The local kirana (grocery) shop in your neighbourhood was always bootstrapped by an enterprising banya (merchant).
Entrepreneurs, till today, prefer bootstrapping over any form of external financing as it results in no equity dilution. Experts recommend bootstrapping your startup as long as you can.
2. Friends & Family: If it is not possible for you to bootstrap, you can turn towards your friends and family to provide you initial funding for your startup. If you are lucky to have rich friends and family members, ask them to fund your startup. Even if it means giving up some equity stake to them in return, it all stays within you circle of influence.
- Be honest with them and let them know the risk of their investment.
- Avoid taking money from old members of your family if their income source is limited and they depend on their savings for a living.
- Aim to return their money in around 1-3 years.
- If the money has been loaned to you, paying back with an interest of 25% (or more) should make them count you among their favourites.
3. Startup competitions: With the advent of startup culture, the number of events showcasing startups and startup ideas have multiplied manifold. These contests accept applications from entities with diverse backgrounds. You may be an individual or a company, someone with just an idea or someone whose product is already in the market, choose the right platform to showcase your idea or product.
The prize money is small in most of these events but winning at such contests can give you visibility in media and opportunity to network with investors.
4. Crowd-Funding: If you are looking to raise relatively small amounts, then crowd-funding could be for you. Just make sure you choose the right platform to start your crowd-funding campaign. More importantly, managing the campaign is vital for the success of fund raising exercise on any platform.
Given the similarities between equity markets and crowd-funding platforms (both are vehicles for raising money from individual investors), Securities and Exchange Board of India (SEBI) released a consultation paper in 2014, which proposes a framework for crowd-funding in India and associated regulations.
5. High Net-worth Individuals (HNIs): These are individuals with deep pockets and existing businesses looking for investment opportunities in upcoming ventures. They typically invest for 1-3 years and expect their investment to double or treble. This type of funding is suitable for ventures which have a low gestation period and can start generating positive cash flows within this period.
6. Impact Investors – Private foundations such as Omidyar Network, Rockefeller Foundation, and Michael & Susan Dell Foundation invest in social entrepreneurial ventures for seed funding.
The biggest advantage of these funds is that they have access to huge capital and expect a lower return on investment (and over longer time frames).
The disadvantage is that most of them do not have permanent teams in India and are plagued by bureaucracy, typical to large organizations. Their minimum investment too, for the seed stage, is close to USD 1 Mn.
In 2013, India established the Indian Impact Investor Council (IIIC), a self-regulatory body to encourage impact investing in the country.
7. Accelerators –The accelerator programs are run like university courses which have a fixed tenure and curriculum. An accelerator receives hundreds of applications each year for their programs which run for a few weeks to few months.
Startups are given small seed investment and access to a large mentor network, in exchange for a small equity stake, generally between 2.0% to 10.0%.
Accelerators, typically, accept 1.0% to 2.0% of the total applications that they receive.
8. Incubators – Incubators are typically institutes which provide space and other equipment to startup teams to set the ball rolling.
You can keep your startup housed at an incubators premises for a considerable amount of time till you start feeling the need of your own space. They take much higher stakes than the accelerators, sometimes even over 20.0%.
There are plenty of incubators in India though many of them work only on in-house projects and ideas.
A comprehensive list of accelerators and incubators can be found here.
9. Angel Investors: Angel Groups such as Indian Angel Networks or Mumbai Angels bring together several HNIs who commit small to medium amounts (around Rs 5.0 – 10.0 lacs each) towards the financing round.
These networks typically have certain minimum investment targets per network and hence they are constantly looking for promising startups.
On the other hand, they receive a lot of business plans every day and this makes it challenging for entrepreneurs to get their venture funded.
Like individual HNIs, their investment horizon, too, is typically 2-3 years with around 2x return on invested capital.
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