Funding To New Startup

 Before we Talk About This First You Need To Know About Steps to Start Startup For This Look At Our Blog About It 

https://startingnewstartup.blogspot.com/2020/09/steps-to-start-startup-ola-flipkart.html

You have reached that stage where you can start approaching investors now. But before doing that you need to understand what are the various kinds of funding options that are available for you. Indian funding scenario has changed massively over the last decade. While earlier the Indian startups just had the option of borrowing money from family and friends, a loan from banks which took forever, IPOs and borrowing facility from some other institutes like IDBI, SIDBI, and IFCI. It was SEBI (Venture Capital Funds) Regulation, 1996 which introduced capital financing to India and introduced angel investor community in late 2007. India recently is witnessing a cascading effect in venture capital availability. From seed to growth, from series A to C.

In 2012, SEBI for the very first time introduced SEBI (Alternative Investments Funds) Regulations, with an aim to define and introduce AIF as a new asset class and promote investing by external investors in the secondary market.

As per SEBI, AIF refers to any fund established or incorporated in India as a trust/company/LLP which pools investment from investors, Indian or foreign, for investing in accordance with the regulations and is not associated with any other regulation which deals with funds. Eg. SEBI (Collective Investment Schemes) Regulations, 1999, SEBI (Mutual Funds) Regulations, 1996 etc.

THERE ARE DIFFERENT FINANCING STAGES THAT YOU NEED TO KNOW IN ORDER TO UNDERSTAND WHAT YOU ARE ABOUT TO GET INTO.

Pre – Seed Funding

At the stage where you are, this is the kind of funding you are looking at. This funding is essential for those who have just finalized their prototype or probably needs financing to develop one. Pre-seed capital is intended to cover for your first cycle of the project. However, try to first exhaust your own resources before you get into this sort of funding. You need to start your bootstrap with your funds and only when they exhaust approach others. There are 3 sources of pre-seed funding:-

The 3 Fs – Friends, Family, and Fools

This needs no explanation. After you have exhausted your own resources, approach your immediate people. These investors are those who might give money with no interest, humbly to support you. This funding is also safe because just in case you are not able to work it out, the risk of returning and bearing costs is much simpler and dependable on your equation with your loved ones.

Business Angels

These are generally those individuals who raised money but couldn’t functionally raise a startup. These individuals look forward to investing in startups with potential looking at the estimated growth and market dynamics. They might not understand your technology but their bet is generally in their gut feeling. Often the money they invest in their own and thus they can be a little pushy about how you run your startup. However, their guidance generally is helpful for a new entrant in the market.

Accelerators

Generally known as the “Godfathers” of Startups, Accelerators give a clarity of ground realities, set up more visibility in the market for your product and raise follow-on rounds for you. If you were to look for them 5-10 years ago, they were negligible, but now Startup accelerators are found everywhere. These are those which give you an office space, capital, and mentorship for 5-10% equity, depending on how much you can bargain. A list of active accelerators can be found here.

Seed Funding

Also known as incubators, this kind of funding companies generally provide capital for trying your product and finding a market for it. Incubators are generally like parents to a child. They nurture and guide you thoroughly and invest more amount in you. They help you when your business is just an idea to make it fully functional. They can be broadly divided in three:-

Angels

These are individuals who invest their own money in relatively smaller proportions. They are very easy to raise and often tend to be very guiding and forgiving. It is possible to raise an angel in a matter of a week, as the money involved is not very huge. However, you might want to avoid too many of them as they are generally very involved in your business and it might be difficult to cater to all of them at once.

Super Angels

Super angels are similar to that of angels but their investment capacities are greater. They can invest anywhere ranging from 50 lakhs to few crores. These investors are more professional and you can call it their business to invest in startups like yours. The biggest benefit of having Super Angels is that you can do away with having more investors and liability on your head.

Early stage venture capital firms

These are those companies which have most funds to offer. These investors come from those companies who invest in dozens of companies around the globe and thus if you manage to land on a VC, you can get a kick start to your business. Apart from funds you also get attached to a brand name which can help you develop a goodwill in the market. What’s more? If you manage to do well, they might also help you fund your next rounds. This might sound like a win-win deal but such companies are generally very difficult to crack, and it might take months to convince a VC to get on board.

Crowdfunding

Simply put, crowdfunding is raising money through various social media channels. In modern times, crowdfunding is considered as a method to connect with the investors using online portals and mitigating potential barriers to enter the startup ecosystem. In India, crowdfunding works on three major models:

1. Donation Model – Investors not expecting returns.
2. Lending Model – Money is lent subject to various terms and conditions
3. Investment Model – Money is lent in return of equity stake in the startup.

With websites like Ketto, Wishberry, FuelADream, Catapool and Crowdera, crowdfunding has become rather easy. However, one must not forget that although crowd-funding is gaining momentum in India, it still is not legalized and might become problematic in future. 

Syndicate Investing

Although still not very popular in India, this kind of investing essentially promotes angel investors to syndicate deals with other angels and get more investment to the business. The benefit that angels have out of it is that they don’t have to invest single-handedly in one business, and you as a startup gets more money. There are platforms like AngelList which provide syndicate investments in India.

SME Lending

Startups can also opt for small loans, secured or unsecured, offered by multiple small groups or micro-financing firms. However, the only challenge is that these loans come with monthly interest to be a paid, a lot of complications to be approved and higher interest percentage.

Grants

There are various government schemes which provide aid to the startups which align with their goals. For example, if your startup is about providing eco-friendly bin bags, you probably can seek a grant from the government as a part of their “swach bharat abhiyan.” It’s all about finding the right place for your funds after all.

Once you are through with setting up the basics of your business straight, you can move on to the next level of funding. Which is series A, B, and C, but that will come at a later stage.

Stage 4 Follow Up

While many people might have shown disinterest in your business, there must be few positive possibilities which would have come your way. Make sure you duly follow up with them and give them updates on your progress. This should continue even after you have received the money to build a stronger relationship for the future and gain more funding during advanced stages.

Do not forget the law

While raising investment you are governed by multiple regulations. SEBI (Alternative Investment Funds) Regulation, 2012, SEBI (Venture Capital Funds) Regulation, 1996, Companies Act 2013, Companies  (Acceptance of Deposits) Rules, 2014 to name a few. While raising funds you need to ensure that you are adhering to them, to save you massive trouble in the future. The way to prepare is reading from various sources or taking up a course which can give you a thorough knowledge and save you from future disasters.

You need to prepare for the best, but be prepared for the worst. Funding is the most difficult part of a bootstrap, but also the one with most returns. Your startup might be vulnerable but remember if you have an amazing product, a strong team, and traction, if your pitch can turn heads and make them say yes, and you have the right idea of where they get the funds from, no one can stop you from reaching great heights.

Good luck!