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Funding-8 Most Important Sources for Startups

To understand the different sources of startup funding let us take an example. Suppose you want to start a company.

Now as soon as an idea strikes your brain, a lot of challenges come with a package. So, you need to plan a lot to tackle those challenges.

You may need the following:

  • funding
  • market exposure
  • necessary materials supply
  • protection from foreign competitors, etc.

Some of the challenges are such that you can tackle it by yourself with the help of your family and friends. But there are also certain policies and programmes formed by the government.

That can help you build your company at various stages. Different initiatives took by the government of India to support the new startups.

The Indian government aims to build an ecosystem to promote entrepreneurship.

Let us look at some of the programmes started by the Indian government and private companies or institutes.

What’s in it for me?

  1. Make in India
  2. Startup India Standup India
  3. Digital India
  4. MUDRA Loan Scheme
  5. India Aspiration Fund
  6. Startup Exchange
  7. Role of Big Companies
  8. Startup Incubators
  9. What Investors Look for Before Investing?
  10. Conclusion
  11. Frequently Asked Questions about Funding

Make in India

make-in-india-logo

This programme was launched by the ministry of finance, the government of India, and was launched on 25th September 2014.

The main aim of this project was:

  • to make India a manufacturing hub and
  • to encourage companies to manufacture their products in India.

Its goal is:

  • to create more jobs and
  • enhance the skills of the youth in 25 sectors of the economy.

These sectors are namely:

  1. Automobiles
  2. Automobile components
  3. Aviation
  4. Biotechnology
  5. Chemicals
  6. Construction
  7. Defense manufacturing
  8. Electrical machinery
  9. Electronic systems
  10. Food processing
  11. Information Technology and Business Process Management
  12. Leather
  13. Media and Entertainment
  14. Mining
  15. Oil and gas
  16. Pharmaceuticals
  17. Ports and shipping
  18. Railways
  19. Renewable energy
  20. Roads and highways
  21. Space and astronomy
  22. Textile and garments
  23. Tourism and hospitality
  24. Wellness
  25. Thermal power

Startup India Standup India

It was launched by Prime Minister Narendra Modi no 16th January 2016.

The main aim of this scheme is:

  • to help startups set up their business and
  • to catalyze entrepreneurship among people.

Its goals are:

  • to generate employment which will help in economic development
  • to motivate youth to build up entrepreneurship skills.

There are certain conditions formed by the government to take the benefit of this scheme, such as:

  • The business should be either private limited company, limited liability partnership, or registered partnership firm.
  • It should be new or not older than five years.
  • The total turnover of the firm should not exceed 25 crore rupees.
  • You should have a new and innovative idea.
  • Should add value to customers.
  • Must work towards innovation and development.
  • Get approved from Department of Industrial Policy and Promotion (DIPP)

Some of the benefits for startups are:

  • Self-certification
  • Registration through the mobile app
  • No inspection for 3 years
  • Funding support
  • Credit guarantee fund 
  • 80% rebate on patent applications
  • Income tax relief for the first 3 years
  • Tax exemption from capital gains 
  • Easy exit 
  • Incubation centers to support start-ups across the country
  • Legal support 
  • Fast track patent examination
  • Environment certificate

Digital India

This campaign was launched by the government of India on 1st July 2015. It is supervised and managed by the Digital India Advisory group. This will be lead by India’s Ministry of Communications and IT.

digital-india-logo

It is a programme:

  • to transform India into an empowered society and
  • to create jobs and bring investment to the country.

Its visions are:

  • Infrastructure as a utility to every citizen
    • High-speed internet
    • Digital identity
    • Mobile and bank linking
    • Cloud storage
    • Safe access to cybersecurity space
  • Governance and service on demand
    • Credentials cloud-based
    • Real-time access
    • Business ease
    • Secure payments
  • Digital empowerment of the citizens
    • Education
    • Digital resources
    • Digital platforms
    • All documents and certificates will be available in various languages.

The government aims to achieve growth in many fields with this programme. They are known as ‘9 Pillars of Digital India’. These are as follows:

  1. Broadband highway
  2. Universal access to mobile connectivity
  3. Public internet access programme
  4. E-Governance: Reforming government through technology
  5. E-Kranti: Electronic delivery of services
  6. Information for all
  7. Electronics manufacturing
  8. IT for jobs
  9. Early harvest programmes

MUDRA Loan Scheme

mudra-yojna-logo

Mudra loan scheme was launched by the Indian government on 8th April 2015.

The main aim of this scheme is

  • to help the entrepreneurs to start their business or
  • to expand the existing business and
  • no need to submit collateral security to banks.

Types of schemes under MUDRA loan are:

  1. Shishu – Loan amount till Rs. 50,000
  2. Kishore Yojna – Loan amount between Rs. 50,000 – 5,00,000
  3. Tarun Yojna – Loan amount between Rs. 5,00,000 – 10,00,000 (you will not get loan more than Rs. 10,00,000).

The government has built up an app for easy access to the loan facility under the MUDRA loan scheme. People can apply for the loan online.

You have to fulfill the requirements. Such as the submission of certain documents and certificates. Once you are complete with all the criteria, you will be eligible to get the required amount of loan.

India Aspiration Fund

The finance minister Arun Jetley launched this programme in Mumbai on 19th August 2015. It is a part of the Startup India programme.

The main aim of this programme was

  • to encourage the startup ecosystem in India and
  • divide a huge sum of money to various venture capitalists.

It was supported by SIDBI (Small Industries Development Bank of India). The main aim was to push forward the startup fund of funds eco-system all over the country.

It invested Rs. 2,000 crore in this programme for micro, small and medium enterprises.

Startup Exchange

SEBI (Securities and Exchange Board of India) announced a new set of rules for startups, including e-commerce ventures. It is planning to raise funds from listing on stock exchanges.

These new rules and guidelines will provide

  • relaxations in disclosure related requirements, takeover, and Alternative Investment Fund
  • regulations for IT, data analytics, intellectual property, biotechnology, or small technology companies.

There are many informal channels from where the startups can get the fund for their business. Such as big corporate, angel/seed/venture capital funding, etc.

Let us look at some of them in detail.

Role of Big Companies

Large corporate focus on many aspects of a business. They manage each sector. Be it finance, marketing, human resource (HR), information technology (IT), research, and development (R&D), etc.

They focus on the following areas:

  • innovation,
  • performance excellence, and
  • risk management

This will help them compete in the business environment.

But as their business starts expanding more and more, they come across many challenges. Such as up-gradation of research and development.

It means more investment in this department, increasing digital disruption, and organizational bureaucracy. These things make it difficult for large companies to innovate on their own.

So these firms search for creative people with good technological skills. Hence, they invest in startups to get their work done.

angle-investor-ready-for-funding

Today many companies are not investing in their own research and development. But invest in many sources of innovation, focusing in particular on technology-based startups.

These firms either collaborate with small firms or invest in startups. As a result they access their pool of talents, assets, and capabilities.

Big firms often look at smaller companies as they are more agile with less bureaucracy. They develop innovative products.

For example, Ratan Tata invested in a Bangalore-based startup named Tracxn. It is an intelligence firm.

Few startups have managed to raise funds through ‘Crowdfunding’. In this, a large number of investors invest through various channels. Such as the internet, mail-orders, etc.

For example, Ketto is a non-profit organization and raises funds through this concept. This concept has gained popularity globally. It is still in the nascent stage in India and is to be in use in the coming future with the increase in awareness.

Startup Incubators

There are various startup incubators been set up in various parts of the country to assist startups in various stages.

Incubators share both tangible and intangible resources. Such as advice, management help, equipment, office space, legal services, etc.

startup-incubator-help-in-funding

They also help them in raising capital from various sources and advice them which sector will be the best one to raise funds to reduce their financial burdens. Incubators also help entrepreneurs in building a sustainable business environment.

Some of the examples of startup incubators are:

  • Various educational institutes are setting up incubator programmes to help the budding startup. For example, Shri Ram College of Commerce, New Delhi. They have set an incubator center to help their student in their startups.
  • May big corporations such as Tata Group has launched T-Hub. They set up incubator programmes to help startups.

What Investors Look for Before Investing?

magnifying-glass-and-investor

Important factors to consider before investing in a company are:

Business Plan

Every investor look into the business idea. They see:

  • Which problem will the company solve?
  • What is its aim?
  • What are the goals?
  • Product or service it will provide
  • What is the target market?
  • What will be the management process?
  • Sources of funds
  • Will the business be scalable?
  • Will it be profitable in the long run?

These are some of the main point which the investors are more concerned about.

Unique Idea

They see that the business idea must be unique. It should be such that it will disrupt the market. A unique idea helps in differentiating with the competitors and add on the advantage.

You need to tell your investor –

  • How you are unique?
  • How your product is unique and innovative?
  • What problem does it solve?
  • What is its potential?
  • Is it an innovation or invention?

Strong Narrative

The investment pitch is a very important part. It matters how you pitch the investors. To make your investment pitch strong, you should have a story to tell.

Meaning, you have to tell the story of how you can up to this idea? What was the reason behind it? What was your inspiration? etc.

So, your story must be interesting to grab the attention of the investors throughout the pitching session. Also, you must be prepared for your speech. Do not forget in between the pitching session.

Business Readiness

Investors also look upon –

  • How much you are prepared for your business?
  • Is it ready to step down in the market?
  • What is progress?
  • How much is the demand for the product?
  • Is there any plan to expand?

If you have the answer to these questions then the investment chance increases. But the answer must be satisfactory to them.

In short, do a proper market research and then pitch the investors.

Credibility and Financial Statement

If you have an existing business, then the investors check –

  • What is the credit score?
  • How many times did you take credit?
  • What were the sources?
  • What was the maximum amount of money you took?
  • Were you able to pay back?
  • What was the credit duration?
  • What was the interest rate?

If your credit score is good then they will think to invest on your company.

Investment Decision

Finally, after getting satisfied with all the answers they take an investment decision –

  • How must to invest?
  • What will they get in return?
  • How much will they get in return?
  • What will happen to their amount if the company fails to function?
  • Where will the amount be invested?
  • How much amount will be invested in which field?

After getting satisfied with these answers, they finally invest in the company with some terms and conditions.

what-investors-look-before-investing

Conclusion

There are many sources of funding that can help you in setting up and expanding your business. You can either go for government sources or private sources.

The only thing you should keep in mind is that your product should be innovative and people can differentiate your product from your competitors. In other words, your product must be unique. Then only you will get the funding.

Frequently Asked Questions about Funding

What are the startup funding stages?

Startup funding stages are as follows:
1. Personal sources
2. Seed capital
3. Angle investor
4. Venture capitalist
5. Series A
6. Series B
7. Series C
8. IPO (Initial Public Offering)

What is startup seed funding?

Seed funding is a stage where the idea for the startup gets the fuel to grow their business. The fund raised from seed capital helps in initial market research work for the company.

With the help of research work the startup launches its product and presents it to its target customers.

How to get startup funding?

I have already explained in the above section in detail. You can also raise funds from your sources.

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