Home Education Startup Funding - Fully Explained and How it Works?

Startup Funding – Fully Explained and How it Works?

In this we will learn What is startup? From where does the startup funding comes from? Also well will see some successful Indian Startups and at last look what is difference between Business and startup?

Basically startup is a company that is created by entrepreneurs to develop a unique product or any new service that market has never seen before for the benefit for the society or people.

As we can see now a days the bubble of startup is growing on a much faster rate so anything you create, it can be any product or service can be your startup.

The apps you are using to eat, buy goods etc. are the outcome of startups that came from a genius mind.

For example Indian startups are oyo, asian paints etc. So the product or the service we are surrounded by are the results of the different startups.

What’s in for me

  1. What is startup
  2. Where startup funding comes from
  3. How startup funding works
  4. Indian startups
  5. Startup Vs Business
  6. Conclusion
  7. FAQ

let’s begin….

What is startup

What is startup. Let's look about this

Startups begins with the founder or co-founder who are having the idea to solve the problem.

Startup are basically started from a problem to solve. The founder picks to problem on start working on it.

On finding the solution it can be in the form of product or service, they place the product to market.

The startup process can take long period of time to sustain in the market because of the high failure rate in startups.

There are various domains in which new ideas are implementing like Electric Vehicles, IoT based Automatic Controllers, Artificial Intelligence, etc

Startup does not consist of only making product but is also consist of marketing, and other business ethics.

These startup companies don’t have a fully formed business model. They does not have strong financial background to support the company.

So most of the startups are funded by the founder. Learn more about business ethics on Wikipedia

Where startup funding comes from

From where should the funding will came from

Most of the startups fails because they are unable to collect enough funding to survive in the market so fund collection the important aspect for startups companies.

So what is funding ? funding is basically a act of providing money, credit or loan for the project , a person, or any institution.

So now the question arises how the startup gets funding and provide them funds.

Also see : Startup project on Electricity through speed breaker

Four different stages of funding in companies.

Four types of funding i.e Initial funding, investors funding, capEx funding, funding through IPO

Initial Funding

1) When an idea comes to a person the money needed to make the product or says prototype is by himself. Initially the funding is raised by 3F’s.

It is basically friends , family and the friends of friends. So this is how initial funding is raised by the startup.

Investor funding

The investor who typically invest in early stage of business in called venture capitalist (vc).

The money that is raised at this stage is greater than the initial funding.

The money that the business gets at this stage is called Series A funding and it goes on and on from series A to B,C etc.

CAPEX Funding

When the company plans to increase the expenditure to improve the overall business the expenditure is called ‘CAPEX’ or capital expenditure

A part of capex can be funded through the company’s profit. This is called internal accrual.

They can approach another VC ( venture Captalists ) or can take series B funding.

Or they can approach bank to lend money as is also called as debt.

Funding through IPO

At last they can go for IPO (initial public offering).

Read more of IPO on Investopedia

How startup funding works

How different types of funding is needed at every stage of startup.

  1. Stage 1:

    Basically when the idea gets molded in prototype the fund required initially is very low.
    That’s why initial funding is called seed funding. It starts with a very small scale business.

  2. Stage 2:

    When the person need to make its own production line so then he needs more money so he approaches the VC or Investors.

  3. Stage 3:

    When the demand to expand to business is needed the money requirement also increases.
    So, when the person wants to open stores in different cities then he require more funding and then he approach the capex to expand the business.

  4. Stage 4:

    When the expansion and marketing is needed to be done at higher rate. Then taking loan is one of the approach.
    Taking loan from the bank can act for you or against you. Its depends totally on you and your company performance. Debt is as good as bad.

Indian startups

Wow! Momo

See in short about fundings, Starting year and service of Indian Startup and successful business Wow! Momo.

Wow! Momo is a food chain who are growing so fast in India. You will find branches in different  cities. Wow! Sell burgers, Tibetan food and etc 

Founded in : 2008

Total funding : $470 Million 

Ola Cabs

You may think Uber is causing a storm right now, but Ola Cabs is an Indian startups taking over India as we speak.

If you need a minicab in the India area, be sure to try Ola Cabs out. They are currently competing with Uber, which says it all really!

Founded In: 2010

Offices In: Karnataka, Koramangala

Total Funding: $3.8 Billion

Zomato

See in short about finding, starting year and services of Indian business Zomato

Zomato is one of the most well know Indian startups and perhaps one of the most successful food tech startup  around in India that has turned into an international business.

Founded in : 2008 

Total funding : $755.6 Million  

Paytm

Taking an example of Indian business Paytm. Let's see about it's funding, starting year, etc

Paytm is another very successful among Indian startups. This is a payment service that allows people to pay funds to each other.

It is very similar to pay pal. While it’s not at that level yet, it still seems to dominate  all over India.

Founded in : 2010

Total funding : $2.2 Billion  

And the list goes on and one.

There are many examples of startups in India and they creating our new future. And many are going to come.

But most of the startups in India are just the replicate version on foreign companies.

For eg. Ola is same as uber.

             Oyo is same as Air bnb.

             Flipkart is same as Amazon.

But also they are working good in India because the other business carefully and also introduce their own business model to use the available data efficiently.

Also see : How to get Business ideas

Startup vs Business 

Suppose there are two person Nilesh and Anupam. 

Difference based on Business model

StartupBusiness
Business model:
Nilesh would look at how the sales can occur online while using machine learning to sell customized solutions based on demographics, preferences of the customer including budget, allergies, use of new metals & stones.
Nita would not be able to achieve this on day one &she creates a viable product that can test her hypothesis. The hypothesis being the willingness of customers to use algorithms to determine jewellery designs that would suit their physical appearance &preferences. She does all this from the comforts of her home & gets family members, friends & friends of friends to be part of the experiment.
Business model: Anupam would ideally set up a shop/showroom on the main road with inventory being key to both his profit-making & customer traction.
Usually his sales are immediate; he relies on trust, goodwill & word-of-mouth for the sales and the principles of a free market determine the prices and the profit-making.

Difference based on journey

StartupBusiness
Contrasting Reasons to Embark on Journey :
Nilesh is disgruntled with how things happen today & believes there can be smarter, faster & efficient ways of solving the problem. Nilesh is scorning at the inefficiencies in the market; worried why technology has not been used to make humans lazier & solve the specific issue she faced or witnessed others go through.
Contrasting Reasons to Embark on Journey :Anupam wants a handsome profit coming on a monthly basis while he infuses part of the profits to grow the business over time. He is clear that his scale is limited by capital infusion. Let us not discount that he has modern ways of carrying out a traditional business – he uses latest accounting tools, has RFID tags & has exotic pieces from around the world showcased in his showroom.
He is driven by customer-feedback principles, uses modern financial payment methods & even analyses customer data to increase his profits/revenues. But he is driven by a sense of profits & solving today’s needs of the customers.

Difference based on Economy

StartupBusiness


Economic Differences :
A start-up is mostly never in such a comfort zone, unless the entrepreneur has a deep pockets godfather. But the risk vs return concept drives home the difference most profoundly. Rahul is taking a risk by not putting the capital in bonds/fixed deposits, but he is pretty confident of the success of the business. Nilesh is not sure of the exact profits, growth year-on-year & sales. But he is fairly comfortable that he will be operationally profitable.
Economic Differences :
Most businesses are considered to be a going concern – in the sense that they function without a threat of liquidation for the foreseeable future (more than 12 months). He is not sure of the exact profits, growth year-on-year & sales. But he is fairly comfortable that he will be operationally profitable

Conclusion

At last we can consider that if any one who has the idea to execute than they can to find some ways to built that idea in a startup plan.        

Startup does contain risk as most of the startup fails but the experience or skill you get after it is not imaginable.

And it contain the reward. The risk and reward ratio are high in startup.

Also see : If you are an engineering student and wanted to appear in Gate Examination then read this blog.

Frequently asked questions

How do I protect my idea?

You can file for patents, trademarks, and copyrights. If you have something propriety about your company.
You should consider filing for a patent to temporarily protect your business in its infancy to get it up and running.

What is the ideal team size?

Founding teams tend to be 2-3 people, ideally with at least one technical cofounder. Having many more founders will get distracting and slow things down.

What are the different ways to raise funding in Startup?

1. Initial funding
2. Investors funding
3. CAPEX funding
4. Debt from bank
5. IPO (initial public offering)

What is IPO?

IPO is initial public offering or stock market launch. Through this a private company convert it’s some percentage into public company to raise money for expansion.

Pursuing electrical engineering degree from Government Engineering College Bharuch, Gujarat

DWIVEDI NILESH UMASHANKAR
Pursuing electrical engineering degree from Government Engineering College Bharuch, Gujarat
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