FUND RAISING OPTION FOR START-UPS IN INDIA: SIMPLE TO UNDERSTAND

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Welcome entrepreneurs! Step into the world of startup funding, where every choice shapes the destiny of your business. Pramah Lawmen Chambers is here as your reliable guide, ready to show you around the different ways you can raise funds in the lively Indian startup scene. Now, let's explore the exciting fundraising options available hereinbelow:

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Angel Investors:

Angel Investors are like super supportive individuals with lots of money who believe in your business. They not only give you investment but also share their smart business advice. It's like having a really helpful friend with a big wallet guiding you in your startup adventure. So, it's not just about money; it's about having a wise buddy in your business journey.

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Venture Capital (VC):

Venture Capital firms are like teams of money experts who gather cash from different people and use it to help your startup. They give you a bunch of money to grow, but you might have to share some decision-making power. It's like getting a big financial boost for your business, but you work together on important choices.

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Government Schemes and Grants:

Government Schemes and Grants are like special programs by the government that help startups either in their early stages or for expansion of their business. There are various types of grants and investment by the Government, some of are non-refundable, some of are against equity or equity linked instruments etc.

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Corporate Partnerships and Strategic Investments:

Corporate Partnerships and Strategic Investments are like teaming up with big companies. It's not just about getting money; you also get help with important things like resources, finding customers, and learning from experts in the industry. It's like having powerful friends who want to help your business to grow.

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Debt Financing:

Debt Financing is like borrowing money from banks or through Debenture. In this case, either you have to some interest on the amount or the part of the or whole can be converted into equity at later stage.

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Private Equity (PE):

Private Equity (PE) is when investors buy a big piece of older businesses that are already doing well. It's like someone investing in your business when it's grown up and needs extra help to keep growing. So, it's not for brand new businesses but for ones that are a bit more grown-up.

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Initial Public Offering (IPO):

Initial Public Offering (IPO) is when a company shares its ownership with the public for the first time in a stock market. It's like inviting everyone to be part-owners of the business. This gives the company a lot of money, but it has to follow some strict compliance under the laws of land.

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Convertible Notes:

Convertible Notes are like short-term loans that can turn into owning part of the business later. It's a way for the business to get quick money, and if things go well, the people who lent the money might become co-owners. So, it's like a loan that can be converted into the equity shares of the Company at the later stage.

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Incubators and Accelerators:

Incubators and Accelerators are like special schools for startups. They give money, advice, and help to businesses in return for a small share of the company. It's like a fast-track program to help your business grow quickly, with extra support along the way.

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Strategic Partnerships and Licensing:

Working with other businesses in Strategic Partnerships and Licensing is like making friends in business. You help each other by sharing ideas or letting them use your cool stuff. This way, you can make money and get what you need without losing a piece of your own business. It's like teamwork in business without giving away part of your own business.

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At Pramah Lawmen Chambers, we understand that startups go through different phases of growth. Choosing the right fundraising options depends on your business needs, growth stage, and long-term goals. Our legal experts provide tailored advice, guiding you to make informed decisions. It's crucial to evaluate each option carefully, ensuring it aligns with your business objectives.

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Article by: Shivangi Nigam

Legal Administrator

Pramah Lawmen Chambers

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FAQS (Frequently Asked Question)

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How can my startup get money?

Startups can get money in different ways, like using their own savings (bootstrapping), finding individuals to invest (angel investors), getting help from big investors (venture capitalists) or through borrowing money.

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What is bootstrapping?

Bootstrapping is when you use your own money to run your startup without asking others for help.

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What's the difference between angel investors and venture capitalists?

Angel investors are people who give money from their own pockets. Venture capitalists are like professional helpers with a lot of money from different people to invest in bigger startups.

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Why might startups want venture capital?

Venture capital gives startups a lot of money quickly in one lot, helps them grow fast, and gives good advice from experienced helpers.

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Is there any problem with getting venture capital?

Yes, sometimes startups have to give up part of company’s share and there's a risk it might not work out.

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How can startups get ready to talk to investors?

Startups should have a good story, a strong pitch deck with supporting documents, show how they will make money, and practice talking about their business. Investors want to know the plan and asks questions accordingly.

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Can government also help startups with Investment?

Yes, there are several schemes by the Central Government as well as the State Government. A startup can apply as per the terms and conditions and eligibility criteria.

Can startups borrow money?

Yes, startups can borrow money from the allowed sources as per the respective applicable laws.

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What is "due diligence" in fundraising?

Due diligence is like a thorough check of all the compliance, legal and financial data and records of the Company upon signing of the Term sheet but before the Shareholder’s Agreement and Investment. Investors look at a startup's money, plans, team, and other things to make sure it's a good idea.

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What's the most important thing to remember?

Every startup is different. It's good to ask for advice and think carefully before raising investment and finalizing the terms of the investment. Each step should be discussed with people who is the expert of the respective fields e.g. your legal and compliance consultant, your finance consultant etc.

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