START-UP FUNDING IN INDIA

Introduction

When it comes to Indian startup investment, we’re seeing two major patterns by the conclusion of the first quarter of 2022. While overall funding in the first quarter of 2022 is greater than in the first quarter of 2021, there are also signs of a slowdown and consolidation in the Indian sector. Which clearly shows the growth of startups in India. Startup funding is one of the most important factors influencing the viability of a startup. In this article we discuss all about startup funding in India.

What is a Startup?

A startup is a business that is still in its early phases of development. One or more entrepreneurs form a startup to produce a product or service for which they feel there is a market. These businesses usually begin with significant costs and little revenue. For startups, the first several years are critical. Entrepreneurs should use this time to focus on raising finance and building a business plan. Greater learning opportunities, higher responsibility, flexible work hours, a relaxed work environment, improved employee engagement, strong workplace perks, and innovation are all advantages of working at a startup.

How to start a Startup.

●?????? Predict the future.

Because most of us live in the past or the present, it's easier to go back and see what has worked in the past and figure out how to do it again. Big businesses are built on two types of ideas: obvious and difficult and non-obvious and difficult. When Uber initially offered a trip in 2009, they realized they were living in the future.

●?????? Find the missing elements in the world.

You've definitely noticed that cab journeys were not particularly pleasurable prior to Uber. Before SpaceX, you may have noticed that people were less interested in space. But that was in the past. What is it that's missing now? What, more crucially, is currently missing from your life?

●?????? Make a note of it.

You will not recall all of your insights, no matter how brilliant you are. Conversations with others, odd observations, and shower ideas that deserve to be pursued. If you don't get these done, you'll lose them. Daydreaming is beneficial. It was dubbed "thinking experiment" by Einstein.

●?????? Make a working model & show the model to 100 people.

Unfortunately, the majority of your ideas, even the best ones, will never see the light of day. Even if you write them down, you'll forget about them. Only those ideas that your working model is exempt from. If you can, make them physical – programme them, design them, whatever it takes to turn ideas into something more than simply thoughts. The majority of individuals will come to a halt exactly here. As a result, if you accomplish this, you'll be ahead of the hypothetical curve.

You'll now have to get out of your comfort zone and seek out folks who can give you feedback on your working model. It's ideal if they are both folks you know and people you've never met before. What is the significance of 100? Because you'll need a variety of viewpoints and, hopefully, a pattern to discern from all of the criticism.

●?????? Look for a Co-Founder.

When the prototype starts to make sense, go find someone else who is willing to devote a decade of their life to this project because it will change the world and they probably don't have anything more worthwhile to do with their lives right now.

●?????? Make a Startup Registration

Equity should be split. Finally, a simple step. Hire a lawyer to help you register your startup. Giving your co-founder as much equity as you think will motivate them to work hard, while keeping as much as you think will motivate you to give it your all.

●?????? Find funds and start working on the first version.

Find an investor if you don't have enough money to construct version one. Build version one while you're at it. You must continue to construct because there is no guarantee as to when or if you will find an investor. Don't assume you'll acquire funding just because other firms have. Assume the worst and design your product accordingly.

●?????? Launching & Re-launching

Launch your product as soon as it has even a speck of usefulness. If the basic functionalities are useless, further features, a better interface, a faster load time, and other optimizations are unlikely to save it. Start as many times as you need to. If a few hundred people return on their own at some point, you've probably built something worthwhile.

●?????? Growth & Success

Startups can IPO, sell their company or stay private by convincing investors that there is a bigger liquidity event coming. Paul Graham encourages startups to grow at least 5% a week. If you grow that much, within 4 years you will get to 25 million users. In other words, you will be one of the largest startups. Even now, though, you may or may not have made the world better.

Startup Funding

The money needed to start and run a startup is referred to as funding. It is a monetary investment in a business for the purposes of product creation, manufacturing, expansion, sales & marketing, office space, and inventory. Many firms prefer not to seek outside finance and instead rely solely on their founders for funding. Most startups, on the other hand, do raise money, especially as they expand and scale their operations. Funding can arise from various places and be used for any reason that aids the startup’s transition from concept to reality.

Different Modes of Funding[1]

1.Angel Investor

Individuals who aim to invest in businesses at their earliest stages are known as angel investors. These are high-risk investments that typically account for less than 10% of an angel investor's total portfolio. Most angel investors have extra cash and are looking for a higher rate of return than standard investment possibilities can offer. Angel investors usually invest using their own fund. Informal investors, angel funders, private investors, seed investors, and business angels are all terms for angel investors.Angel investors offer better conditions than conventional lenders because they are more concerned with the entrepreneur's ability to start a firm than with the viability of the enterprise. Angel investors are more interested in assisting businesses in their early stages than in making a profit from the company.

2. Venture Capitalist

A venture capitalist (VC) is a private equity investor who invests in high-growth firms in exchange for a share of the company's ownership. This might include sponsoring new projects or assisting small businesses that want to grow but don't have access to the stock market. Limited partnerships (LPs) are commonly used to construct venture capital businesses, in which the partners invest in the VC fund. A committee is usually responsible for making investment decisions for the fund. Following the identification of prospective emergent growth companies, the pooled investor funds are used to support these businesses in exchange for a significant equity interest. Venture capitalists are ready to take a chance on such businesses since they stand to profit handsomely if they succeed. VCs, on the other hand, have a high failure rate due to the uncertainty that comes with investing in new and unproven businesses. Accel Partners, Venture East, Helion Venture Partners, One Capital Ventures are some examples of VCs.

3. Business Incubators

A business incubator is a space designed to provide startups and new businesses with all of the resources they require under one roof. Incubators often provide resident companies with professional advisors, mentors, administrative support, office equipment, training, and/or possible investors in addition to a desk or office. Some incubators specialize in a certain industry or type of company. Other incubators are more generalist in nature, accepting a wide range of firms. The Amity Innovation Incubator in India, Center for Innovation Incubation and Entrepreneurship, IAN Incubator are some examples of Business incubators.

4. Friends and Family

This is regarded to be one of the safest and most dependable methods of funding of all the others because the person who loaned you the money knows you well enough to place their trust in you. You also have them by your side at all times.

5. Crowdfunding

Crowdfunding is a simple approach to raise significant funds for the startup by soliciting small contributions from a large number of individuals via the Internet. Due to the large number of startups seeking online investments and capital, it is more important than ever to make the most of the tools and technology-enabled solutions available. Furthermore, a lot of new funding sources have developed in the business world, drawing a slew of new young businesses from all over the world. Crowdfunding campaigns comes in a variety of shapes and size, The most well-known are listed below:

●?????? Equity crowdfunding

●?????? Reward-based crowdfunding

●?????? Donation-based crowdfunding

Crowdfunding to fund the startup, which gives complete freedom to structure and execute the campaign anyway that sees fit. Crowdfunding startups helps to reach a bigger audience with startup ideas and products. It also raises brand recognition and provides prospects for online investment.

6. Government Loan Schemes

India is making progress toward its goal of creating a thriving startup ecosystem. The government has established a ministry (department) committed to assisting new firms in order to promote and support them. Furthermore, the Indian government has introduced a slew of initiatives aimed at boosting entrepreneurship in the country and providing financial assistance to new businesses. The following is a list of government programs designed to promote and foster entrepreneurship in India:

●?????? SAMRIDH Scheme

●?????? Startup India Seed Fund

●?????? ASPIRE

●?????? Pradhan Mantri Mudra Yojana (PMMY)

●?????? ATAL Innovation Mission

●?????? Multiplier Grant Scheme (MGS)

●?????? eBiz Portal

●?????? The Venture Capital Assistance Scheme (VCA) etc.

The government is not only pushing these initiatives to enable the current set of startups to profit from them, but it is also encouraging budding entrepreneurs, startups, and students from all fields to be self-sufficient and advance Atmanirbhar Bharat's vision. These initiatives have been put in place to help the Indian startup ecosystem grow. The country currently appears to be entering a golden period of entrepreneurship, with India, if everything goes according to plan, hosting as many successful businesses as the United States or any other leading nation by 2030.

7. Grants

This form of funding is usually reserved for companies that are involved in the research and development process. Because most of these firms are overseen and regulated by the government, the government offers them grants. All of this being stated, every entrepreneur should consider the advantages and disadvantages of their idea before putting it into action. A well-funded startup may go a long way without losing its balance.

8. Personal business loans

For people with good personal finances, personal business loans can be a good option. Although loan amounts are smaller and maturities are shorter than typical business loans, most are funded within a week of approval and offer cheaper interest rates than other financing choices, depending on your credit score. Just make sure your lender doesn't prohibit you from using a personal loan for business purposes.

How to get funding for a startup.

Follow these steps to find the proper form of startup finance and boost the chances of acquiring it:

●?????? Identify the requirements of the fund needed.

A company credit card may be the best option if you need to fund a major one-time transaction. If you need a large amount of money, an investor can be a better option. Before you start applying for jobs or reaching out to your contacts, figure out how much money you'll need.

●?????? Form a business plan

A business plan will be required by many lenders and potential investors. This document should include information on your business model, financial requirements, and how you aim to make money, among other things.

●?????? Bring together important documents.

These can include business and personal tax returns, bank statements, financial records for your business, and other legal documents pertaining to your company (such as articles of incorporation, a commercial lease or profit and loss statement).

●?????? Determine the best funding option.

Conduct research to determine which type of funding is appropriate for the startup, and then tailor your applications accordingly.

●?????? Ability to repay

Make a strategy for how to pay back any money that you borrow before you take it out. You can estimate your payments and make sure they fit into your budget by using a business loan calculator or a credit card payoff calculator.

Conclusion

Startups may be little businesses, but they may have a big impact on the economy. Startups are the epicenters of innovation, and they produce jobs, which means more employment, which means a stronger economy, and they have a direct impact on the cities in which they reside. Thus, it is the duty of the government to promote more and more startups in India. So as like any other businesses, Startups also need adequate funding to enhance, expand, grow and function. This is the reason why startups opt for startup funding. After getting the adequate amount of funds, the startup must ensure that the fund raised goes to the appropriate place and for the appropriate purpose.

[1] Startup Funding, https://cleartax.in/s/startup-funding