How to Raise Funds for a Startup in India

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How to Raise Funds for a Startup in India – Start-ups are popular and on the rise all over the world. Many start-ups have grown into established brands with vast operations. However, it takes tremendous effort and planning to launch and grow a startup. One of the hardest steps for most entrepreneurs is raising funds. There are various methods available to finance a start-up, but they may only be available if the team credentials, idea and business plan are attractive to investors. Therefore, it is essential to plan each stage of the start-up to take advantage of the best opportunities.

How to Raise Funds for a Startup in India – How to Raise Funds for Businesses in India

Why is funding needed?

A start-up needs funding to:

1- Development of prototypes and products

Legendary one-meeting funding rounds based on the credentials of the entrepreneur and their idea are widespread. Most of the time, a start-up requires the creation of a working model or a prototype. The entrepreneur must go through various stages of trial and error to create a realistic prototype. Once the prototype has been developed, the next step may be to create the next level of the prototype or, in many cases, the final product. Therefore, financing is needed at this stage to procure the necessary inputs for the business so that the next step can be taken.

2- Working capital

Once the product is developed, the core teams are hired, the entrepreneur needs funds for working capital. Working capital is the day-to-day expenses needed in a business. This includes maintaining a cash flow for payments, rent, inventory, etc.

3- Registration fees and legal fees

There are various legal requirements for a start-up. These include registration, license, insurance, taxes, etc. The entrepreneur would need money to cover these costs.

4- Machinery, equipment, hardware, software

Depending on the business model, the entrepreneur may need funds to purchase and install machinery and equipment needed for production. It is a large and essential expense of any start-up. If a startup is service-based, it would require computer and software costs. Many businesses require heavy investment in capital equipment and need external financing.

5- Hiring

A highly qualified team is essential for a successful start-up. Therefore, an entrepreneur will need funds to hire qualified professionals for his team. For service-based startups or those involving scientists and technicians, the initial launch cost can be substantial and therefore require money to keep operations going.

6- Office, administration and marketing

The entrepreneur will need funds for renting or leasing office space, overhead and marketing costs. Marketing and promoting products and services is crucial for any business and one of the toughest heads to raise money for.

Must Read: Start Now – Easy Steps to Get Started – How to Start a Startup?

How to Raise Funds for a Startup in India

Funding Stages

The financing of a start-up is done in several stages. The following steps specify the different types of financing required by start-ups:

1- Pre-seed or self-financing

It is the first stage of a start-up when the entrepreneur develops and tests his start-up idea. This is when the entrepreneur will work on the prototype and experiment with the product. During this stage, the entrepreneur works with savings and does not borrow any external funds. They can borrow money from family or friends, but mostly rely on their own funds. Nowadays, some HNIs also invest in this stage.

2- Seed capital

The next step for a start-up is to develop products after successfully creating a prototype. The entrepreneur will have to reach out to people to invest in the business. These sources include incubators, loans, angel investors, and crowdfunding.

  • Incubators – Incubators are organizations that support and invest in start-ups. These include non-profit organizations such as universities, research organizations, NGOs, etc. Incubators help in launching a start-up and help with various formal procedures.
  • Bank loans – Nowadays, various bank loans are available for new businesses. An entrepreneur can contract a commercial loan or a machine loan, according to his needs, with a public or private bank.
  • Angel Investors – Some angel investors invest in the seed stage of a startup in exchange for equity in the business. Many times some angels can join hands if they all believe in adventure
  • Crowdfunding – Crowdfunding is online fundraising where an entrepreneur can raise funds. The funds can be in the form of donations or the entrepreneur can offer them rewards like free products, discounts, etc., or according to the law of the country. In India, crowdfunding is not allowed.

How to Raise Funds for a Startup in India

3- Venture capital

Venture capital is financing done in different stages or rounds. These investments are professionally managed and are only offered to high-growth start-ups. The entrepreneur must provide a detailed business plan. Venture capitalists would acquire a stake in the business and provide their resources and knowledge for the growth of the business. Funding can start with Pre-Series A, Series A and can go up to different stages (B, C, D, E, etc.) depending on the business model and requirements.

Must Read: Top EV Start-ups in India

4- IPO

This is a stage where the entrepreneur opens his business to public investment. It is only after the IPO that the company can be listed on the stock exchange. However, only start-ups that have decent profits, a huge consumer base, and/or expect strong growth in the future opt for this type of funding. It requires complex formalities and regulations to list for an IPO.

5- Later Stage or Exit Options

After successfully launching their business, entrepreneurs can sell their business or merge with big brands. They can also buy out from venture capitalists to regain full control of the business. It is an entrepreneur’s choice if he wants to run the business on his own or sell it at a huge profit.

How to Raise Funds for a Startup in India

A startup goes through different rounds of funding in different stages. However, he must have an excellent business plan to obtain the required financing and a successful business.

This article only aims to demystify the subject of financing for ordinary people and entrepreneurs who are unfamiliar with the modern way of doing business. This is by no means a conclusive article on the subject of financing and an entrepreneur would need sound advice from professionals to raise funds. All kinds of fundraising involves risk, whether borrowing or equity, and one should be fully aware of the risks before proceeding.

Must Read: Startup Business Inspirational Quotes Images

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