This deluge has lasted several years, but no one’s complaining. It has been raining startups in India for the past 3-4 years and, in fact, India ranks fifth in the world in terms of startups, with nearly 3,100 currently in operation. In tandem with the surging enterprise, funds are flowing in like never before and the country is buzzing with options–venture capitalists, angel investors, incubators and banks. Currently, the number of active investors in the country include 172 VCs, 43 angel investors, and 48 incubators. As much as $4.75 billion of VC funding came through in 2014 and it has already touched $3.18 billion in 2015, according to Venture Intelligence and Tracxn!, two VC tracking firms. So, how do you go about securing the much-needed funds for your startup? We list six options that you can tap.
These set-ups precede the seed funding stage and help the entrepreneur develop a business idea or make a prototype by providing resources and services in exchange for an equity stake ranging from 2-10%. Incubators offer office space, administrative support, legal compliances, management training, mentoring and access to industry experts as well as to funding through angel investors or VCs. “Most don’t offer to fund, but make up for it by providing logistics and external support so that the entrepreneur can focus on work without worrying about the nitty-gritty,“ says Devashish Chakravarty, an IIM-Ahmedabad alumnus, and Director, Executive Search, QuezX.com, which provides recruitment for startups.
These are usually government-supported institutes like the IIMs or IITs, technical institutes or private business incubators run by industry veterans or companies. The incubation period can be 2-3 years and admission is rigorous. One has to provide an application to such programmes and is accepted depending on the quality of the idea or other conditions specific to the institute. Some of the top options in India include IIM-Bangalore NSRCEL, Microsoft Accelerator, and IIT-Kanpur SIIC. ANGEL INVESTORS The first stage of actual funding to get your idea off the workshop and into the market is called seed funding. The funds for this stage are usually secured by entrepreneurs from their own savings or loans from family and friends. However, you can also get it from angel investors or crowdfunding since not many investors and VCs are willing to fund a concept that has not acquired critical mass or traction.
Angel investors are usually individuals or a group of industry professionals who are willing to fund your venture in return for an equity stake. The amounts can range from `5 lakh to `3 crores and are not as high as those provided by VCs since the risk level at this stage is high. “Team, timing and potential market size are the three key things I look at in startups,“ says Anupam Mittal, among India’s top 10 angels. You also need to research and tap the angels who are active in your sector.“Some may be active in technology and others in travel or food. You can get in touch through your network for family, friends, and colleagues. There are also angel networks across cities and curation platforms like ours,“ says Amit Banka, founder of Equity Crest, which helps entrepreneurs connect with investors. The top angels in India include Rajan Anandan, Indian Angel Network, K. Ganesh, among others.
This is another recent way of getting seed funding through small amounts from a large number of people, usually through the Internet. The entrepreneur can get money for his venture by showcasing his idea before the entire world and convincing people of its utility and success. Wishberry.in and Catapooolt are among such forums in India. The entrepreneur needs to put up on a portal his profile and presentation, which should include the business idea, its impact, and the rewards and returns for investors. It should be supported by suitable images and videos of the project. The bottom line is that it should be convincing enough to draw investors. “The biggest problem is that of regulation,“ says Chakravarty. “If you are a private limited company, the number of members or investors can only go up to 200. If you exceed this number, you turn into a limited company and the compliance and paperwork that this entails can be daunting,“ he adds.
CAPITALISTS After the initial seed-funding stage comes expansion and growth of the venture, which requires big money. This is where VCs come in, offering anywhere from `1-300 crore in exchange for a high equity stake. It is one of the most popular sources of funding for mid to late-stage startups and has been in the news after big-ticket deals for Flipkart, Snapdeal and Ola. However, one must make elaborate preparations before approaching the VCs. Says Gopal Modi, President, Investments, Orios Venture Partners: “Entrepreneurs should focus on the right team mix, strong product backed by technology, and proven traction, especially in the case of new ideas where there are no proven models globally,“ he adds.
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You can approach a VC by seeking an introduction through fellow entrepreneurs who may have received funding from them. Adds Modi: “Approaching through known networks like exist ing entrepreneurs always works in their favor. VC funds are more receptive to those referred by other successful entrepreneurs.“ When you finally meet the potential investors, be prepared to answer several questions. CGTMSE LOANS Under the Credit Guarantee Trust for Micro and Small Enterprises scheme, meant to encourage entrepreneurs, one can get loans of up to `1 crore without collateral or surety. Any new and existing micro and small enterprise can take the loan under the scheme from all scheduled commercial banks and specified Regional Rural Banks, NSIC, NEDFi, and SIDBI, which have signed an agreement with the Trust.
BANKS & NBFCs
Loans from banks and NBFCs help finance the purchase of inventory and equipment, besides securing operating capital and funds for expansion. More importantly, unlike a VC or angel, which have an equity stake, banks do not seek ownership in your venture. However, there are several drawbacks. Not only do you pay interest on the loan but it also has to be done on time irrespective of how your business is faring. They require substantial collateral and a good track record, besides the fulfillment of other terms and conditions. They also entail a lot of paperwork.