FUNDING

• Funding refers to the money required to start and run a business. It is a financial
investment in a company for product development, manufacturing, expansion,
sales and marketing, office spaces, and inventory.

• It means the financial resources that are provided to a business to enable its
growth, operation and development.

• Funding is a crucial aspect of startup growth and development. It provides the

necessary capital for startups to develop products, scale operations, and achieve
market penetration.
 Why funding is required?
• Start-Up Cost: Start-up costs encompass the initial expenses needed to launch a business, including
registration fees, legal services, infrastructure setup, and initial inventory purchases. These costs are
critical to establish the foundational operations and ensure that the business is legally and
operationally ready to begin trading.

• Research & Development: Research and Development (R&D) funding is essential for developing
innovative products or services, conducting market research, and improving existing offerings.
Investing in R&D helps startups maintain a competitive edge by enabling them to create unique
solutions that meet market demands and differentiate from competitors.

• Hiring Proper Personnel: Securing funding for hiring skilled personnel is vital for building a competent
team that can drive the startup’s growth. This includes recruiting talent in key areas such as
management, technology, marketing, and operations, ensuring the business has the necessary human
resources to execute its strategy effectively.

• Marketing: Marketing funds are crucial for promoting the startup’s products or services, building
brand awareness, and acquiring customers. Effective marketing strategies, including digital marketing,
advertising, and public relations, help startups reach their target audience, generate sales, and
establish a strong market presence.

• Day-to-Day Operations: Funding for day-to-day operations ensures that the startup can manage its
regular expenses such as utilities, office supplies, rent, and salaries. This operational capital is
necessary to maintain smooth business operations, meet ongoing financial obligations, and sustain the
business until it becomes profitable.
 Sources of Funding
1. Investments from Close Network
It is easier to borrow money from family, friends, and a close network who trust you than investors or banks.
They most probably invest in your startup as they believe in your dream. Getting legal advice from family and
friends is a good idea if you intend to take a loan from them. The advantage is you can give back the money
flexibly. However, borrowing money could break the friendship and create a bad climate for the family. So, keep
the promise and put your efforts into repaying the money.

2. Government Schemes
The Indian Government launched various loan schemes to benefit the start-up enterprises. It understood the
importance of startups for innovation and economic growth. It keeps supporting women entrepreneurs,
educated youth, individuals from the SC/ST category, villages, rural areas, etc., which boosts India’s overall
economy. Various ministries and departments developed schemes to provide financial, infrastructural, and
regulatory support for startup enterprises. Following are some of the schemes introduced by the Government
of India.

• Smart Farm Challenge by STPI

• Startup India Initiative
• Dairy Entrepreneurship Development Program
• Pradhan Mantri Mudra Yojna
• Startup India Seed Fund
• Digital India Bhasini
• ASPIRE
• Drone Shakti
3. Find an Angel Investor
Individuals who have surplus money and are interested in investing in new startups in return for
equity are called Angel Investors. The major risk in getting funds from angel investors is that
they plan to get higher returns as a profit. The popular Angel Investors in India are Ratan Tata,
Kunal Shah, and Sanjay Mehta. Startup owners can establish a direct relationship with investors
for funding. Though investors expect a good return on investment, they are motivated by a good
business idea and proposal. So, make sure to research and validate the idea thoroughly. It must
have innovative aspects and the space for profitability.

4. Venture Capitalists
Venture capitalists (VCs) play a significant role in the startup ecosystem by funding early-stage
companies with high growth potential. VCs are drawn to startups that articulate clear and
ambitious long-term goals, demonstrating a robust, resilient business model and a strong and
competent team. VCs invest in startups expecting to secure high returns, typically made in
exchange for equity. Unlike angel investors, VCs engage in long-term partnerships, aligning their
success with the startups. VCs often avoid investing in a startup’s initial or later stages when the
competition is high. In essence, venture capitalists contribute capital and strategic guidance for
business development.

5. Bank Loans
Banks in India provide traditional loans to startups based on their creditworthiness and business
plans. It provides two forms of funding for startup enterprises: loans and working capital loans.
While the process can be lengthy, securing a bank loan offers stability and allows entrepreneurs
to retain full ownership. However, getting loans from private or public sector banks becomes
challenging if you don’t have a financial history or good credit score.
6. Startup Incubators and Accelerators
Joining an incubator or accelerator program provides startups with mentorship, resources, and
networking opportunities. These programs often exchange equity for support, fostering rapid
growth. It combines a communal workspace and a mentorship development centre to kickstart
the startup into growth mode. They offer various value-added services like utilities, workspace,
and legal assistance. Yet, the competitive nature can make entry tough, and startups might
find their vision influenced by the program’s objectives.

7. Crowdfunding
Crowdfunding is a method to collect funds from multiple investors through social media sites
or web-based platforms for various purposes. It includes social causes, disaster relief, charities
and raising funds for startups. In India, online web portals for crowdfunding are available:
Indiegogo, Ketto, Milaap, GoCrowdera, Catapooolt, FundRazr, Kickstarter, GoFundMe, Fuel A
Dream, and Impact Guru. This democratised funding model can bring validation and a diverse
investor base.

8. Bootstrapping (Self-Financing)
Bootstrapping is a risk-free way to finance the startup and expand it. Entrepreneurs will rely on
their savings to establish the startup. It relieves the pressure of getting paid back the money or
giving equity to the other party. While it grants complete control to founders, it could limit the
scale and pace of growth. On the positive side, bootstrapping fosters financial discipline and
resource optimisation.
9. Freelancing
Entrepreneurs can fund their startups by offering freelance services in their domain.
This provides immediate income and allows for skill development. It will help you to
gain money in the early stages of your startup. However, balancing freelancing with
building a startup can be demanding, and there’s a risk of diverting focus from the
core business.

10. Grants & Competitions

Participating in grants and competitions can offer non-dilutive funding and industry
recognition. Winning such opportunities enhances credibility and attracts further
investment. Nonetheless, the competition can be fierce, and the application process
demands time and precision. And, make sure you are comfortable with the grants
agreement, if there are any.

11. Strategic Partnerships

Collaborating with established companies for mutual benefit can infuse funds and
resources into startups. Strategic partnerships can create new markets and
technologies. Yet, aligning goals and maintaining a balance in the partnership can be
challenging, requiring careful negotiation and communication.
 Stages of Startups
Pre-Seed Stage
In the pre-seed stage, entrepreneurs find the business idea and work to establish the startup. You can find informal
ways to get a fund at this stage since it needs a small and limited amount of money. You can get funds from a close
network, like friends and family, who believe in you and your business idea. Also, Bootstrapping (Self-financing) and
Grants are the best funding types at this stage.

Seed Stage
In this stage, entrepreneurs are ready with their prototype and strive to establish their product’s potential demand.
They put out the product or service in the real world and see how it works. It’s called Proof of Concept (POC). After the
POC, entrepreneurs launch their products in the marketplace. Incubators, government schemes, angel investors, and
crowd funding are the best modes of funding at this stage.

Series A Stage
In the Series A Stage, entrepreneurs launched their products in the marketplace and got an early success. It includes the
performance indicators such as customer base, app downloads, monthly recurring revenue, and active users. This
proves that the startup is doing well and eligible to obtain funds. You can get funds from the Venture capitalists and
Bank loans to develop from this stage. It helps you to improve product development, expand the customer base, and
open various branches.

Series B, C, D, and E
Businesses will start generating better revenue and be stable in this stage. They require funding to develop the business
further. They can devise new marketing strategies, hire new employees, form a team, and build new departments with
the funds. At this stage, funds can be gained from venture capital and investment firms since the business has attained
a stable position in the marketplace.

Exit Stage
This is the last stage of a startup, where it is transitioning from a startup to a big company. In this stage, the
entrepreneur either merges the startup with another company or sells the business to a bigger company for a profit.
They can go with an IPO (Initial Public Offering) to sell their shares to the public. The public funds help the business
grow further and obtain a greater profit.
 FUNDING PROCESS
• Preparation: Preparation involves creating a solid business plan, financial projections,
and a clear value proposition. Startups must also prepare detailed pitch decks and
documents that highlight their market potential, competitive advantages, and growth
strategies to attract investors.

• Networking: Networking is crucial for connecting with potential investors, mentors, and
industry professionals. Startups should attend industry events, join startup incubators,
and leverage online platforms to build relationships and gain introductions to key
stakeholders.

• Pitching: Pitching is the process of presenting the business idea and financial needs to
potential investors. This involves delivering compelling presentations that clearly
articulate the startup's vision, market opportunity, business model, and financial
requirements to persuade investors to consider funding.

• Due Diligence: Due diligence is an in-depth investigation conducted by investors to verify

the startup's business model, financials, legal structure, and market potential. This step
ensures that all claims made during the pitch are accurate and assesses the risks and
viability of the investment.

• Closing: Closing involves negotiating and finalizing the terms of the investment deal,
including the amount of funding, equity stake, and other contractual obligations. Once
terms are agreed upon, legal documents are signed, and the funds are transferred,
enabling the startup to proceed with its growth plans.
 Notable Indian Startups and Their
Funding Journeys
• Flipkart:
– Started with seed funding from angel investors, followed by multiple
rounds of VC funding, and eventually acquired by Walmart for $16
billion.
• Byju's:
– Raised initial funding from Aarin Capital, followed by several rounds of
VC funding from firms like Sequoia Capital, General Atlantic, and the
Chan Zuckerberg Initiative.
• OYO Rooms:
– Secured seed funding from Lightspeed Venture Partners, followed by
Series A to F rounds, with significant investments from SoftBank and
Sequoia Capital.
• Paytm:
– Started with angel and seed funding, followed by substantial
investments from Alibaba Group, SoftBank, and Berkshire Hathaway,
and later went public with a $2.5 billion IPO.