STRATAGY FOR THE STARTUP FUNDING

Founders should have a detailed financial and business plan before they approach investors.

• Prototype Creation
• Product Development
• Team Hiring
• Working Capital
• Legal & Consulting Services
• Raw Material & Equipment’s
• Licenses & Certifications
• Marketing & Sales
• Office Space & Admin Expenses

We help in all the above accepts for a Start-up

Funding Types

Equity Financing    Equity financing involves selling a portion of a company’s equity in return for capital.

Debt Financing       Debt financing involves the borrowing of money and paying it back with interest.

Grants                      A grant is an award, usually financial, given by an entity to a company to facilitate a goal or incentivize performance.

Stages of Start-ups and Source of Funding

There are multiple sources of funding available for start-ups’. However, the source of funding should typically match the stage of operations of the start-up. Please note that raising funds from external sources is a time-consuming process and can easily take over 6 months to convert.

• Ideation
• Validation
• Early Traction
• Scaling
• Exit Options

Ideation

This is the stage where the entrepreneur has an idea and is working on bringing it to life. At this stage, the amount of funds needed is usually small. Additionally, at the initial stage in the start-up lifecycle, there are very limited and mostly informal channels available for raising funds.

Pre-Seed Stage

Bootstrapping/Self-financing:

Bootstrapping a start-up means growing the business with little or no venture capital or outside investment. It means relying on your savings and revenue to operate and expand. This is the first recourse for most entrepreneurs as there is no pressure to pay back the funds or dilute control of your start-up.

Business Plan/Pitching Events

This is the prize money/grants/financial benefits that are provided by institutes or organizations that conduct business plan competitions and challenges. Even though the quantum of money is not generally large, it is usually enough at the idea stage. What makes the difference at these events is having a good business plan.

Validation

At this stage, a start-up has a prototype ready and needs to validate the potential demand of the start-up’s product/service. This is called conducting a ‘Proof of Concept (POC)’, after which comes the big market launch.

Seed Stage

A start-up will need to conduct field trials, test the product on a few potential customers, on-board mentors, and build a formal team for which it can explore the following funding sources:

Incubators:

Incubators are organizations set up with the specific goal of assisting entrepreneurs with building and launching their start-ups’. Not only do incubators offer a lot of value-added services (office space, utilities, admin & legal assistance, etc.), they often also make grants/debt/equity investments. You can refer to the list of incubators here.

Government Loan Schemes

The government has initiated a few loan schemes to provide collateral-free debt to aspiring entrepreneurs and help them gain access to low-cost capital such as the Start-up India Seed Fund Scheme and SIDBI Fund of Funds. A list of government schemes can be found here.

Angel Investors

Angel investors are individuals who invest their money into high-potential start-ups’ in return for equity. Reach out to angel networks such as Indian Angel Network, Mumbai Angels, Lead Angels, Chennai Angels, etc., or relevant industrialists for this. You can connect with investors by the Network Page.

Crowdfunding

Crowdfunding refers to raising money from a large number of people who each contribute a relatively small amount. This is typically done via online crowdfunding platforms.

Early Traction

At the Early Traction stage start-up’s products or services have been launched in the market. Key performance indicators such as customer base, revenue, app downloads, etc. become important at this stage.

Series A Stage

Funds are raised at this stage to further grow the user base, product offerings, expand to new geographies, etc. Common funding sources utilized by start-ups’ in this stage are:

Venture Capital Funds

Venture capital (VC) funds are professionally managed investment funds that invest exclusively in high-growth start-ups’. Each VC fund has its investment thesis – preferred sectors, stage of the start-up, and funding amount – which should align with your start-up. VCs take start-up equity in return for their investments and actively engage in the mentorship of their investee start-ups

Banks/Non-Banking Financial Companies (NBFCs)

Formal debt can be raised from banks and NBFCs at this stage as the start-up can show market traction and revenue to validate its ability to finance interest payment obligations. This is especially applicable for working capital. Some entrepreneurs might prefer debt over equity as debt funding does not dilute equity stake.

Venture Debt Funds

Venture Debt funds are private investment funds that invest money in start-ups’ primarily in the form of debt. Debt funds typically invest along with an angel or VC round

Scaling

At this stage, the start-up is experiencing a fast rate of market growth and increasing revenues.

Series B, C, D & E

Common funding sources utilized by start-ups’ in this stage are:

Venture Capital Funds

VC funds with larger ticket sizes in their investment thesis provide funding for late-stage start-ups’. It is recommended to approach these funds only after the start-up has generated significant market traction. A pool of VCs may come together and fund a start-up as well.

Private Equity/Investment Firms

Private equity/Investment firms generally do not fund start-ups’ however, lately some private equity and investment firms have been providing funds for fast-growing late-stage start-ups’ who have maintained a consistent growth record

Exit Options

Mergers & Acquisitions

The investor may decide to sell the portfolio company to another company in the market. In essence, it entails one company combining with another, either by acquiring it (or part of it) or by being acquired (in whole or in part).

Initial Public Offering (IPO)

IPO refers to the event where a start-up lists on the stock market for the first time. Since the public listing process is elaborate and replete with statutory formalities, it is generally undertaken by start-ups’ with an impressive track record of profits and who are growing at a steady pace.

Selling Shares

Investors may sell their equity or shares to other venture capital or private equity firms.

Buybacks Founders of the start-up may also buy back their shares from the fund/investors if they have liquid assets to make the purchase and wish to regain control of their