Start-ups have become the most valuable asset of the country. But what’s backing the unprecedented growth of some of the highest valued unicorn, IPO, and pre-IPO stage start-ups in India? Money, of course! A downpour of funding from private equity firms, M&As (Mergers & Acquisitions) and some good old VC deals. Money is thus the bloodline of the Indian start-up ecosystem but with all the funding pouring in, start-ups naturally have questions they need answered.
Giving up shares for deserving stakeholders.
When a number of investors come on board, it’s a tough call to decide about dilution of shares. But it’s important for start-ups to be in tune with the goals of the business to understand what’s best. If you’re a team of co-founders or if you plan to give up shares to your employees, make the decision based on who has the best interests of the company at heart. A number of start-ups are giving up small percentages of their company to employees via Stock Appreciation Rights (SARs). By giving stakes in your company to the core team, you know your company is in the right hands.
How to raise start-up funding without losing equity
The worry about having to give up full or partial ownership of your business to fulfil your operating capital needs shouldn’t keep you up at night. Funding often leads to loss of equity but there are ways to ensure that you have full ownership of your start-up. Bootstrapping is surely the best method to keep your equity. If you are a start-up with low capital expenditures, you are at an advantage because you can become a fully bootstrapped start-up (reliant purely on your existing revenue). The next best way to keep equity is to go for business loans. There are a ton of start-up and MSME loan options that you can avail now that the Government is actively supporting the start-up community.
How to get Funding
Getting start-up funding has become relatively easy. If your idea is based on a ground-breaking technological revolution, you can pitch to Angel Investors, Incubators/Accelerators or Venture Capitalists. You can also apply for the Start-up Seed Fund scheme, The Atal Innovation Mission, and look into other Governmental Grants and schemes to get funding for your start-up.
Which Funding option suits me?
The biggest Angel Investors are generally scouring for unicorns to add to their portfolio. On the other hand, Venture Capitalists rarely take a second look at pitches that don’t excite them right off the bat. So how will you know which funding option is best suited for your start-up? Irrespective of the industry you belong to, you can always choose to crowdfund your start-up, approach an incubator/accelerator as an early-stage start-up, or apply with a micro-VC (they usually pitch into pre-seed and seed funding rounds). You can always approach NBFCs (Non-Banking Financial Corporations) who are microfinanciers that are much more flexible than traditional banks. Bank loans are also an option but one that’s not highly recommended for start-ups that are scaling up. Unless you are confident of your ability for timely paybacks. There’s also always a degree of risk involved in bank loans.
The best funding option for all start-ups in India is to seek capital from Government programs. There are several new programmes launched like the 10,000 Crore Start-up Fund, the Bank of Ideas and Innovations Program (a program to share your innovation in exchange for capital). There is also the ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited’ (MUDRA) which is funding SMEs. There are also several state level programs dedicated for small businesses. You can also approach SIDBI (Small Industries Development Bank of India) which is dedicated to offering loans for MSMEs.
A downpour of funding from private equity firms, M&As (Mergers & Acquisitions) and some good old VC deals. Money is thus the bloodline of the Indian start-up ecosystem.
As a start-up, getting a solid funding source is the backbone in any business. Obtaining external funding is critical if you want to scale-up. However, choosing the best suited funding option is important if you want to go past the fledgling stage. Nevertheless, the environment is conducive for start-ups in India. Making the right choice in money matters will determine if your start-up can survive the market.