How to get funding for your startup in India?

Are you planning to launch your own start-up? Then you have landed on the right page. Legal Window has more than 10 years of experience in providing consultancy services related to registration of start-ups and their funding. When we talk about funding, it is an extremely important aspect to meet the expenses of your newly launched start-up. For the growth of your business, funding is a very big factor.

What is Funding?

Funding means the amount of money which is required to start and run a business. A Business Organization requires funds to survive. Funding is a financial aid or investment in a business or entity which can be used for manufacturing, product development and expansion, sales and marketing, inventory and office spaces etc.

In India, many start-ups restrict themselves and do not raise funding from any third parties. In fact, they try to pool the investment through owners and founders only.

However, to grow larger and upscale the level of their operations, most of the start-ups do raise funding. If you are also an entrepreneur or an owner of a start-up, you must read further to know why funding is important, different options available for funding and how to raise funding.

Requirement of Funding for start-ups

An entrepreneur might require funding for its start-ups for various purposes. As an entrepreneur, it is very important that you are clear about the reason of raising funds. In this regard, a detailed business and financial plan must be ready before you approach for funding. The various reasons for requirement of funding may be as follows:

• Website or App Development of your business
• Product Development
• Equipment and Raw materials
• Working Capital
• Sales and Marketing
• Office space and other expenses
• Certifcations and licenses

Funding Options Available to Startups

Now let us try to grasp the basic knowledge of various funding options available to start-ups:

• Personal Savings/Self Savings: To fund your start-up, you can utilize your personal savings and revenue to operate and expand your business. This is the first route for many of the entrepreneurs as there is no pressure to pay back the funds.

• Family and friends: This option is also highly utilized for entrepreneurs who are still in he early stage of their start-up. The major benefit of this option is that there is a level of trust between the entrepreneur and his family/friends.

• Angel Investment: Angel investors are high net worth individuals who invest their money into those start-ups which have high potential in return of ownership equity or convertible debt. Hence, if you have the capacity to showcase a bigger picture of your start-up, then you cam opt for angel investment. Angel investors invest in the form of a one-time investment to give financial assistance to the business start-ups to carry out its business operations.

• Loan Schemes of Government: In recent years, the Indian Government has initiated various loan schemes to provide the entrepreneurs access to low cost capital without any collateral or security upto a specific amount. Such schemes include Stand-up India, CGTMSE, MUDRA etc.

• Crowd funding: Crowd funding means raising money from a large number of people each contributing a small amount via various online crowdfunding platforms. Crowdfunding is becoming very popular in recent times as it is relatively a new way of funding a startup. However, it is more likely taking a loan by more than one person

• Venture Capital Funds: Venture Capital funds generally invest in high growth start-ups. Such funds are professionally managed investment funds. Every Venture Capitalists have their own investment criteria, preferred sectors, type of startup, amount of funding to select the start-up for funding. Venture Capital funds invest in business against equity and are engaged actively in mentoring, providing expertise to the investee start-ups.

• Loan facility from Banks and NBFC’s: In case you wish to avail a formal finance for your start-up, then you can knock the door of the banks and NBFC’s. They grant loans to fulfill the multiple business needs of the start-ups, majorly including the working capital needs of the start-up. However, you may need to provide substantial amount of collateral money and your business must have a good credit rating along with other terms and conditions.

• External Commercial Borrowing (ECB): External Commercial Borrowing is also one of the most popular option of raising funds for  start-ups which can be raised from non-resident lenders in the form of buyer’s/seller’s credit, bank loans, securitized instruments etc.

• Venture Debt Funds: These are private investment funds that invest primarily in various start-ups in the form of debt to fulfill the working capital requirement of the start-ups which may include purchase of equipments and inventory.

Wrapping Up

To avail the best advantages of current and upcoming market opportunities by a start-up, funding is very essential for it to access such opportunities. Startups can also consider accelerator and incubator programs.

If interested in getting more knowledge about various funding options, then Legal Window can guide you with the right option as we have a team of multiple professionals.