How to Get Funding for Startup: A Comprehensive Guide for Indian Entrepreneurs

Startups need funding if they want to transform creative ideas into profitable businesses. The question of how to get funding for startups affects many entrepreneurs, as sufficient capital is important for product development, market expansion, and sustainable growth.

We will look at the various startup funding stages available to companies: bootstrapping, angel investors, venture capital, crowdfunding, and government grants. Each path has unique advantages and drawbacks, suitable for different stages of startup growth and industrial sectors.

With a rise in local and international funding, India’s startup scene has recently seen remarkable expansion. India has become the third-largest global ecosystem for companies. Supportive national policies, a growing number of incubators, and increased interest from international venture capitalists have created a fertile environment for startup investment.

Entrepreneurs must first understand these various financing sources and the evolving landscape to navigate the competitive startup scene effectively.

How to Get Funding for Startups in India

As India’s entrepreneurial ecosystem continues to grow, financing for startups is becoming more readily available. Here’s an overview of the types of funding for startups available in India:

Angel Investors

Typically, high-net-worth people or angel investors provide early-stage businesses with finances in exchange for equity. Often, in the seed or early phases, they make investments in businesses, providing not just funding but also industry contacts and mentoring. Usually spending less than venture capitalists, angel investors may have more flexible conditions.

Benefits:

• Share industry contacts and mentoring opportunities
• More adaptable conditions than those of institutional investors
• Quicker decision-making process

Drawbacks:

• Limited financing capability relative to venture capital
• Perhaps less experienced in scaling businesses
• Possibility of conflicting views if many angels participate

Examples:

• Noccarc secured around $2 million from the Indian Angel Network (IAN) for its medical device startup.
• Led by IAN, Papa Pawsome acquired $400,000 in startup funding for its natural pet care business.
• IAN Alpha Fund provided Dhruva Space with Series A2 financing valued at INR 78 crores.

Venture Capital

If you are wondering at which level venture capital invests in a company, venture capital companies often fund businesses with great growth potential in exchange for large ownership interests. Usually having shown some traction, they invest in businesses in Series A rounds and beyond. VC companies may give strategic direction and industry contacts and help with quick growth as well as more funding.

Benefits:

• Availability of substantial funds for rapid scaling
• Broad networks and business knowledge
• Strategic direction focused on development and expansion

Drawbacks:

• High growth and return expectations
• Possible loss of influence over business decisions
• Intense due diligence process

Examples:

• Investors like Sequoia Capital and Tiger Global Management provided substantial funding to Unacademy.
• Razorpay attracted funding from Sequoia Capital and Tiger Global Management, among other investors.

Bootstrapping

Starting a business using personal savings, income, or loans without outside equity involvement. This strategy drives effective, lean operations and lets entrepreneurs have complete control over their business. Bootstrapping doesn’t dilute ownership and may result in a more sustainable company model, even if it may restrict fast expansion. It’s often used in the very initial phases of a startup or by businesses that can generate revenue quickly.

Benefits:

• Retain full control over the company
• Lean operations and forced efficiency
• No pressure from external investors

Drawbacks:

• Limited funds for explosive growth
• Increased personal financial risk
• Slower scaling compared to funded startups

Examples:

• After launching without outside financing, GrabOn became profitable within 15 months and now boasts over 40+ million subscribers.
• Bootstrapped Indian unicorn Zoho employs more than 7,000 people and generates hundreds of millions of dollars annually.

Entrepreneurs looking to secure startup funding in India must first understand these financing sources. The choice will rely on the stage of the company, sector, industry, and founders’ taste for risk and control. 

Startup India Seed Fund Scheme

Starting in April 2021, the government scheme Startup India Seed Fund Scheme (SISFS) seeks to assist early-stage Indian enterprises. This program provides vital financial support for proof of concept, prototyping, product testing, market entry, and commercialisation. The main objective is to enable businesses to grow to the point where they can attract venture capital, bank loans, or angel investors.

Application Process:

Navigating the application process for the Startup India Seed Fund Scheme is straightforward. Follow these steps to apply for government funding for startups through this initiative:

Step 01: Beginning the process, the DPIIT-approved business might use the official company India Portal.

Step 02: Click the “Apply Now” button on the main page and follow the “Apply Now” guidelines specifically for startups.

Step 03: Log in and apply for the scheme using the credentials from the procedure of startup recognition. Complete and send the application.

Step 04: Applicants could apply for seed funding to any three incubators designated as disbursing partners for this scheme, listing them in order of preference. 

Eligibility Criteria:

• Department of Promotion of Industry and Internal Trade approval
• Incorporation in India within the last 2 years
• A creative company concept with market fit and scalable potential
• Significant use of technology in a product, service, or business model
• Preference for fields including social impact, healthcare, energy, mobility, and agriculture
• Limited previous financial assistance from government programs—less than INR 10 lakh
• Minimum 51% shareholding by Indian promoters

Success Stories

The Startup India Seed Fund Scheme has seen promising outcomes. As of April 30, 2023, the Experts Advisory Committee had approved 160 incubators, with INR 611.36 Cr. These incubators chose 1,039 companies to sponsor with INR 176.63 Cr. Notably, Vel Tech – Technology Incubator selected 29 firms for funding. From 424 in 2016 to 98,119 by April 30, 2023, the program has significantly helped acknowledged startups in India to flourish.

Key Benefits of the Startup India Seed Fund Scheme:

In pursuit of knowing how to raise funds for startup business in India, understanding the benefits is very important. The Startup India Seed Fund Scheme gives startups the required financial assistance to turn their creative ideas into profitable businesses, therefore offering them vital help. 

• Early-stage critical financing for market entrance and product development
• Support from incubators includes funds for validation and prototyping up to INR 20 lakhs
• Opportunity for companies to grow and attract more capital
• A sector-agnostic strategy promoting creativity across various fields
• Nationwide impact, fostering inclusive development throughout the startup ecosystem

Emerging as a key driver in fostering the nation’s startup ecosystem, the Startup India Seed Fund Scheme offers the necessary financial support early-stage companies require to turn ideas into profitable businesses.

Government Schemes for Startups

Government schemes for startups in India offer diverse support to foster innovation and entrepreneurship. Here’s an overview of key schemes:

Atal Innovation Mission (AIM)

The 2016 Government of India flagship project, Atal Innovation Mission (AIM), promotes innovation and entrepreneurship among youngsters. It supports students, startups, and entrepreneurs with creative ideas that alleviate social issues and boost the economy. AIM promotes a supportive ecosystem for innovation-driven enterprises in India through Atal Tinkering Labs (ATLs) in schools, Atal Incubation Centres (AICs) for startups, and Atal Community Innovation Centres (ACICs) in rural areas. Selected organisations can apply for grants of up to ₹10 crore over five years.

How to Apply:

1. Go to the AIM website.
2. Submit detailed proposals for the applicable sub-schemes.
3. Verify adherence to rules specific to your program.
4. Await expert committee evaluations.

Benefits:

• Infrastructure for creativity and financial backing
• Creation of Atal Tinkering Labs within educational institutions
• Support for startups from Atal Incubation Centers

Make in India

Starting in 2014, the “Make in India” project is a transforming effort meant to establish India as a major worldwide manufacturing base. Designed to increase domestic manufacturing in many industries, it targets both local and foreign companies wishing to launch or grow their manufacturing activities in India. Part of India’s larger economic plan is to boost industrial growth, generate employment, and attract foreign investment; this huge project will help the nation to become much more globally competitive and economically developed. 

How to Apply:

1. Register via the Startup India website.
2. Submit the necessary registration documents.
3. Apply for specific benefits like tax exemptions or fast-tracking of patent applications.

Benefits:

• Simplified corporate policies and procedures
• Many industries under the automatic route have 100% FDI permission
• Strengthened system of intellectual property rights (IPR)

SIDBI (Small Industries Development Bank of India)

Established in 1990, SIDBI (Small Industries Development Bank of India) is a top financial organisation that supports, funds, and grows micro, small, and medium businesses (MSMEs) in India. Providing direct and indirect financial support, it serves as the main development bank for the MSME industry. To improve the competitiveness of startups and small enterprises, SIDBI offers a broad spectrum of services ranging from loans to equity assistance to promotional and developmental initiatives.

How to Apply:

1. Apply directly via partner banks or SIDBI.
2. Submit essential documents, financial accounts, and business plans.
3. Choose suitable plans, including SIDBI Make in India Loan for Small Enterprises (SMILE).
4. Follow the application method specific to each plan.
5. Wait for SIDBI or partner institution review and approval.

Benefits:

• Direct and indirect financial support through various lending programs
• Availability of dedicated funds for manufacturing and other industries
• Developmental and promotional initiatives aiming at increasing competitiveness

MUDRA Banks

Launched in 2015, MUDRA (Micro Units Development and Refinance Agency) Banks are a government project meant to promote micro and small businesses in India’s non-corporate sector financially. Through a network of banks, regional rural banks, and microfinance organisations, MUDRA provides collateral-free loans up to ₹10 lakh. The programme divides loans into three categories—Shishu, Kishore, and Tarun—that fit varying phases of corporate expansion and financial need. This scheme offers collateral-free loans up to ₹10 lakh to small/micro enterprises.

How to Apply:

1. Visit commercial banks, regional rural banks, small finance banks, or microfinance organisations.
2. Fill out a loan application form.
3. Submit additional documents like financial records, identification verification, and a business plan.
4. Choose the suitable loan category: Shishu, Kishore, or Tarun.
5. Wait for loan approval and disbursement.

Benefits:

• Small and microbusiness loans up to ₹10 lakh without collateral
• Promotion of financial inclusion in underserved and remote areas
• A broad network of financial institutions for loan distribution

How to Find Investors for a Business

Startups seeking expansion depend on finding investors. Here are some tips to help you find investors:

Identify Potential Investors

Create a list of investors your company could attract. Research clubs and angel investor networks operating in your area. Look at venture capital firms supporting companies in your field. Consider government programs like the Startup India Seed Fund, which provides funding through incubators. For early-stage financing, your personal network—including friends and family—can be valuable. Conduct a broad search to identify the ideal fit for your company.

Approach Investors

Once you have identified potential investors, it’s time to reach out. Present a strong business plan showcasing your value, market potential, and financial future. Attend pitch competitions and startup events to meet investors in person. Request introductions from individuals who can vouch for your company. When presenting, be concise and clear; investors see numerous pitches, so make yours stand out. Highlight your team’s strengths, as this often influences investors.

Utilise Investor Platforms

Online platforms can help you connect with investors interested in startups in India. Develop pitches and connect with prospective investors through platforms like Indian Angel Network and Startup India. Many of these platforms vet businesses to ensure investors get quality deals. These tools can help you reach a wider audience and find suitable financial partners.

Prepare a Compelling Pitch

Attracting investors depends on a great pitch. Create a thorough business plan covering your product, market, and growth strategy. Develop a strong pitch deck to convey your concept clearly. Be prepared to answer tough questions about your finances and market. Demonstrate deep knowledge of your industry and your ability to execute your strategy. A well-prepared presentation can be crucial in securing funding for your business.

How to Get a Business Loan

Securing funding is crucial for startups. Here’s a guide on using business loans to raise money for a startup:

Steps to Securing a Business Loan

Here’s how to navigate the process of obtaining financing for your business venture.

• Assess your funding requirements
• Consider loan terms
• Check your eligibility
• Research lender criteria
• Prepare for lender evaluation

Prepare Your Documents

Collect necessary documentation, such as:

• Business plan
• Financial statements
• Tax returns
• Bank statements
• KYC documents
• Collateral details (if applicable)

Choose the Right Lender

Selecting the right financial partner is crucial for securing the best terms and support for your business’s financial needs. Options include:

• Commercial banks
• NBFCs
• Microfinance institutions
• Government schemes (e.g., PMMY, CGTMSE)

Submit your Application

Understanding how to get funding for startups, ensure completeness and accuracy to prevent delays. Review terms and conditions carefully. Check for additional charges, loan terms, and interest rates. Negotiate if necessary.

Business Loan Types

Knowing the variety of options will enable entrepreneurs to choose the financing solution that fits their own financial requirements and corporate objectives. Here are the different business loan types:

Loan Type	Description
Term Loans	Set rates and organised debt schedules define long-term financing. Perfect for big purchases or growth.
Working Capital Loans	Short-term operational financing for cash flow management, seasonal fluctuations, or inventory control.
Equipment Financing	Specifically for machinery purchases, frequently utilising the equipment itself as collateral.
Invoice Factoring	Depending on accounts receivable, loans against overdue invoices provide fast cash flow.
Business Line of Credit	Flexible borrowing allows you to pay interest only on the amount utilised, drawing money as required.
Startup Loans	Designed for startups, usually with more flexible requirements but maybe higher interest rates.
SBA Loans	Government-backed loans with reasonable conditions accessible via approved participating institutions.

Tips for Improving Loan Approval Chances

Boost your odds of securing a business loan with these key strategies:

1. Maintain a Healthy CIBIL Score: Regularly check your credit record and address any issues promptly.
2. Create a Strong Business Plan: Outline your operating plan, market analysis, financial projections, and growth strategies.
3. Offer Collateral if Possible: This can secure better terms and increase your approval chances.
4. Apply to Multiple Lenders: Compare offers from several sources to find the best rates and terms.
5. Keep Financials Healthy: Maintain good cash flow, profitability, and debt-to-income ratios.
6. Explore Government Schemes: Look for programs specifically designed to support small businesses and startups.
7. Build a Strong Relationship With Your Bank: A solid banking record increases your likelihood of loan approval.
8. Consider a Co-Signer or Guarantor: Especially for new businesses, this can make your application more attractive.

How to Invest in Startups in India

India’s growing startup ecosystem offers a variety of investment opportunities. Startups are transforming established sectors in everything from tech to healthcare, e-commerce to finance. The government’s Startup India program has further driven this growth, creating a favourable environment for investors. The regular emergence of unicorns attracts both local and foreign investors due to the potential for high returns.

Steps to Becoming an Investor

Investing in startups may be a fascinating and perhaps profitable endeavour. Here’s a road map to help you know how to get funding for startups and negotiate the procedure if you want to join the world of startup investing:

1. Educate Yourself: Understand the startup landscape, various funding sources, and investment strategies.
2. Define Your Investment Strategy: Determine your risk tolerance, preferred industries, and budget.
3. Network: Join angel investor groups, attend startup events, and connect with other investors.
4. Due Diligence: Conduct thorough research on startups before investing. Review their financials, team, business model, and market potential.

Choose Your Investment Route:

When it comes to investing in startups, there’s no one selective approach. Your objectives, risk tolerance, and finances will determine the numerous financial paths you may follow. Here are the main options to consider: 

• Angel Investing: Directly invest in early-stage startups.
• Venture Capital Funds: Invest through professional VC firms.
• Crowdfunding Platforms: Invest smaller amounts in multiple startups.
• Legal Compliance: Ensure all investments comply with SEBI regulations.

Risks and Benefits

Investing in startups can offer high rewards, but it also comes with significant risks. Understanding both sides of the coin is crucial before venturing into this dynamic investment landscape:

Benefits:

• High growth potential
• Portfolio diversification
• Encouraging innovation and job creation
• Potential for significant returns

Risks:

• The high failure rate of startups
• Illiquid investments
• Long waiting period for returns
• Regulatory and market risks

Empowering Your Startup: The Path to Successful Funding

The success of a company depends on obtaining the proper capital. From government programs to angel investors and venture capital, we have explored how to get funding for startups in India. Each funding option has unique benefits and challenges.

When deciding on a financing source, startups should thoroughly evaluate their needs and development stage. Understanding how to get funding for startups is not a one-size-fits-all process. It requires careful planning, a solid business case, and usually a mix of multiple financing sources.

Don’t hold back from exploring various paths. Funding is about finding partners who support your idea and can help your company flourish, not just about money.

Appropriate financing may provide strategic direction, mentoring, networks, capital, and other critical elements. As you embark on your funding journey, stay persistent and adaptable. With the right strategy and financing combination, your business will thrive in India’s vibrant corporate scene.

Also Read:

What is Angel Investors and How it Works?

What is Venture Capitalist and how venture capital works? 

Startup Business ideas in India

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