Find
out the best ways to source money for your venture as per its growth stage This
deluge has lasted several years, but no one's complaining. It has been raining
start ups in India for the past 3-4 years and, in fact, India ranks fifth in
the world in terms of startups, with nearly 3,100 currently in operation. In
tandem with the surging enterprise, funds are flowing in like never before and
the country is buzzing with options--venture capitalists, angel investors,
incubators and banks. Currently , the number of active investors in the country
include 172 VCs, 43 angel investors and 48 incubators. As much as $4.75 billion
of VC funding came through in 2014 and it has already touched $3.18 billion in
2015, according to Venture Intelligence and Tracxn!, two VC tracking firms. So,
how do you go about securing the much-needed funds for your starup? We list six
options that you can tap.
Incubators
These set-ups precede the seed funding stage and help the entrepreneur develop
a business idea or make a prototype by providing resources and services in
exchange for an equity stake ranging from 2-10%. Incubators offer office space,
administrative support, legal compliances, management training, mentoring and
access to industry experts as well as to funding through angel investors or
VCs. "Most don't offer funding, but make up for it by providing logistics
and external support so that the entrepreneur can focus on work without
worrying about the nittygritty," says Devashish Chakravarty , an
IIM-Ahmedabad alumnus, and Director, Executive Search, QuezX.com, which
provides recruitment for startups.
These are usually government-supported institutes like the IIMs or IITs,
technical institutes or private business incubators run by industry veterans or
companies. The incubation period can be 2-3 years and admission is rigorous.One
has to provide an application to such programmes and is accepted depending on
the quality of idea or other conditions specific to the institute.Some of the
top options in India include IIM-Bangalore NSRCEL, Microsoft Accelerator and
IIT-Kanpur SIIC. ANGEL INVESTORS The first stage of actual funding to get your
idea off the workshop and into the market is called seed funding. The funds for
this stage are usually secured by entrepreneurs from their own savings or loans
from family and friends.However, you can also get it from angel investors or
crowdfunding since not many investors and VCs are willing to fund a concept
that has not acquired critical mass or traction.
Angel investors are usually individuals or a group of industry professionals
who are willing to fund your venture in return for an equity stake.The amounts
can range from `5 lakh to `3 crore and are not as high as those provided by VCs
since the risk level at this stage is high. "Team, timing and potential
market size are the three key things I look at in startups," says Anupam
Mittal, among India's top 10 angels. You also need to research and tap the
angels who are active in your sector."Some may be active in technology and
others in travel or food. You can get in touch through your network for family
, friends and colleagues. There are also angel networks across cities and
curation platforms like ours," says Amit Banka, founder of Equity Crest,
which helps entrepreneurs connect with investors. The top angels in India
include Rajan Anandan, Indian Angel Network, K. Ganesh, among others.
Crowdfunding
This is another recent way of getting seed funding through small amounts from a
large number of people, usually through the Internet. The entrepreneur can get
money for his venture by showcasing his idea before the entire world and
convincing people of its utility and success. Wishberry.in and Catapooolt are
among such forums in India. The entrepreneur needs to put up on a portal his
profile and presentation, which should include the business idea, its impact,
and the rewards and returns for investors. It should be supported by suitable
images and videos of the project. The bottom line is that it should be
convincing enough to draw investors. "The biggest problem is that of
regulation," says Chakravarty . "If you are a private limited company
, the number of members or investors can only go up to 200. If you exceed this
number, you turn into a limited company and the compliance and paperwork that
this entails can be daunting," he adds.
Venture capitalists
After the initial seed-funding stage comes expansion and growth of the venture,
which requires big money.This is where VCs come in, offering anywhere from
`1-300 crore in exchange for a high equity stake. It is one of the most popular
sources of funding for midto late-stage startups and has been in the news after
big-ticket deals for Flipkart, Snapdeal and Ola. However, one must make
elaborate preparations before approaching the VCs. Says Gopal Modi, President,
Investments, Orios Venture Partners: "Entrepreneurs should focus on the
right team mix, strong product backed by technology, and proven traction,
especially in the case of new ideas where there are no proven models globally ,"
he adds.
You can approach a VC by seeking an introduction through fellow entrepreneurs
who may have received funding from them. Adds Modi: "Approaching through
known networks like exist ing entrepreneurs always works in their favour. VC
funds are more receptive to those referred by other successful
entrepreneurs." When you finally meet the potential investors, be prepared
to answer several questions. CGTMSE LOANS Under the Credit Guarantee Trust for
Micro and Small Enterprises scheme, meant to encourage entrepreneurs, one can
get loans of up to `1 crore without collateral or surety. Any new and existing
micro and small enterprise can take the loan under the scheme from all
scheduled commercial banks and specified Regional Rural Banks, NSIC, NEDFi, and
SIDBI, which have signed an agreement with the Trust.
Banks & NBFCs
Loans from banks and NBFCs help finance the purchase of inventory and
equipment, besides securing operating capital and funds for expansion. More
importantly, unlike a VC or angel, which have an equity stake, banks do not
seek ownership in your venture.However, there are several drawbacks.Not only do
you pay interest on loan but it also has to be done on time irrespective of how
your business is faring.They require substantial collateral and a good track
record, besides the fulfilment of other terms and conditions.They also entail a
lot of paperwork.
Citation
from Times Of India :
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