To create solutions that improve the lives of others is what entrepreneurship is all about. And if you think you have a successful idea, there's no point in keeping it to yourself. Most entrepreneurs need a financial push to power up business. Don’t let this be the reason for ceasing your way. All you need is to learn about various sources of startup funding in India and choose the one that fits your startup the best.
Starting out can be challenging, especially when it comes to getting funded.
In this article, we will be talking about various ways of getting your startup funded. We will also put forth some tips for paving your startup's way to getting funded.
Related: What is the government loan scheme for small business?
3 sources of startup funding in India
Startups in India have exploded over the last 10 years, but many of them are no longer in operation. You can avoid this fate by making sure you have the money you need to be successful. Here are three possible sources of startup funding in India.
- Crowdfunding.
- Angel investors.
- Venture capitalists.
Once you’ve scanned our list, keep reading for steps you can take to improve your chances of getting the funding you desire.
Funding can make all the difference
Recently, KPMG released a report on the Indian startup ecosystem. It states that since 2008, the number of startups has gone from 7,000 to 50,000 in 2018. That is a growth of 7.14 times.
But did all the startups thrive? No, most didn't. More than 90% of startups fail within the first five years since inception. The most common reason behind small business failure is lack of funding.
Don't want to get into this list? Here are three ways to get your startup funded.
Editor’s note: Once you have your funding sorted, put your business online in less than 5 minutes with Online Starter Bundle.
1. Crowdfunding
Top on our list of startup funding in India is crowdfunding. In a nutshell, this is a way of collecting funds from a number of investors rather than just one.
There are three types of crowdfunding:
- Reward crowdfunding. In this category, the investors receive a product sample or gift in return for the investment made.
- Debt crowdfunding. As the name suggests, you get a loan from investors that you are required to return under a given deadline.
- Equity crowdfunding. Here you need to hand over some portion of your business to the investors for the investment made by them.
Here are a few crowdfunding platforms to look at:
- Kickstarter
- Indiegogo
- Crowdfunder
- Patreon
- GoFundMe
Crowdfunding has gained a lot of popularity in the past few years and the process involved is simple. You need to put forth your startup details, business description and vision in front of potential investors using a crowdfunding platform. The crowd will tell you if your idea is worthy of support.
2. Angel investors
Individuals with surplus money and those who are willing to invest in promising startups are called angel investors. In addition to providing money, they also mentor you for a sustainable future.
Top-tier companies like Google, Alibaba and Yahoo all raised funds through angel investment.
This form of investment typically occurs in the initial stage of a startup's growth, with investors generally demanding up to 30% equity.
Angel investments have their own disadvantages: in comparison with venture capitalists, angel investors provide less money.
Here is a list of top 45 angel investors in India.
3. Venture capitalists (VC)
Here come the top-tier investors who fund startups that possess the highest growth potential. VCs mostly invest in a startup in exchange for equity when there's an initial public offering (IPO). They also provide entrepreneurs with:
- Mentorship
- Connections
- Evaluation of the startup’s sustainability and scalability
However, venture capital investment is reserved for startups that have crossed the initial phase and are generating enough revenue. Also, just like angel investors, VCs have their own shortcomings.
Generally, venture capital investment comes with a short-term plan like three to five years. So, if your product needs more time to build a market for itself, VCs might not invest in your startup.
Here is a list of 47 most active venture capital firms in India.
Venture capital or angel investment?
Unsure of the difference between venture capitalists and angel investors? Here are the major differences between them:
- Angel investors just invest in early-stage startups; VCs prefer developed companies.
- Angel investors are individuals, whereas venture capitalists are part of a company.
- Venture capitalists invest considerably more than angel investors.
- Angel investors primarily provide financial support and sometimes even advice. VCs provide every possible help to grow a company.
Now that we are done with types of startup funding sources in India, let's check out some tips for attracting the right kind of investors for your startup.
Tips for attracting the right kind of investors
Getting startup funding using one of these options won’t be easy — there are thousands of other entrepreneurs who also want to be funded. Here are a few steps you can take to improve your chances.
Create an appealing business model
The first thing that any investor would expect to see is a business plan, including your target market and the business model you’ve selected. They will only be interested in investing when your business model is highly profitable, scalable and sustainable.
Have a team
Investors need to feel confident about the brains behind your startup. Build a team of experts who can turn your idea into reality. List their credentials and experience in your business plan.
Make some investment
Before looking for investors for your startup, you need to invest at least 20% of the total needed from your own pocket.
Provide financial projections
Create a five-year revenue plan that shows the expected profit for your business. You can read this post for practical tips on predicting future income.
Do online marketing and brand promotion
By seriously promoting your product or service online, you make investors trust your business even more. Moreover, it also helps you to build an audience, some of whom will become customers.
Create a loyal customer base
As VCs just invest in developed businesses, it is mandatory for your business to have a loyal customer base.
Patience is the key here. Raising funds can be a time-consuming job, so it's important to have patience and be persistent.
Get your startup off the ground
Gone are the days when great ideas were let down because of the shortfall of capital. It's the time when investors can easily be approached. The only things that an entrepreneur needs to focus on are preparing a solid business plan and creating a team to back it up.
Stay persistent, create something that adds value and keep approaching investors until you make it. Happy startup! :)
