How to Raise Funds for Startup Business in India

As of 31st December 2023, India had 17254 registered startups. Starting a business has become the dream of every other Indian. I guess that includes you.

You may have an idea that could bring a change in someone’s life. But turning that idea into reality often needs more than just hard work and dedication; it requires money. And one of the biggest challenges of a new startup is securing funding.

India’s startup ecosystem is booming and with so much competition, raising funds has become tougher. Whether you’re launching a tech startup, a local business, or anything in between, you need to understand funding, the types, and the right choice.

In this article, I’m going to help you understand various ways to raise funds for your startup in India.

Which Startups Need Funding?

Not all startups require external funding, but many do. Generally, startups that aim for rapid growth, significant market penetration, or large-scale product development need funding.

These startups often operate in technology, healthcare, fintech, and other innovation-driven industries. If your startup has high upfront costs, long development cycles, or a need for extensive marketing to capture market share, you likely need funding.

Funded vs. Bootstrapped Startups

Many people think that bootstrapped startups need no money to start or scale. Let me bust a myth for you – There is no such business that you can start and scale without any money. Anyway –

A bootstrapped startup relies on personal savings and revenue to grow. Yes, funding your own startup is called bootstrapping. Bootstrapping offers complete control and keeps you free from debt, but it can limit your growth rate.

On the other hand, a funded startup uses external sources of capital. This can accelerate growth and open new opportunities but often comes with strings attached, like giving up equity or control.

Funded startups can scale quickly and dominate their market, but they may face pressure from investors. Bootstrapped startups grow at their own pace but might need help to compete with well-funded rivals.

To Get Funding or to Bootstrap?

Understanding which path is right depends on your business model, market, and personal preferences. If you value control and are comfortable with slower growth, bootstrapping might be your way. If rapid scaling and access to significant resources are crucial, seeking external funding could be the better option.

Types of Funding and Stages of Funding

Before we talk about how to get startup funding in India, I want you to understand the types and stages of funding.

Types of Funding

1. Equity Funding: Imagine selling a piece of your company in exchange for cash. That’s equity funding. Think angel investors, venture capitalists, and equity crowdfunding. These investors bring not just money, but also mentorship and connections.
2. Debt Funding: Debt funding is borrowing money with the promise to pay it back with interest. It’s a straightforward deal—no ownership dilution, but you have to keep up with repayments. Bank loans and peer-to-peer lending are the usual options here.
3. Grants: Grants are the holy grail of funding: free money with no strings attached. They’re often provided by governments or foundations and don’t require repayment or equity. However, they’re highly competitive and come with specific requirements and reporting duties.
4. Revenue-Based Financing: With revenue-based financing, you pay back the investors a percentage of your revenue until their investment is repaid. It’s a flexible option, ideal if your startup has a steady income stream. Your repayments scale with your earnings, which is perfect for those unpredictable early days.

Stages of Funding

1. Pre-Seed Stage: This is where dreams start to take shape. Here, founders often rely on their savings and the support of friends and family. The goal is to develop a minimum viable product (MVP) and lay the groundwork for future funding. It’s about proving your concept and setting the stage for what’s to come.
2. Seed Stage: Once you have an MVP, it’s time for the seed stage. This is where you attract external funding from angel investors or seed funds to launch your product. The funds are used for market research, product development, and initial marketing.
3. Series A: Series A is all about scaling. With a working product and some traction, you seek venture capital to refine your business model and expand your team. This round is crucial for turning your startup into a well-oiled machine. At this stage, investors look for startups with a clear path to profitability.
4. Series B: At Series B, you’re no longer just a startup; you’re a growing business. This funding helps you expand market reach, enhance technology, and increase production capacity. It’s about boosting what’s working and fixing what’s not.
5. Series C and Beyond: Series C and later rounds are for mature startups looking to dominate their markets. This funding supports large-scale expansion, acquisitions, or new product lines. It’s big money from hedge funds, private equity firms, and large secondary market groups. The stakes are high, and so are the rewards.

Top 10 Ways To Raise Funds for Startup In India

Let’s now talk about the ten different ways of getting your startup funded in India:

1. Bootstrapping

Don’t bash me for adding this to the list. Funding your business yourself is also a way of getting startup funding. Most bootstrapped startups, like Aditya’s and Saawan’s Fountane, start with little money and scale using the profits and revenue.

Bootstrapping involves using your savings and the revenue your business generates to fund growth. It’s a great way to maintain control and avoid debt. Many successful entrepreneurs start this way, gradually scaling their businesses with their resources.

2. Friends and Family

In my honest opinion, you can count this option as an extended version of bootstrapping. Approaching friends and family for funding can be a viable option. They know you and believe in your vision. There’s a high chance you’ll get the money without giving any equity or guarantee.

However, it’s important to treat this as a professional transaction. Clearly outline the terms and risks to avoid any personal conflicts later.

3. Angel Investors

This term has grown a lot since COVID. Honestly, I wish to be an angel investor someday too. Anyway, angel investors are individuals who invest their own money in startups. They often provide mentorship along with funds.

In India, platforms like Indian Angel Network and LetsVenture can connect you with potential angel investors. Research and approach investors who align with your industry and vision.

4. Venture Capitalists

Venture capitalists (VCs) are professional groups that invest in high-growth startups. They provide substantial funds and expertise in exchange for equity. Major VC firms in India include Sequoia Capital, Accel, and Nexus Venture Partners.

Getting startup funding from a VC is the most popular and competitive way among all other options. To attract VCs, you need a solid business plan, a scalable model, a solid pitch deck, and proof of market demand.

5. Crowdfunding

Crowdfunding has become a rather popular model for startups today. It involves raising small amounts of money from a large number of people, typically via the Internet. Platforms like Ketto and Wishberry are popular in India. All you need is a compelling story and a clear reward for backers (people who invest their money in your startup) to make your crowdfunding campaign successful.

6. Incubators and Accelerators

If you are a college student, startup incubators and accelerators are the best option for you. These provide funding, mentorship, and resources in exchange for equity. They can be highly beneficial, especially for early-stage startups.

You often get these within your university. But if not, many global incubators like T-Hub, iCreate, and Y Combinator are always available. They often culminate in a demo day where you pitch to a room full of investors.

7. Government Schemes and Grants

The Indian government offers various schemes and grants to support startups. Thanks to programs like Startup India, it has become easier for startups to get funding without giving up equity. These schemes often have specific eligibility criteria, so thorough research is necessary.

Here are some of the schemes introduced by the Government of India.

• Startup India Initiative.
• Dairy Entrepreneurship Development Program
• Pradhan Mantri Mudra Yojna.
• Startup India Seed Fund.
• Startup Leadership Program.
• Aatmanirbhar Bharat App Innovation Challenge.
• Digital India Genisis.

and many more..

8. Bank Loans

I don’t recommend going this route unless you’re 100% sure about your business. But yes, traditional bank loans are another option. Banks offer various loans tailored for businesses, like working capital loans and term loans.

To get a business loan from a bank, you’ll need to prepare a strong business plan and financial projections. However, banks typically require collateral and have strict repayment terms.

9. Corporate Investors

Corporate investors are companies that invest in startups to gain strategic advantages. They can provide not just funds but also industry expertise and market access. Examples in India include Reliance’s investment in various tech startups. You just need to know the art of building relationships and demonstrating how your startup can align with your investors’ goals.

10. Strategic Partnerships

Forming partnerships with other established businesses can provide funding and resources. These partnerships can help you tap into new markets and technologies. For instance, partnering with a tech company might provide you with access to cutting-edge technology and funding for development.

Conclusion

Well, that’s pretty much it! I have taught you all the viable options to get startup funding. I hope you won’t be asking the question “How to raise funds for a startup in India” anymore. The only question that’s left for you is to ask yourself – Which type of funding should I opt for? Which is best for my business?

Most of our audience is college students. If you’re one of them, I’d recommend you try getting into some incubator or accelerator. Start within your university. They likely have a program that might fit your business needs. And oh! If you find our articles informative and fun to read, share them with your fellow hustlers. Ciao!