Starting a new business can be an exciting journey, but it often comes with a significant challenge: securing funds to turn your startup dream into a reality.
According to a study published in 2022 by Skynova, a software development firm, 47% of startups fail due to a lack of financing, and 44% fail because they run out of cash. This shows how important it is for a startup to have enough backup funds in order to survive in critical situations.
In India, where entrepreneurship is booming, the need for financial backing is more crucial than ever. If you too are a startup owner and want to understand the ways to get your startup funded, read our article till the end.
In this article, we’ll explore seven major ways of raising capital, along with statistics, examples, and practical advice. So, let’s get started:
1. Bootstrapping
Bootstrapping is the art of self-funding your startup by using your savings or revenue generated by the business. It’s often the first choice for many entrepreneurs due to its low risk and full ownership of your venture.
Statistics: A study by NASSCOM found that 70% of bootstrapped startups survive for at least five years.
Example: Sridhar Vembu built Zoho Corporation, an Indian multinational company focused on making software solutions without any funding. The company is still bootstrapped and profitable.
Pros:
- No equity loss for you as a founder
- Greater control over the startup
- Flexible decision-making process
Cons:
- Limited resources on your side
- Slower growth potential
2. Angel Investors
Angel investors are high-net-worth individuals who provide capital to startups in exchange for equity. They often offer more than just money, bringing valuable expertise and contacts to the table.
Statistics: Angel investing has grown significantly in India, with the number of angel investors increasing steadily between 2019 and 2021, as per the Indian Private Equity and Venture Capital Association (IVCA).
Example: Kunal Shah, founder and CEO of Cred, was given the title of top angel investor in the year 2022. He made a total of 67 investments in 2022.
Pros:
- Experienced guidance at your side
- Networking opportunities
- Access to funds to scale the operations
Cons:
- Equity dilution
- High expectations from investors
3. Venture Capital
Venture capital (VC) firms provide funding to startups in exchange for equity. They are more suitable for businesses with high-growth potential and scalability.
Statistics: As per Inc42, VCs raised more than $18 Bn in 2022 to invest in Indian startup ecosystem
Example: Imagimake, the toy, and game-making startup raised INR 20 Cr. from Pidilite Ventures. You can read more about it here.
Pros:
- Access to a large sum of funds
- Expert Guidance at your side
- Rapid growth potential
Cons:
- Equity dilution
- Stringent due diligence
- Pressure to scale quickly
4. Crowdfunding
Crowdfunding involves raising funds from a large number of individuals, typically through online platforms. It’s an attractive option for startups looking to build a community and validate their ideas.
Statistics: Indiegogo, the famous crowdfunding platform for startups, has helped more than 800,000 innovative ideas in all these years.
Example: Oculus, the popular virtual reality headset startup that was later acquired by Facebook, was initially launched on Kickstarter to raise crowdfunding.
Pros:
- Diverse sources of funding
- Market validation for your idea and vision
- Engage with supporters directly through the platform
Cons:
- Not suitable for all industries
- Requires significant marketing efforts in the beginning
💡Also Read: How To Start A Logistics Business In India
5. Bank Loans
Traditional bank loans offer a familiar and accessible source of funding for startups. These loans may come in the form of term loans, working capital loans, or credit lines.
Statistics: As per RBI’s annual report, bank credit to MSMEs jumped over 14% from April to December of FY 2023.
Example: Priya, a bakery owner, obtained a bank loan to expand her business. The loan provided her with the necessary capital to purchase equipment and hire additional staff.
Pros:
- Familiar and accessible
- Fixed repayment terms
- No equity dilution
Cons:
- Collateral requirements
- Interest costs that can be a trouble for loss-making startups
- Strict eligibility criteria to raise the funds
6. Government Schemes and Grants
The Indian government offers various schemes and grants to support startups across different sectors. These initiatives are designed to promote entrepreneurship, innovation, and economic growth.
Statistics: In the Budget 2022-23 shared by Nirmala Sitharaman, the government allocated Rs 283.5 crore for the Startup India Seed Fund Scheme.
Example: Akshay, an entrepreneur in the renewable energy sector, applied for a government grant to fund his innovative solar energy project. The grant helped him develop and implement his technology.
Pros:
- Non-repayable funds in some cases
- Industry-specific support
- Reduced financial burden
Cons:
- Competitive application process
- Stringent compliance requirements
💡Also Read: Top Fashion Startups In India
What Is There For You?
Getting your startup funded is one of the most important parts of your success or failure journey. No matter which type of funding you choose, make sure to evaluate all the important aspects before making your final decision.
Every type of funding comes with its pros and cons and the right fund will depend on your requirements, the industry you are working in, the urgency of funds, and more.
As the Indian startup ecosystem continues to flourish, the opportunities for new startups will grow in the same line.
