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Start-Up Funding in India: Everything you Need to Know Research Team | Posted On Friday, May 17,2019, 06:51 PM

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Start-Up Funding in India: Everything you Need to Know



Start-Up Funding in India: Everything you Need to Know

Capital is the lifeline of a business. A good flow of capital ensures better business operations and allows it to expand and grow. However, after the budding stage, a business requires capital for funding strategic collaboration, research and development, talent acquisitions and territorial expansion. Given below are some of the ways through which businesses can avail start-up funding in India.

What is Start-up Fund?

The start-up companies and the small businesses need working capital for business activities. Start-up funds are the investments required for the growth of start-ups and small businesses in India. As these businesses do not have access to the stock market, they cannot raise money from investors. To meet funding requirements they must either borrow or can opt for other modes of funding like angel funds, venture capital, and government schemes. One of the crucial aspects is that these businesses must provide innovative business products and must have a long-term business perspective in order to secure funds.

Start-Up Funding in India:

In the past few years, start-ups in India have massively changed the private sector which was dominated by large corporations. The increase in the number of start-ups has led to the budding of various funding options. The primary task of these ventures is to offer risk capital to small and medium enterprises and start-ups.

Organizing funds for growth and business expansion was a herculean task. However, with the rise in various funding options, the new businesses can now focus on innovation, technological aspects and sustainable growth.

See Also: What is Startup India Scheme?

Start-Up Funding for Small Business:

India provides a base for the growth of start-ups. Previously these businesses had no other method of availing funds, other than through loans. But with the rise in the number of start-ups, new funding options have emerged. Listed below are some of the ways businesses can avail funds:

  • Angel Investors: Angel investors are also known as seed investors. This type of investment is generally sought when your business is in the budding stage. Angel investors are affluent people who fuel business expansion in the early stages. Angel investors invest money in return for a percentage of ownership in the business venture.
  • Venture Capitalist: Venture capitalist or VC is an institution which offers capital to start-ups and small business ventures. A Venture capitalist is responsible for providing a huge sum of money by taking huge bets. There is the risk of losing money, if the business fails to deliver on its promises. The venture capital firms are responsible for pooling money from high net worth individuals and providing risk capital to new businesses. Venture capitalists invest in a business which ensures promising growth in the future through innovative products.
  • Crowdfunding: This is an alternative form of business investment. Crowdfunding involves pooling money from a large number of investors through dedicated websites. A crowdfunding project must be specific and must have a clear outcome.
  • SME Lending: The government of India has identified the lack of substantial funds in the small and medium business sector and has taken certain measures to provide finances and encourage SME expansion. Some of the schemes offered by the government are credit guarantee schemes and stand-up India Schemes. A start-up can also avail funds from NABARD. There are various other micro-financing units and NBFCs that offer capital in the form of loans.
  • Business Incubators: A business incubator is a company that provides professional services like management training and office spaces to help start-ups grow and develop. These entities provide start-ups with proper assistance and help them understand business trends. Business incubators help businesses accelerate growth by offering programs sponsored by private companies. The business incubators collaborate with start-ups and provide services like seed funding, mentoring and training.

Start-up funding stages:

The funding process of start-ups involves several stages. They are as follows:

  • Seed Funding: This type of funding is done when the business is at the nascent stage. The money acquired through seed funds is used mainly for market research and product development.
  • Venture Capital Financing: Venture capital firms are responsible for providing a large amount of money to promising business ventures.
  • Bridge Loans: These are short term loans availed before a company offers stakes through IPO to meet temporary business obligations.
  • IPO: When a Company issues shares to the general public for the first time.

See Also: Government Loan For Business Startup In India

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