How to fund your startup
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 complain ing.
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.
CROWD FUNDING
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.
|
Riju Dave & Preeti Kulkarni
|
TOI13JUL15
No comments:
Post a Comment