The three types of startup finance are equity financing, debt financing, and grants. Each has its own set of merits and demerits. The startup funding landscape has expanded beyond venture capital and angel investments. Today, there are numerous channels for startups to raise capital. We've discussed eight of them below.
- Bootstrapping - Most startups use personal investments as their primary source of finance. Investing one's own money is the most uncomplicated and risk-free alternative for first-time business owners. Business loans become commonly available in the later stages of a company's development. In the future for further expansion, the firm will give easy access to funds giving the stability of their firm.
- Look out for Angel Investors - Angel investors are investors with large pools of capital, who frequently invest in various emerging startups in India. In comparison, the risk associated with these investments is higher than that of loans granted by financial firms as these investors intend to invest for higher profit margins.
- Look out for Crowdfunding - Crowdfunding is a means of generating funds from many investors using social networking sites and digital platforms. Funds raised through internet portals may be used for charitable activities, calamity/disaster relief, events, and so on.
- Apply for Loans under Government Schemes - The Indian Government has started multiple programs aimed at providing benefits to start-ups, MSMEs, and SMEs. These schemes also aim at promoting the socio-economic growth of rural India, supporting women business owners, uplifting people from minority categories, etc. The schemes from the Indian Government to support Indian startups include
- MUDRA loan scheme under Pradhan Mantri Mudra Yojana (PMMY)
- Start-up India
- Atal Innovation Mission
- Make in India
- Trade-related Entrepreneurship Assistance and Development (TREAD), etc.
- Loans from Private and Public Sector Banks - Banks provide finance to new businesses in two ways: term loans and working capital loans. Almost each private and public sector Indian bank provides start-ups with funding. The rate of interest, loan amount, and repayment period offered by each bank vary.
- Get Venture Capital for Your Business - A venture capital fund is managed by professionals who only invest in companies with great potential. They often invest in a company in exchange for shares and exit when it goes public or is acquired by other investors. VCs provide guidance and expertise and help make sense of the direction that the firm is taking. Additionally, it helps with analysing the scalability and sustainability of the company.
- Avail of Business Credit Cards - Since the inception of startups in recent years, the use of credit cards for commercial purposes has grown massively. If a startup does not require a large sum of money at the outset, credit cards can be utilized for fast repayment and can help avoid debt or increased rates of interest.
- Get Funding from Business Incubators & Accelerators - Incubator and accelerator programs can provide money for startups. These initiatives, which can be found in almost every large city, help hundreds of new firms each year.
Despite being used interchangeably, there are just a few key differences between the two names. Incubators nurture the business by providing shelter, resources, training, and a network. Accelerators do similar things, however, an incubator supports/assists/nurtures a firm to walk, whereas an accelerator helps it to run/take a great jump. These programs typically last 4-8 months and necessitate a time commitment from business owners. Firms can connect with mentors, investors, and other businesses using this platform.
Several funding options provide capital and expert advice to help startups flourish. With their extensive experience and continual monitoring of market dynamics, investors assist startups in navigating their formative stages with ease.
Investors often bring along with them a huge network of other players in the market. Referrals can also help startups get more clients. The network allows one to meet individuals with innovative ideas who are eager to offer their skills to their company. Moreover, in order to safeguard their investments, investors need to ensure that the business practices of the companies they work with are beyond reproach. This in turn helps strengthen a company's compliance culture.