Raising funds is one of the toughest parts of starting a startup.
Think of money or funds as the most important part of running a startup,
If your business is a car, money is the fuel. The car just does not move without money.
“How to raise funds for startup in India”, “How to get funding for startup” or similar fund-raising questions are the ones, I am asked to answer a lot on Quora.
I thought of combining all my answers into a single blog so that its easier for me to give my blog’s link in future (helps me from being repetitive).
The lack of money or a shortage of money is one of the topmost reasons to turn your startup as a part of failed startups .
Scary right? Let’s come face to face with reality.
One of our startups had shut shop because we exhausted all our money even before the startup could see the light of day.
I know bad planning was another reason to lead to the apocalypse but ultimately, it was money which put a full stop to our dreams.
Let me tell you a secret. Other than “Beg, Borrow & Steal” (ok….not steal), there are other methods to raise funds.
Before I list the mediums, I have a confession to make. When I started the business, I had no idea how you could raise funds for startup.
All we knew was that you start a business with some seed funding and then the law of “P & L” comes into motion where you earn enough to meet monthly expenses and whatever little you save goes into your pocket or gets added into the savings box which activates when the Mayday arrives.
The formula worked its magic for months until we started working with the government. The work was slow, the payment cycle was slower.
There were months we did not see any money.
Predictably, the result was – Staff wasn’t paid for months | Rent wasn’t paid for months and vendors were always looking for us to recover their dues. 😊
Why did we pick govt projects?
Well….We were made an offer which we could not resist. It was too good to resist (at least on papers).
Before I get carried away with my sob story which I am sure you are not here to read. Let’s get down to the list.
Here are different methods to raise funds for a startup in India:
Raising Money Through Banks:
I have had my struggle with banks. From convincing them to lend us money to treating us as customers who hold a great promise for their banks, I have done it all.
Trust me, it’s not easy to deal with banks.
They look at your quarter balance, transactions, salary accounts before they treat you as a privileged customer”.
Our initial few years of business were spent learning the skills to survive. Hence, there was no money to either show transactions or support a handsome average balance in bank accounts.
After years of struggle, when we finally landed the govt account, we approached our good old bank (with whom we had an account for 2-3 years) for a loan.
The first thing they asked me was “Do you have a property?”
Imagine a startup owner with no funding owning a property. I had not inherited any property and earned enough to eat 3 meals (not lavish) and pay my rents.
Where was the money to buy a property?
Anyways, they understood that I am the struggling actor who has been loyal to their bank for years.
They asked me to show me our balance sheets for last 1 to 3 years and decided to help with a small amount of 4 to 5 lakh rupees – an unsecured term loan for 3 years.
This was the first unsecured business loan for our startup I raised from a bank. Now, these were the times when govt schemes to help startups were none existent (the word startup was still unheard of).
Today, life is a little easy for startups.
There are a few govt schemes through which they can raise funds at a very nominal interest rate (I am not mentioning the rate at which I got the loan as it will put the worst of moneylenders to shame 😊 )
There is MUDRA – a govt scheme designed specifically to help small businesses raise funds under the limit of 10 lakh rupees.
(note: Govt should seriously consider me making their brand ambassador of the MUDRA scheme. I have lost count of the number of people I have referred this scheme to.
Most of the startup owners I know have benefited from the scheme.
Obviously, they had to find a “connect” to convince the bank manager to fund them. The good old Indian “connection- jaan pechchaan” system and once they did, they could fund their dreams at a very nominal interest rate)
So, yes! The first option to kick-start your dream is to go to a govt bank with your uncle, aunt, brother or anyone who knows someone in the bank and ask them for an unsecured loan govt scheme.
And this is not the end of the list. There is a scheme for industries in SIDBI. There is another scheme under which banks are supposed to fund one startup every six months or so.
There are a lot of schemes which are kept under the wraps by govt bank because all the schemes are unsecured limit or loan based schemes where the risk is on the bank to recover money without any asset as bank guarantee.
My advice for a new business or a startup, look for a govt scheme in banks to kick-start your journey and for establishing businesses the advice is simple. If you have a solid business model which is not reaching the next level because of lack of funds.
Talk to your bank and get an unsecured loan based on balance sheets of earlier years.
Crowdfunding is a method to raise funds where multiple people come together to fund your venture in lieu of “no stake”.
Wow. Imagine someone giving you money in return for no gain. Where on the earth do you get such noble souls?
Crowdfunding is still finding its feet in India. There are websites that help you crowdfund. Usually, noble causes (note: Raising funds to buy your dream car is only noble for you. Please excuse the crowdfunding community here) are funded using crowdfunding but you never know, someone might find your idea a noble cause and fund it.
The idea to Crowdfund is quite popular in USA and websites like kick starter, Indiegogo has helped venture raise quite a handsome amount for their startups.
Kickstarter still does not take applications from India which is a bummer because they are the number one website. Still, you can try Indiegogo or our desi crowdfunding websites like Ketto, wish berry to raise funds.
“Angel” investors are the godsend people who decide to invest in your idea/startup in lieu of some stake %.
Usually, the amount invested by angel investors is not quite high which is a good thing as they give you only required money to grow further.
Also, they keep a close tab on your progress to make sure you don’t screw with their money.
Again, a very right thing to do as startup owners are known to take unwanted risks. An angel investor sitting on their head asks the right questions from time to time, thereby keeping their overenthusiastic nature in check.
The benefit of having angel investors is their past expertise and experience they get to the table (this is in addition to money they invest 🙂 ).
A startup owner at times is a lost soul learning the tricks of the trade while running the business.
A little help or an expert advice is invaluable to put them on the right path.
Angel investors are most of the times early investors.
You can find angel investors on the website like https://www.indianangelnetwork.com/ and https://www.investmentnetwork.in/.
The last and the most sought after in the list. They are the “real deal” for the startup owners of our country.
Convince them that you are the next jeff bozos or Jack Ma and you can be funded.
Anyways, with the startup scene going through a struggling face, VC firms have cut down on their spending or have become wary of startups without a sound business model.
You can anytime send your business plan to any of the VCs from the list available at the link (https://startupwonders.com/top-50-venture-capitalists-in-india-active-and-best-vc-firms-in-india/ )
I hope your queries on how to get funding for a startup in India are answered.
Which kind of funding for a startup is more suitable for you?
Now that’s something you must figure out on your own. We have never been funded by anyone (other than the initial small seed capital invested by my father for my company).
I hardly know any VC or angel investor. I did send my business plan to a lot of random ids around 2 years back only to receive words of encouragement from few and rejections from many but my lack of VC Connections has not stopped me from raising funds using banks or money lenders. (where at times I have to mortgage my kidney as security – Bad joke 😊 )
The good thing about raising funds from banks is, we know from day one – the money must be returned on a timely basis.
The load on our head from day one allows us to plan so.
We know if we slip, we are screwed.
The recovery team of banks isn’t exactly a part of the saintly souls who will spare you on humanitarian grounds.
And money lender?
The lesser I talk about them, the better it is.
When you miss their instalment – ……The end!
The Goodwill Recovery Agency knows how to get their money 😉