Tips on raising funds from govt agencies and PE firms for your startup

Apart from central and state govt schemes that fund new ideas, you have PE/VC firms, angel investors and incubators to help your business see the light of day; just get your business model right

Divining ideas is easy. Executing them is the hard part. This is particularly true if you are setting up a new business. The one thing that can make execution a lot easier is an investor who is willing to bet on your business model. If you are looking for funding, you have a reason to cheer. The government is to launch a Rs 1,000-crore seed fund for startups, called Startup India Seed Fund, on April 1. Srinivas Chunduru, founder, VANS Investments explains that a startup isn't necessarily a brand new enterprise. He says, "According to the Start-Up India scheme, a startup should not be a subsidiary of a larger company. It should be a  technology-enabled, scalable business, capable of creating employment and solving certain problems faced by society." 

The Startup India Seed Fund, which has a target corpus of Rs 945 crore to be disbursed over five years in early-stage businesses, is looking to support around 3,600 entrepreneurs through 300 incubators. It will be disbursed through selected incubators across India. The selected startups will be offered up to Rs 20 lakh as grants for proof of concept and up to Rs 50 lakh through convertible debentures or debt or debt-linked instruments for commercialisation of the product.

Eligibility: The startup should fit the definition mentioned above. It must have been incorporated not more than two years ago at the time of application. Also, the shareholding by Indian promoters in the startup should be at least 51 per cent at the time of applying to an incubator. There are several eligibility criteria one needs to fulfil in order to be able to apply. The envisaged product or service should have a market fit, viable commercialisation, and scope for scaling up. The startup should be using technology in its core product or service, business/distribution model, or methodology to solve the problem being targeted. Preference would be given to firms with innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, and healthcare, to name a few. An online call for applications will be hosted on an ongoing basis on the Startup India portal.

What if you can't get your funding from this source? There are plenty of other options for those who do not meet the above criteria. Ashish Ambasta, co-founder HappyPlus Consulting says, "Right now a number of investors are sitting on surplus funds looking for good startups to invest in. With Covid last year, they did not get an opportunity to put their money into good businesses. If the ideas are good there is no dearth of money." 

Ways and means of raising funds:

BOOTSTRAPPING: This means tapping into your own funds or those you can get from family and friends. Usually, the money you borrow from your family and friends is interest-free or at a lower rate of interest. Chitradeep Aras, head, Centre for Entrepreneurship at Bhavan's SPJIMR, says, "The funding should be case-by case-basis and depend on the stage of the business. Self-funding or loans from family and friends do not dilute your equity, but the disadvantage is that unlike other options like the seed funds etc, they don't come with guidance."  If you have a long-term outlook of 10 years, you should invest money in the form of equity. However, if your horizon is closer, consider fixed-income. Put savings into fairly risk-free and liquid investment options. Liquid funds and ultra-short funds are good. don't be lured by higher returns of the equity market. That os too risky.

LOANS: If you need to borrow money, you are better off getting a loan against an asset, or a personal loan instead of using your credit card. For ready-cash business or a distribution-based product, a loan can be obtained against the stock. These loans are much easier to get than a direct business loan from a typical bank for first-time startups. As early-stage enterprises rarely have positive cash flows, traditional sources such as banks or lenders aren’t an option.

INCUBATORS: There are a number of incubators in the country, including the academic kind. Aras says, "They offer funding, and  many also offer facilities, expertise and mentorship and free tech support etc."  Large corporate houses too have incubators, especially tech companies.

ANGEL INVESTORS: Angel investors are high net worth individuals or groups of individuals who invest money in startups or early-stage small businesses. Chunduru says, "There are a number of angel investor groups or networks in India. There are city-level groups too, for instance, Mumbai Angel Network, Bangalore Angel Network etc." Usually, angel investors take a larger risk, which means they may require you to give them a larger share of the firm. Chunduru says, "This is usually when they like your idea, your business plan and are willing to give you the needed funds to start the business. As well as a handhold and offer expertise, not just funding." 

VENTURE CAPITALIST:  A venture capitalist is an investor who provides capital to start-ups showing high growth potential in exchange for an equity stake. But, not all VCS fund at an early stage. 

CROWDFUNDING: Crowdfunding is raising money for your business from a large number of people through online platforms such as Wishberry and Kickstarter. You can raise the target amount and can return the money in kind. You have a number of choices when it comes to early-stage funding for startups. 

Table: Eligibility criteria of Startup India Seed Fund Scheme

Criteria	Evaluation
Is there a need for  Idea?	Market size, what market gap is it filling, does it solve a real-world problem?
Feasibility

Feasibility and reasonability of technical claims, methodology used/ to be used for PoC and validation, roadmap for product development

Potential impact

Customer demographic & the technology’s effect on these, national importance (if any); Novelty USP of the technology, associated IP Team  Strength of the team, technical and business expertise Fund utilisation plan Roadmap of money utilisation

Additional parameters

Any additional parameters considered appropriate by incubator Presentation Overall assessment

Source: https://www.startupindia.gov.in/