Funding options for start-ups

According to the government statistics, India has the third largest start up ecosystem in the world. A YOY growth rate of 12- 15% is expected. In 2019 alone there were 13 new tech startups which means an average of 2-3 tech startups every day. In 2018, the startups created about 40,000 new jobs. Bangalore has been listed within world’s 20 leading startup cities in 2019 startup Genome. Private equity deal volume was $26.3 billion in 2018.These statistics are quite heartening.

Sources of funding are:

  1. Boot strapping
  2. Angel investors
  3. Crowd sourcing
  4. Government schemes
  5. VC Funding

You can raise funds via bootstrapping or angel investments at the pre seed stage. This is the ideation stage when your product has not yet gone into the market. Under bootstrapping you can put your personal resources to use and Angel investing refers to friends and family investing in your business.

One can approach VCs when the entrepreneur has at least prototype ready or has already pilot tested their product or service and are serving a small base of customers and now they need additional funding to scale up. Which means that initial funding is to be managed via bootstrapping or angel investors. Bank loans are difficult at this stage.

The manner in which VCs evaluate is this:

They look for ideas which solve a unique problem. If you look at Byjus, Ola in India, Zomato or Airbnb. They were all pioneers in their fields  , meeting an unmet need of the customers. The second important factor which VCs would see is whether your business is scalable. In all these examples which I just cited; the businesses were scalable. Which means that with   a certain fixed cost   one can increase the customer base without any major incremental cost. This means that the chances of a venture being profitable are higher. VCs obviously look for business ideas which they believe will be profitable.

Crowd funding through online platforms is an option which has come up in recent years. Online platforms such as  Ketto & Milap raise funds through their portals.

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