How to get start up funding: In today’s hyper-competitive business ecosystem, startup funding is often seen as a complex puzzle, shrouded in financial jargons and complicated terms. For a curious observer or even an aspiring entrepreneur, understanding the process of securing funding for a startup can seem like a daunting task. This article aims to demystify the complexities surrounding ‘Startup Funding’, breaking down the key concepts and simplifying the timeline of startup funding. Whether you’re an aspiring entrepreneur or simply curious about how to get startup funding and what startup funding means, we’ll give you an easy-to-understand brief overview of raising capital in the startup arena.
What is a Startup?
- The word ‘Startup’ often brings to mind corporate giants like Facebook, Spotify, Airbnb – companies that have become household names and have transformed entire industries. But what does a ‘startup’ truly mean?
- A startup is a young company striving to disrupt an industry with its innovative and breakthrough ideas or solutions. While the word ‘disrupt’ carries a negative connotation, in the startup world, business disruption is a hallmark of success.
- A startup can disrupt or challenge the status quo through its unique offerings (services or products) that are distinct and bold from traditional business enterprises. This uniqueness gives them the potential for an exponential growth, especially when their concept addresses an unexplored market need, or has very little competition.
- A wholesome understanding of the term startup is incomplete without decoding the ‘Disruptive Business Model’.
What is a Disruptive Business Model?
- A business model which works towards either disrupting the current market by serving untapped customers who were underserved by the existing market thus far; or creates a completely new market pioneered by innovation.
- It could also mean offering an existing product at much lower prices, becoming a go-to choice for consumers, thereby disrupting competitors’ market.
- A disruptive business model offers a great competitive advantage to a startup and can, eventually, help it to evolve into an industry leader.
- Successful disruptive businesses are most often customer-focussed, looking to offer unique value propositions (UVPs) that meet their demands.
- Uber is a prominent example of a startup and its disruptive business model. It took into consideration the frustration of commuters when it came to their daily commute. Taxi availability, unpredictable queues and the increasing taxi tariffs made traveling an unpleasant and harrowing experience. Uber saw a big opportunity in this gap in service and leveraged technology to seamlessly offer taxis and drivers to daily commuters on their phone. Additionally, transparency of fares and easy map tracking made Uber very appealing to frustrated commuters. Uber successfully disrupted the taxi industry.
Eligibility criteria for Startup Funding
The legal and financial criteria to be eligible for funding will vary depending on:
- Country of origin: Every country has its own specific legal compliance requirements for startups. These requirements must be met to qualify for funding.
- Funding Source: The criteria will also depend on the funding source as investors look for different qualities in a startup.
- Financial Standing: Some funding sources may require startups to have reached a certain financial milestone or completed certain funding rounds. This enables them to access the progress of a startup.
Stages And Ways To Get Startup Funding
How to get startup funding: Fundraising is done in stages and is a crucial aspect for a startup’s growth. The most confusing aspect about fundraising is the stages of funding known as a, b, c, and so forth. These stages usually begin with self-funding and progress to more significant investments.
Initial Funding Stages:
- Bootstrap:
Bootstrapping is the most common way in which founders gather the initial capital for their startup. It involves using our own money. It could be personal savings or money borrowed from family and friends. No external investors are involved at this stage.
- Seed Round:
This is the first formal round of funding. Seed funding literally means capital to sow the first seeds of your venture. At this stage, typically a startup has a strong idea that they are developing further, and they may have also launched their first product or MVP (Minimum Viable Product).
There are several investors in India and worldwide who participate in seed funding. Angel investors, Seed funding ventures and incubators are some options which startups can aim for.
Government of India launched the Startup India Initiative in 2016 and supports eligible startups in early stages through seed funding.
To know more about this initiative, visit https://seedfund.startupindia.gov.in/
Series Funding:
- Series A, B, C, D, E, F:
This is where the real significant funding begins. The nomenclature of this series is what confuses most people as it doesn’t explain what each stage stands for.
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In a nutshell, each stage stands for a progressively larger amount of funding raised by the startup. With each stage, the startup is also expected to demonstrate growth in revenue and scaling.These stages involve huge funding institutions who have done noteworthy work in the funding business.
Though there are no exact ranges for the values of funding raised in each round, we can still broadly classify the stages with approximate funding values:
- Series A: between INR 7-10 crores or 1-3 million USD*
- Series B: between INR 35-70 crores or 5-10 million USD*
- Series C: between INR 70-200 crores or 10-30 million USD*
- Series D: between INR 200-700 crores or 30-100 million USD*
Similarly, the funding scales up if a startup progresses to round E and F. By the time a startup reaches rounds E and F, it is expected to file an IPO soon and convert into a public company, inviting greater revenue and growth.
*These are ballpark figures typically observed in the stages of funding.
Initial Public Offering (IPO)
An IPO marks the transition of a startup from a privately held company to a publicly traded one. When a company files an IPO, it lists itself at the stock exchange, allowing it to raise significant capital from public investors. This is the stage most startups strive to achieve.
To sum up, the funding for a startup begins with bootstrapping, progresses to seed funding, scales up to the multiple series of funding and culminates in an IPO. This is the basic channel of startup funding stages.
Key Terminology in Startup Funding
- Idea stage: The primary idea based on which startup originates. For example, the idea of renting out a simple air mattress along with homemade breakfast to the attendees of a conference in San Francisco led to the birth of the über successful startup Airbnb.
- Prototype: It is the first version or model of the product developed from the idea of the founders. Prototype is tested by startups on various grounds to check consumer response, evaluate and create an improvised version of the product based on feedback after testing.
- MVP: Minimum Viable Product is the first official product launched by a startup in its target market.
- Pitch: A pitch is a presentation of a startup’s business idea to potential investors.
- Business Model: The model explains the concept on which your startup will operate. Continuing with the example of Airbnb, its business model connects travelers to home owners or property owners and allows them to look for accommodation options beyond hotels. Airbnb charges a fee to both travelers and property owners to generate its revenue. A business model reveals how a startup will earn its revenue.
- Business plan: It reveals the projected revenue in future.
- Incubators and Accelerators: Organizations which support a startup in its initial stages such as providing office space, mentorship, development of their prototype, connecting them to the industry and even funding.
- Pre-money Valuation: Valuation of the startup before receiving new funding.
- Post-money Valuation: Valuation of the startup after receiving new funding.
- Angel investors: Those early investors who invest with the intention of supporting new entrepreneurs, after having themselves gone through the grind. Their intention is most often to give back to the industry.
- Going public: It is the stage at which a startup files an Initial Public Offering and lists itself at a stock exchange. Going public literally means becoming a public limited company.
- Unicorn: A startup which is valued at 1 billion USD and above.
Additional Ways To Get Startup Funding
- Crowdfunding:
It is a method to raise funds, primarily, through an online platform. The funds are contributed by a large number of users. A startup can be listed on a crowdfunding platform which typically has a great network pulling power. Crowdfunding can be accumulated in various methods based on donations, rewards, debt and equity.
The downside of this method is that a startup needs to make a lot of effort for visibility on the chosen platform, given the volume of fund seekers. As the time required to raise the desired funding is unpredictable, it is typically used to gain alternative funds and not serious funding.
- Small Business Grants:
Small scale financial organizations like the Chambers of Commerce or local chapters of small business often provide loans to startups especially run by specific categories like women-led startups or minority-led startups etc.
- Small Business Loans:
Some lending institutions and banks offer loans to startups that are in the initial stages. Bank loans for smaller enterprises have stringent criteria, however, lending institutions tend to be more flexible but they charge a higher rate of interest as compared to banks.
- Local Contests:
Contests like Shark Tank India provide a significant platform to a startup. However, startups with a steady business history and phenomenal ideas only get featured on platforms like Shark Tank.
Alternatively, the local Chambers of Commerce and similar chapters of small businesses have now begun offering competitions to get funding, on similar lines like Shark Tank. The competition for such contests is stiff, however, it also offers great visibility for the products or services of a startup.
Government of India’s Startup India Initiative
- Government of India launched the Startup India Initiative on 16th January 2016 with the aim to boost entrepreneurship as part of its ‘AtmaNirbhar Bharat’ Movement.
- The Department for Promotion of Industry and Internal Trade (DPIIT) oversees all the programmes rolled out by Startup India.
- The 8-year Factbook, released by DPIIT, illustrates the progress of India’s startup ecosystem.
- Along with the various regions of the country and its islands, the report also addressed top performing sectors and women-led startups.
- As of 31st December 2023, DPIIT recognised more than 1 lakh startups in the country, generating 12.42 lakh new employment.
(Source: Startup India – 8 Year Factbook)
Why Do Investors Invest in Startups?
- There is a straightforward one word answer to this question – Money.
- Their only concern is how big are the returns on their investment and bother very little with how the startup is performing.
- Investors invest their funds only on those prospects whom they believe will fetch higher returns for them.
- In return for their investment, investors either acquire some equity shares of the startup or a percentage of ownership. This confers them with the legal rights to claim the pre-discussed share of profits.
Reality check
The Startup arena and the various initiatives supporting entrepreneurship may seem an exciting prospect for aspiring entrepreneurs, however, the revenue figures display a stark contrast. It is important to access the real scenario of Indian startups.
- As per the startup media and intelligence platform Inc42, out of the 142 companies that disclosed their financials for the year 2023, 110 companies have registered a loss of INR 72,112.1 crores.
- 2023 was a difficult year for Indian startups as funding continued to decline.
- Several startups resorted to mass layoffs which also raises doubts on the credibility of the 12.42 lakh new employment stated in the Startup India 8 Year Factbook.
The Cost of Competition
If we analyze today’s cut-throat business landscape, the ultimate goal of any organization and human is money. Under the veil of innovation, customer service, cutting edge technology, evolved UVPs, all that matters is just money.
Adding fuel to fire are the ‘inspirational’ quotes of the much idolized founders and co-founders of unicorn startups. Words like “have a burning desire to succeed” and “dream big” influence naive impressionable minds to an extent where they start associating the ultimate success of human life with all material success like money, fame and name.
Blinded by the “burning desire to succeed”, we forget the ultimate stark reality of life – Death. If human life is to end at a predestined point, a very poignant question here is – What is the ultimate goal, the ultimate success of human life, given that we are granted a limited time to fulfill this goal?
Rediscovering The True Purpose Of Human Life
Jagatguru Tatvdarshi Sant Rampal Ji Maharaj discloses that after a cycle of 84 lakh births as varying species, we receive 1 human birth. This precious human birth is given to a soul to seek the ultimate Supreme God Kabir, pursue His authentic worship from His designated saint, and achieve complete salvation. Failure to do so, leads a soul back into the unending cycle of birth and death in 84 lakh species once again.
A Tatvdarshi Sant or a Complete Saint is that trusted messenger of our Father, God Kabir. Only He can impart the authentic worship of our Creator. In today’s world, Sant Rampal Ji Maharaj is the sole Complete Saint, bestowing the unparalleled spiritual knowledge of God Kabir.
As time slips away from our fingers like fine sand, we approach our death every ticking second. It is, hence, imperative to realize that the true purpose of our human birth is to do the real worship of Supreme God Kabir, and not to chase material benefits solely. Material success is a by-product of the dedicated worship of God Kabir under the divine refuge of Sant Rampal Ji Maharaj.
To know more about the unrivaled spiritual knowledge of Sant Rampal Ji Maharaj, visit:
- Website: www.jagatgururampalji.org
- YouTube: Sant Rampal Ji Maharaj
- Facebook: Spiritual Leader Saint Rampal Ji Maharaj
- Twitter: @SaintRampalJiM
How to get startup funding: FAQs
Q: How do I get my startup funded?
A: There are many ways of getting funds for your startup. Some of the most common ways are: by getting bank loans, by finding an angel investor, by crowdfunding, by venture capitalists and many other ways.
Q: Who is eligible for startup funding?
A: Startup Companies meeting the eligibility criteria can get startup funding given by the Government of India.
Q: How can I raise money for my startup idea?
A: Bank loans, Government schemes, Crowdfunding, finding an angel investor, venture capitalists and much more are the ways by which startups can raise funds.
Q: Do startups pay income tax?
A: On the basis of annual turnovers, startups get exemption from taxes.
