Imagine you have this fantastic recipe in your head, but you’ll need the ingredients and utensils to make it, which requires some capital. You can’t make your desired dish without money to buy the ingredients or the utensils.
Similarly, if you have a fantastic startup idea, that idea is only viable if you have funding. Therefore, fundraising for startups in India is a crucial stepping stone to building a successful startup. This blog will discuss some opportunities and challenges you might face while raising funds for startups and some strategies to help you fund startups.
Why do you need Funding for Startups?
Funding is the oxygen that startups need to survive in the market. Startups raise funds through diverse mediums for market research, product development, recruiting teams, marketing, and keeping the startup afloat. From daily expenses to research expenses, startup fundraising is essential for success.
There are many ways to raise startup funds, including angel investors, venture capitalists, crowdfunding, banks, incubators and accelerators.
Depending on the stage and their requirement, they can create their own fundraising strategies for startups.
Startup funding in India is one of the most reliable, making us the third country with the most unicorn startups. Let’s discuss this more.
Opportunities for Fundraising for Startups in India
We have mentioned a few opportunities in the Indian startup ecosystem for the startup’s growth.
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Government Support
Governing bodies are the most crucial entity in any startup ecosystem. The Indian Government has worked well in creating a sustainable environment to support innovation. They have established entrepreneurial institutes and also provide financial aid for startups.
To support early-stage startups, they provide grants under the Startup India Seed Fund Scheme (SISFS) for kickstarting R&D. Through Funds For Startup (FFS), they provide funds to the startup through SEBI-registered Alternate Investment Funds. If you have an innovative idea and a supportive business model, you must look for government funding as it boosts your credibility.
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Stronger Startup Ecosystem
An ecosystem with the right investors, incubators, and networking event organizers is necessary for fundraising for startups in India. The existence of incubators, accelerators, and investor networks participate in funding startups at diverse stages. They offer working spaces to the startups to connect with other investors like VCs, angel investors, and more.
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Growing Investors
With the economy growing, there has been a surge in investors. Be it angel investors, VCs, or private banks, they are eager to invest in promising startups. Sectors like health care, Edtech, Fintech, e-commerce, and anything related to AI have experienced a surge in startup fundraising.
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Access to Crowdfunding
Crowdfunding is a rising option for raising funds from the public directly without putting your equity at risk. Here, you need to market your idea and win the people’s trust to fund a small amount for your startup.
Challenges for Raising Funds for Startups in India
Fundraising is not without its challenges. We have discussed a few challenges to our startup ecosystem that may become roadblocks in startup fundraising.
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Competition for Funding of Startups
With a supportive startup ecosystem, there has been a massive surge in startups in recent years. Therefore, raising funds for startups has become competitive.
You need to present your innovative idea and business model in a way that sets you apart from the rest and provides value that attracts investors. Having a network and connections with investors can help you build credibility, an added benefit in fundraising efforts.
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Understanding of Due Diligence Regulation
The process of fundraising for a startup in India doesn’t end after pitching; it is the start. Many entrepreneurs need to gain knowledge of the due diligence process to check the authenticity of the startup. The knowledge gap delays getting the finance or, in a worst-case scenario, cancels the investment altogether due to a lack of proof on the startup’s behalf.
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Lack of Awareness about Startup Fundraising
Many Tiers 2 or 3 city entrepreneurs must learn about the startup ecosystem and potential investment alternatives. Lack of knowledge can lead to possible losses in securing more funding for startups in India, leading to poor performance and stunted growth.
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Volatile Financial Market
Inflation, economic slowdown, and global and political factors influence Indian financial markets. Therefore, investors become cautious in specific periods, making fundraising for startups in India a critical issue.
Practical Fundraising Strategies for Startups
To help you overcome these challenges, we have listed strategies to help you with your dilemma of raising funds for startups in India.
Clarify the business model for your startup.
Before explaining your startup to investors, ensure you are clear about it. Create a structured business model that includes market research, stats related to product performance, competitive analysis, marketing strategies, finance management, and more. It will give investors a clear picture to make the final decision.
1. Build a stellar pitch deck
Your pitch deck decides the future of your startup. Presenting your startup in front of the investors is crucial to secure capital. The pitch deck should be simple, concise, and focused on facts and stats. Focus on highlighting your talented team, the potential profits and high ROI, the product-market fit, and an effective business model.
2. Select the correct type of investor
Each investor has different specialties and preferences. For example, angel investors are more likely to invest in early-stage startups and focus on assisting the startup in R&D. In contrast, venture capital focuses on growth-stage startups for better and secured returns. So, research to find the investors that align with your financial and startup needs.
3. Offer valid valuation
Valuing your startup is tricky. Consider your market position and potential profit and come up with a reasonable number. Overvaluation can repulse investors, and undervaluation can result in losses. So, do your research before valuing your startup.
Networking can help you understand how to raise funds for startups in India. Additionally, it can help you build your business model, create a compelling pitch to secure funds, and also in the valuation of your startup.
21BY72 is an angel investment network organizing the Global Startup Summit, connecting startups with investors. With global investors attending the event, it is a powerhouse to secure funding, make an industry network, and gain market knowledge to run your startup successfully. Check our website for more information.
Conclusion
Fundraising for startups in India presents opportunities and challenges. The government plays a vital role in enhancing the startup ecosystem through tax regimes and policies that promote the entrepreneurial spirit. The surge in investors and investment options facilitates the startup fundraising process.
However, it has its hurdles in the form of tough competition, lack of knowledge about fundraising, and fluctuating markets. Creating a solid business model and practicing your pitch can help you better present your startup and secure funding in India. Your network can help you find the right investors and valuation of your startup to raise funds for the startup.
FAQ
1. Does the government provide funding for startups in India?
Yes. The Indian government has created various policies and schemes to support startups with seed funding or funding for any stage through grants and free-cost loans.
2. What is the best type of fundraising for startups in India?
The types of investors suitable for your startup depend on its stage and fund requirements. Angel investors are perfect for the early stage, VCs for the growth stage, and crowdfunding is used for small fund requirements. However, for large-scale funding, mature startups can go for an Initial Public Offering (IPO).
3. Is crowdfunding legal in India?
Yes. Crowdfunding is legal in India with a set of regulations to avoid fraud.
