Funding is an extremely significant aspect in line with meeting the vision of a business. Funding and fundraising, both are fundamental modern business scenarios that support the growth of a startup.
Ways to Get Startup Funding
The concept of crowdfunding is quite similar to mutual funds on a basic level. In this option, more than one investor is involved and they offer a fixed amount of money based on your business idea, goal, plan of action, and plans of making a profit. All you need to have are people who truly believe in your business idea.
Crowdfunding is gaining popularity as it ascertains the belief that your idea is also believed by other experienced players in the market. Crowdfunding also helps you in getting the crucial funds from the idea stage itself. You can gather crowdfunding from friends, family, and entrepreneurs who believe in your business concept and have the means to come together and fund your aspiration.
As the name suggests, this is the place to go for guidance for startups. Not just funding, (and incidentally they do not fund by themselves) they provide the nourishment needed from all perspectives during the neonatal stage of the startups.
They are early stage growth enhancers and provide the much needed multi-dimensional support services starting from office space sharing to access to finance. The best place for a startup to hone up and learn the steps to find funders.
Several institutions cutting across domains have set up incubators to enhance the startup ecosystem in a healthy way. From education sector like the Ahmedabad branch of Indian Institute of Management’s CII IIMA (in collaboration with State government of Gujarat and Indian government) to Indian Angel Network’s IAN Incubator, there are several incubators for the startups to approach.
Popularly known as bootstrapping, it is an ideal plan of action when it is hard to convince others of your business idea and vision. Often investors ask for traction before making an investment, the initial round of self-funding allows you to prove the feasibility of your idea and build confidence in the investors for a further round of funding.
Bootstrapping is a great idea for startup funding especially if the initial business requirement is small. It also gives you the freedom of being your own boss. You’re not answerable to anyone and it allows you to keep an eye on the revenue earnings as well.
4. Venture Capital
A sure-shot destination for big bets, venture capitalists offer you professionally managed funds that are looking for startups that have success potential. The best part about venture capital investments is the expertise and monitoring that they bring along. Ordinarily, VCs invest in equity and once the business releases its IPO or is acquired, they leave.
Venture Capitalists usually look for startups with good enough traction and a strong team. But if you’re opting for venture capital funding, be flexible enough to take their inputs and accept the close monitoring.
5. Angel Investment
There are individuals with surplus cash looking for investing in promising startups and earn their share once it grows to its potential. They can either work alone or collectively in a network to screen startups with huge potential. This funding option has business minds looking to earn interest out of your success and they may expect as high as 30% equity as well.
Although angel investment comes with its issues of high-interest expectations and lesser investments as compared to Venture capitalists; it is important to remember that Google, Yahoo, and even Alibaba were a result of Angel investing.
10 Government Schemes specially for Startups
The Government of India (GoI) and governments of several states have introduced schemes to finance and support startups. The GoI formulates provisions to alleviate the conditions of startups in its financial budget. Government schemes can be availed by startups if they fall under the definition of a startup provided by the GoI. The process of recognition as a “startup” can be availed through an online application.
Following are some of the important schemes launched by the GoI to assist startups in sustaining growth and marketability:
1. Newgen Innovation and Entrepreneurship Development Centre (Newgen Iedc)
NewGen Innovation and Entrepreneurship Development Centre (NewGen IEDC) has been launched to “promote knowledge-based and technology-driven startups by harnessing young minds and their innovation potential in an academic environment.
Eligibility: The parent institution should have required expertise and infrastructure. This includes a minimum dedicated space of about 5,000 square feet to establish a NewGen IEDC, library, qualified faculty, workshops, etc.
Funding: The NSTEDB startup scheme by the GoI will provide a limited, one-time, non-recurring financial assistance on year-to-year basis, up to a maximum of 25 lakh INR. Also, non-recurring grants would be provided for supporting working capital cost.
More Info : http://www.newgeniedc-edii.in/
2. Modified Special Incentive Package Scheme (M-Sips)
In order to attract investments in electronic manufacturing, the Modified Special Incentive Package Scheme has been launched. The incentive will be for the manufacturing of semi-conductors and eco system displays like LCD, OLEDs, storage devices, solar cells etc.
Eligibility: New or existing expanding projects engaged in electronic manufacturing.
Funding: The scheme provides capital subsidy of 20% to SEZ and 25% to non-SEZ for enterprises engaged in electronic manufacturing. Reimbursement of excise duty for capital equipment in non-SEZ units or CVD is also provided. The scheme is available for those categories where investment threshold is of 1 crore INR to 5000 crore INR.
More Info : https://meity.gov.in/esdm/incentive-schemes
3. Credit Guarantee Fund Scheme for Micro and Small Enterprises
The credit is granted to small and micro enterprises as it is these enterprises that do not find timely availability of credit. It is available to both new and existing enterprises. The maximum guarantee cover available is 85% of the sanctioned credit facility. The guarantee cover is for agreed tenure of term loan. In case of working capital, cover is for 5 years or block of 5 years.
Funding: The credit facility covers both term loan as well as working capital facility up to 1000 crore INR per borrowing unit. The guarantee is extended to both new and existing enterprises without any collateral security or third-party guarantee.
More Info : https://dcmsme.gov.in/schemes/sccrguarn.htm
4. Performance & Credit Rating Scheme
Small-scale industries occupy an important position in the development of our economy. Credit rating SSI will encourage them to increase productivity as good credit rating will enhance their acceptability in market. Rating agencies have different schemes to rate different SSIs. All recognised MSMEs are eligible for the scheme.
Eligibility: Recognised MSMEs
Funding: This scheme seeks to establish independent, trusted third party opinion on capabilities and credit-worthiness of MSEs and makes credit available at attractive interest rates ensures better productivity. Under this scheme (as per the turnover of the MSE) a percent of Rating Agency charges is reimbursed by Ministry of SSI. Fee to rating agency is based on turnover of the SSI. The turnover of SSI is categorised into three slabs. Based on the slab into which the SSI falls, specific percent of rating fee can be availed from ministry.
More Info :https://www.startupindia.gov.in/content/sih/en/government-schemes/performance_and_credit_rating_scheme.html
5. Raw Material Assistance
The objective of the scheme is to help MSMEs to procure raw materials by financing. Both indigenous as well as imported materials are covered under the scheme. This helps MSMEs improve product quality.
Eligibility: Entrepreneurs of micro, small and medium scale industries having Udyog Aadhar are eligible.
Funding: MSMEs are helped to avail cash discounts and bulk purchases. The financial assistance is up to 180 days. The rate of interest varies based on type of industry (Micro/small/ Medium) and the outstanding dues over specified number of days.
More Info: https://nsic.co.in/Schemes/Raw-Material-Against-BG.aspx
6. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
The aim of the scheme is to organize Traditional Industries and Artisans into clusters and to provide sustainable employment, enhance marketability of products and to equip them with improved skills, better tools and facilities.
Eligibility: NGOs, Government or semi-Government bodies, and Panchayat Raj institutions can avail the scheme for cluster improvement.
Funding: The financial assistance provided for any specific project shall be subject to a maximum of 8 crore INR to support Soft, Hard and Thematic interventions.
7. ASPIRE EN
The scheme is introduced with the aim of promotion of innovation in rural industry and entrepreneurship. It was launched with aspiration to:
- Set up a network of technology centres
- Promote startups for innovation
- Entrepreneurship in agriculture industry. This incentive is referred to as Fund of Funds.
Funding: The fund will be used for automation of agricultural practices, value addition to agriculture and forest produce, recycling of agricultural waste and to introduce business models for local rural employment. Fund of Funds will be maintained by SIDBI with a corpus of 60 crore INR.
More info: https://www.msmehelpline.com/aspire.php
8. Infrastructure Development Program- Cluster Development Programme
This scheme is launched to create and upgrade infrastructural facilities in the new and existing industrial areas and clusters of MSEs, to set up common facility centres, expand build capacity of MSMEs by forming self-help groups, consortia and to support sustainability by improving skills, market and capital.
Funding: Financial Assistance under various categories are:
- Maximum 2.5 lakh INR for preparation of diagnostic study report with GoI
- Maximum 5 lakh INR for preparation of technical feasibility and viability project report
- For a project of 25 Lakh INR in every cluster, grant of 75% of sanctioned amount
9. Market Development Assistance (MDA)
The aim of this scheme is to increase participation of representatives of participating units. It has three forms:
- Participation in international exhibitions and fairs
- Financial assistance for using Global Barcode standard (GS1) 3. Recognised importance of barcoding and financial assistance through DC.
Funding: The scheme offers funding up to 75% in respect of air fare for participation by MSME entrepreneurs in overseas fairs/trade delegations. The scheme also has provision of funding for producing publicity material (up to 25% of costs), sector specific studies (up to 2 lakh INR) and for contesting anti-dumping cases (50% up to 1 lakh INR)-for individual MSMEs & associations.
10. National Awards (Individual MSES)
The ministry selects from among enterprises and entrepreneurs, recognising their efforts and contributions to MSMEs. The MSME must be in continuous production or in service for the last four years.
Eligibility: Entrepreneurs of MSMEs having permanent registration number or have filed Entrepreneurs Memorandum to respective authorities. MSME should have been in continuous production since last four years.
Funding: Benefits in the form of cash is awarded to the winners. MSMEs from different categories like women entrepreneurs, SC/ST category, NER Entrepreneurs are selected for the award. Cash prize up to 1 lakh INR is awarded to winners.