How to Get Startup Funding: The Beginners Guide
In India’s bustling startup ecosystem, securing the right funding is often the difference between success and stagnation. It’s the key formula that transforms groundbreaking ideas into thriving businesses. Yet, navigating the complex world of startup funding can feel like solving a puzzle with ever-changing pieces.
This comprehensive guide will walk you through everything you need to know about getting startup funding in India.
Understanding Different Funding Stages
Pre-seed Funding
The pre-seed stage represents the earliest phase of startup funding, typically occurring when your startup is still in the ideation or early prototype phase. In the Indian context, pre-seed funding usually ranges from ₹10 lakhs to ₹1 crore. This initial funding often comes from personal savings, friends, and family, or early angel investors who believe in your vision.
During this stage, focus on validating your idea and building a strong foundation. Take Freshworks as an example. Founder Girish Mathrubootham started with personal savings and initial customer revenue before seeking external funding. This bootstrapped approach gave him the freedom to validate his idea and build a product that customers actually wanted.
Many Indian entrepreneurs overlook the value of incubators during the pre-seed stage. Organizations like T-Hub in Hyderabad and CIIE.CO in Ahmedabad offer not just funding, but crucial mentorship and resources. These incubators typically take equity stakes ranging from 5-10% in exchange for funding, workspace, mentorship, and access to their networks.
Seed Funding
Seed funding marks your startup’s first significant external investment, typically ranging from ₹1 crore to ₹7 crore in India. This stage transforms your venture from an idea into a real business with market validation.
Razorpay’s seed funding journey offers valuable lessons. When founders Harshil Mathur and Shashank Kumar approached investors, they had already built a basic payment processing solution and secured early customers. Their pitch focused not just on their product, but on the massive opportunity in India’s digital payments landscape.
Indian seed funding sources have evolved significantly over the past decade. Traditional angel networks like Mumbai Angels and Indian Angel Network now operate alongside newer platforms like 100X.VC, which offers innovative investing models using iSAFE notes. These platforms have streamlined the investment process, making it more accessible for early-stage startups.
Series A and Beyond
Series A represents a critical milestone for Indian startups, with funding typically ranging from ₹7 crore to ₹35 crore. At this stage, investors expect significant traction and clear growth metrics.
CRED’s Series A round provides an excellent case study. The company demonstrated strong user acquisition metrics, a clear monetization strategy, and exceptional founding team credentials.
Each subsequent funding round demands increasingly robust metrics. Series B funding (₹35 crore to ₹100 crore) focuses on scaling proven business models. Series C and beyond (₹100 crore+) typically fund market expansion or new product development. Companies at these stages must show clear market leadership potential and paths to profitability.
Step-by-Step Guide to Getting Startup Funding
Step 1: Develop a Solid Business Plan
A well-crafted business plan is the foundation of any successful funding pitch. It should include:
- Executive Summary: A brief overview of your business, market opportunity, and funding requirements.
- Company Description: Detailed information about your startup, including its mission, vision, and values.
- Market Analysis: Research on your target market, competitors, and industry trends.
- Organization and Management: Information about your team, their roles, and qualifications.
- Service or Product Line: Description of what you offer and how it meets customer needs.
- Marketing and Sales Strategy: Plans for reaching and converting customers.
- Funding Request: Specific details on the amount of funding needed and how it will be used.
- Financial Projections: Estimates of revenue, expenses, and profitability over the next few years.
Step 2: Identify the Right Funding Source
Choose the funding source that best aligns with your startup’s stage and needs:
- Early Stage: Bootstrapping, friends and family, angel investors.
- Growth Stage: Venture capital, government schemes, bank loans.
- Expansion Stage: Crowdfunding, incubators, and accelerators.
Step 3: Prepare Your Pitch
A compelling pitch is crucial for securing funding. Here’s how to craft an effective pitch:
- Elevator Pitch: A concise, 30-second summary of your business idea.
- Pitch Deck: A visual presentation that includes key points from your business plan.
- Demo: A live demonstration of your product or service, if applicable.
- Q&A Preparation: Anticipate and prepare answers to potential questions from investors.
Read – How to create a winning startup pitch deck
Step 4: Network and Build Relationships
Networking is essential for finding the right investors. Attend industry events, join startup communities, and leverage social media to connect with potential funders.
Step 5: Negotiate Terms
Once you have an offer, negotiate the terms to ensure they are favorable for your startup. Key points to discuss include:
- Equity Stake: The percentage of your company you are willing to give up.
- Valuation: The agreed-upon value of your startup.
- Exit Strategy: Plans for how investors will eventually cash out.
Step 6: Close the Deal
Finalize the agreement by signing the necessary legal documents. Ensure you have a lawyer review the terms to protect your interests.
Certainly! Let’s dive deeper into the government schemes available for startup funding in India. These initiatives are designed to foster innovation, support entrepreneurship, and provide financial assistance to startups at various stages of their development.
Types of Startup Funding Sources in India
1. Government Schemes
The Indian government offers a plethora of schemes to support startups at different stages of their journey. From tax exemptions and credit guarantees to incubation support and grants, these initiatives provide a robust ecosystem for entrepreneurship and innovation. By leveraging these schemes, startups can secure the funding and resources needed to grow and succeed.
1. Startup India
Overview: Launched in 2016, Startup India is a flagship initiative aimed at promoting startup culture and providing an ecosystem for innovation and entrepreneurship.
Benefits:
- Tax Exemptions: Startups can avail of a three-year tax holiday and exemptions on capital gains.
- Easier Compliance: Simplified processes for patent filing, faster exit for startups, and self-certification for certain regulatory compliances.
- Funding Support: Access to a fund of funds with an initial corpus of Rs. 2,500 crore and a credit guarantee fund for startups.
- Incubation Support: Government-recognized incubators provide physical infrastructure, mentorship, and other resources.
Eligibility: To be recognized as a Startup India entity, a business must be incorporated as a private limited company, partnership firm, or limited liability partnership (LLP) in India, be less than 10 years old, and have an annual turnover not exceeding Rs. 100 crore.
2. Pradhan Mantri Mudra Yojana (PMMY)
Overview: The Mudra Loan scheme provides low-cost funding to micro and small enterprises, particularly in the non-corporate, non-farm sector.
Benefits:
- Loan Categories: The scheme offers loans under three categories:
- Shishu: Loans up to Rs. 50,000. This category is designed for startups and micro-enterprises that are in the initial stages of their business.
- Kishore: Loans above Rs. 50,000 and up to Rs. 5 lakh. This category is intended for businesses that have established themselves and are looking to expand their operations.
- Tarun: Loans above Rs. 5 lakh and up to Rs. 10 lakh. This category is for well-established businesses that require larger funds for further growth and expansion.
- Interest Rates: Competitive interest rates and flexible repayment options tailored to the needs of small businesses.
- Mudra Card: A debit card that allows borrowers to withdraw funds as needed, providing flexibility in managing cash flow.
Eligibility: Small businesses, traders, shopkeepers, and individuals engaged in manufacturing, trading, and service sector activities.
3. Stand Up India
Overview: This scheme aims to promote entrepreneurship among women, Scheduled Castes (SC), and Scheduled Tribes (ST) by providing loans for setting up greenfield enterprises.
Benefits:
- Loan Amount: Composite loans ranging from Rs. 10 lakh to Rs. 1 crore.
- Interest Rates: Competitive interest rates and a repayment period of up to 7 years.
- Mentorship: Access to mentorship and handholding support.
Eligibility: Women entrepreneurs and entrepreneurs from SC/ST communities who are above 18 years of age.
4. Atal Innovation Mission (AIM)
Overview: AIM focuses on promoting a culture of innovation and entrepreneurship. It includes various programs like Atal Tinkering Labs, Atal Incubation Centers, and Atal New India Challenges.
Benefits:
- Grants: Financial grants for setting up Atal Tinkering Labs in schools and Atal Incubation Centers in institutions.
- Mentorship and Resources: Access to mentorship, prototyping facilities, and other resources.
- Challenges and Competitions: Participation in innovation challenges and competitions with cash prizes and funding opportunities.
Eligibility: Schools, higher educational institutions, and research institutions can apply for setting up Atal Tinkering Labs and Atal Incubation Centers. Startups and innovators can participate in challenges and competitions.
5. Make in India
Overview: Make in India is an initiative to encourage both multinational and domestic companies to manufacture their products in India.
Benefits:
- Incentives: Various incentives for manufacturing startups, including tax benefits, easier regulatory compliances, and access to funding.
- Sector-Specific Schemes: Special schemes for sectors like electronics, automobiles, textiles, and defense.
- Infrastructure Support: Access to industrial corridors, smart cities, and other infrastructure developments.
Eligibility: Manufacturing startups and companies looking to set up or expand their manufacturing operations in India.
6. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS)
Overview: This scheme provides credit guarantee cover to collateral-free loans extended to micro and small enterprises.
Benefits:
- Guarantee Cover: Credit guarantee cover up to 85% of the loan amount for micro enterprises and up to 75% for small enterprises.
- Loan Amount: Loans up to Rs. 2 crore.
Eligibility: New and existing micro and small enterprises engaged in manufacturing, trading, and service sector activities.
7. ASPIRE: A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship
Overview: ASPIRE focuses on promoting innovation, rural industries, and entrepreneurship by setting up Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs).
Benefits:
- Incubation Support: Financial assistance for setting up LBIs and TBIs.
- Mentorship and Resources: Access to mentorship, training, and other resources.
Eligibility: Institutions and organizations looking to set up LBIs and TBIs to support rural and agro-based industries.
8. SIDBI Make in India Soft Loan Fund for Micro, Small & Medium Enterprises (SMILE)
Overview: SMILE provides soft loans to micro, small, and medium enterprises (MSMEs) to encourage manufacturing and innovation.
Benefits:
- Loan Amount: Soft loans up to Rs. 25 lakh.
- Interest Rates: Competitive interest rates and flexible repayment options.
Eligibility: MSMEs engaged in manufacturing and innovation activities.
9. Biotechnology Industry Research Assistance Council (BIRAC)
Overview: BIRAC supports biotechnology startups and innovations through various schemes and grants.
Benefits:
- Grants and Funding: Financial grants and funding for biotechnology research and development.
- Mentorship and Resources: Access to mentorship, incubation facilities, and other resources.
Eligibility: Biotechnology startups and innovators engaged in research and development activities.
10. Software Technology Parks of India (STPI)
Overview: STPI provides infrastructure, statutory, and other support services to software and IT startups.
Benefits:
- Infrastructure Support: Access to plug-and-play infrastructure, incubation facilities, and other resources.
- Statutory Support: Simplified regulatory compliances and statutory support.
- Funding and Grants: Access to various funding and grant opportunities.
Eligibility: Software and IT startups looking to set up or expand their operations.
Certainly! Let’s delve deeper into Angel Networks, Venture Capital Firms, and Corporate Venture Funds as key sources of startup funding in India.
2. Angel Networks
Overview: Angel networks are groups of angel investors who pool their resources and expertise to invest in startups. These networks provide not just capital but also mentorship, industry connections, and strategic guidance.
Benefits:
- Collective Expertise: Access to a diverse range of expertise and industry knowledge from multiple angel investors.
- Higher Funding Potential: The collective resources of the network can provide higher funding amounts compared to individual angel investors.
- Networking Opportunities: Connect with a broader network of industry experts, potential partners, and other startups.
- Structured Support: Many angel networks offer structured support programs, including mentorship, workshops, and access to resources.
Eligibility: Startups with innovative ideas, a strong team, and a viable business plan. Early-stage startups seeking seed capital are particularly well-suited for angel networks.
Application Process:
- Identify Angel Networks: Research and identify angel networks that align with your startup’s goals and industry.
- Prepare a Pitch: Develop a compelling pitch that highlights your startup’s unique value proposition and potential.
- Submit an Application: Apply to the angel network by submitting your business plan, pitch deck, and other required documents.
- Pitch to the Network: If selected, present your pitch to the angel network’s members.
- Negotiate Terms: Discuss and agree on the terms of the investment, including equity stake, valuation, and mentorship support.
Success Stories:
- Example 1: A tech startup secured seed funding from an angel network, which provided not only capital but also mentorship from experienced entrepreneurs and industry experts.
- Example 2: An e-commerce startup leveraged the collective expertise of an angel network to refine its business model and expand its market reach.
3. Venture Capital Firms
Overview: Venture capital (VC) firms manage funds on behalf of investors and invest in startups with high growth potential. These firms provide significant capital along with strategic guidance, industry connections, and long-term support.
Benefits:
- Large Funding Amounts: VC firms typically invest larger sums of money, making them suitable for startups needing significant capital for expansion.
- Expertise and Network: Access to industry experts, mentorship, and a network of potential partners and customers.
- Long-Term Support: VC firms often provide ongoing support and multiple rounds of funding as the startup grows.
- Strategic Guidance: VC firms offer strategic guidance and help startups navigate the complexities of scaling and market entry.
Eligibility: Startups with a strong business model, a capable team, and a clear path to scalability and profitability. VC firms typically invest in growth-stage startups with a proven market fit.
Application Process:
- Prepare a Pitch Deck: Create a compelling pitch deck that outlines your business plan, market opportunity, and financial projections.
- Identify VC Firms: Research and identify VC firms that invest in your industry or sector.
- Network and Pitch: Attend industry events, use professional networks, and directly approach VC firms to pitch your startup.
- Due Diligence: If interested, the VC firm will conduct due diligence to assess your startup’s potential and risks.
- Negotiate Terms: Discuss and agree on the terms of the investment, including equity stake, valuation, and exit strategy.
Success Stories:
- Example 1: A fintech startup received Series A funding from a VC firm, which provided the capital and strategic guidance needed to scale its operations and enter new markets.
- Example 2: A healthcare startup secured multiple rounds of funding from a VC firm, enabling it to develop innovative products and expand its customer base.
4. Corporate Venture Funds
Overview: Corporate venture funds are investment arms of large corporations that invest in startups, often in exchange for equity or strategic partnerships. These funds provide not just capital but also access to the corporation’s resources, market reach, and industry expertise.
Benefits:
- Strategic Partnerships: Access to the corporation’s resources, market reach, and industry expertise.
- Funding and Mentorship: Receive funding and mentorship from experienced corporate executives.
- Market Access: Leverage the corporation’s market presence and customer base to scale your startup.
- Innovation Support: Corporate venture funds often support innovative startups that align with the corporation’s strategic goals and market needs.
Eligibility: Startups with innovative solutions that align with the corporation’s strategic goals and market needs. Corporate venture funds typically invest in startups with a proven market fit and scalability potential.
Application Process:
- Identify Corporations: Research and identify corporations that have venture capital arms and invest in your industry.
- Prepare a Pitch: Develop a pitch that highlights how your startup’s solution aligns with the corporation’s strategic goals.
- Network and Pitch: Use professional networks, attend industry events, and directly approach corporate venture capital arms to pitch your startup.
- Negotiate Terms: Discuss and agree on the terms of the investment, including equity stake, strategic partnerships, and market access.
Success Stories:
- Example 1: A logistics startup received funding from a corporate venture fund, which provided access to the corporation’s supply chain network and industry expertise.
- Example 2: A renewable energy startup secured investment from a corporate venture fund, enabling it to leverage the corporation’s market reach and customer base to scale its operations.
Frequently Asked Questions – How to Get Startup Funding
What is the ideal time to start fundraising?
Start your fundraising efforts when you have demonstrable traction and at least 6-8 months of runway remaining. Begin conversations with investors 3-4 months before you need the funds. This timeline allows for proper due diligence and negotiation while maintaining a strong position.
How much equity should I give up in the first round?
Typically, early-stage startups in India give up 15-25% equity in their first institutional round. However, this varies based on:
- Valuation metrics
- Market conditions
- Startup stage and traction
- Investor competition
- Founder experience and track record
What metrics do Indian investors look for?
Key metrics include:
- Monthly Recurring Revenue (MRR)
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
- Gross Margin
- Monthly Growth Rate
- Market Size and Penetration
- Customer Churn Rate
- Unit Economics
- Burn Rate and Runway
How long does the fundraising process take?
The typical fundraising process in India takes 4-6 months from first pitch to money in the bank. This timeline includes:
- 1-2 months for initial meetings and investor interest
- 1-2 months for due diligence
- 1-2 months for documentation and closing
What are the current trending sectors for funding in India?
As of 2024, high-interest sectors include:
- AI/ML startups
- Climate tech and sustainability
- Health tech and biotech
- B2B SaaS solutions
- Fintech innovations
- D2C brands
- Edtech 2.0
- Deep tech solutions
Final Thoughts – How to Get Startup Funding
Success in startup funding requires more than just a great idea or impressive pitch deck. It demands a deep understanding of your market, strong execution capabilities, and the resilience to handle rejection. Remember Zepto’s story – those 20 initial rejections didn’t define their journey. Instead, they learned from each “no” and refined their approach until they found investors who shared their vision.
The Indian startup ecosystem continues to evolve, offering more diverse funding options than ever before. From government initiatives to global VC firms, opportunities exist for startups at every stage. The key lies in matching your startup’s stage and needs with the right type of funding and investor.
What unique value will you bring to India’s competitive startup landscape? How will you use funding not just to grow, but to build a sustainable, profitable business that contributes to India’s entrepreneurial ecosystem? Your answers to these questions might just define your funding journey.
