Capital is essential for any business, as it enables it to launch and sustain its operations. Most founders prefer to fund their startups from their own pockets to enable them to retain control over the running and decision-making. However, as they expand and ramp up their operations, many startups are obliged to seek external investments to cater to changing needs.
There are a variety of sources from which startups can obtain capital. However, it is generally recommended that the funding source corresponds to the startup’s operational level. Below, we discuss some of the sources of capital for entrepreneurs in India.
Bootstrapping
The term “bootstrapping” refers to a business model in which the founders use their own money or savings to run the company. Although this may result in limited capital and restrict the company’s growth, it enables entrepreneurs to stay in control of their company and make independent decisions.
Support from Family and Friends
Many entrepreneurs in India often turn to their friends and family for capital to start or expand their businesses. This may, at times, call for having written agreements and ensuring that you keep everyone in the loop. It also gives the founder a relatively strong hold of the running and decision making in their company.
Crowdfunding
The internet age has made it possible for founders to fundraise from strangers across the world, without having to go through the bureaucracies of government paperwork. Kickstarter and Indiegogo are two of the most popular online crowdfunding sites that entrepreneurs can use to collect contributions from many people. If you make a good pitch for your product or service, there’s a good chance that many people will be willing to support your business even though they are not known to you personally.
Getting Bank Loans
Banks and other financial institutions are the traditional sources of capital to businesspeople, and Indian entrepreneurs continue to use them to raise funds. Notably the recent years have seen an uptick in initiative by the Indian government, such as Standup India and the Mudra Loan Scheme, aimed at facilitating better access to capital for startups and small enterprises.
Venture Capitalists (VCs)
Venture Capital (VC) firms are professionally managed investment vehicles known whose business is exclusively to identify companies/firsms with strong development potential and invest in them. The catch is that many venture investors look for opportunities to invest in sectors that yield the highest possible profits, making VC funding very competitive. Typically, VCs seek stake in the region of 20% in any firm they invest in to ensure they generate returns and also influence decision making.
Angel investors
Angel investors are wealthy people who put their money into new startups with strong growth potential. Beyond finances, however, they also provide investment advice and support, networking, and growth opportunities. In exchange for their capital, they typically receive equity shares, which they can sell when they decide to cash out. While they are closely related to VCs in their way of doing business, angel investors, typically hunt for companies that are just starting up.
Incubation programs
Startups in India can leverage incubation programs run by both public and private organizations. These programs provide more than capital, as they link up entrepreneurs with mentors, help build business networks. The capital given is usually low-cost seed money. As they team up with inspiring and forward-thinking individuals, startups can get use incubation programs as platforms to take off to a great start.
In conclusion
There are multiple avenues through which Indian entrepreneurs can raise capital for their businesses and startups. The vast range of choices, however, requires critical thinking on the part of founders because they have deep-lying implications for the growth of a startup. Therefore, an entrepreneur should weigh the benefits and drawbacks of each potential funding source before making a final decision.