Tapping into sources of capital is as crucial as the unique business model of the startup to monetise the said startup. The first thought that comes to the mind of the founder to take off the business is to use money out of pocket to ‘bootstrap’ the company. A startup might even decide to follow this path until it starts making a profit. However, this is not the scenario for many of us.
Fortunately, with the boom in the Indian startup ecosystem, there are various types of funding opportunities a startup can aim to receive.
According to World Investment Report 2023, the total FDI into India soared by 10%, from $44.7 Bn in 2021 to $49.3 Bn in 2022, positioning India on the radar of international investors and making it an attractive destination for investment in startups.
Startups can raise capital at different stages of funding from multiple financial institutions like angel investors, grants, crowdfunding, loans, venture capital and government-backed schemes. While it is easy to obtain angel investments and seed funding, securing late stage funding can get tricky.
Many startups overlook the importance of unit economics. In this context, raising funds has often become more of a celebration rather than a strategic milestone. However, startups must shift their focus from simply securing funding to setting long-term goals.
Proper cash management is essential for startup success, as poor revenue generation and high expenses can quickly dilute the focus on the fundamental aspects of the business. Focusing solely on the product or service without prioritising financial planning can lead to poor cash flow management and financial crises. Startups should develop detailed financial forecasts, realistic revenue and expense projections, and monitor cash flow to ensure financial stability.
Venture capital has been the dominant source for startups providing seed funding to give that initial thrust. However, startups must look up to diversify their sources of finances in the following stage funding to strengthen their financials as they require a timely infusion of capital as they scale their business operations. By diversifying funding sources, startups can reduce costs and open new avenues for fundraising.
Diversifying funding sources increases the chances of securing capital and provides access to a broader network and expertise. Startups can explore alternative funding sources, through credit and strategic partnerships. By expanding their reach and tapping into diverse funding sources globally, startups can enhance their chances of securing the necessary capital to thrive.
Getting Funding From International Sources
International investment opportunities are a viable option for Indian startups. Participating in competitions, winning entrepreneur awards, attending workshops and enrolling in international networking events can provide exposure to potential investors.
Moreover, various countries offer special grants and schemes designed for foreign startups, particularly those owned by women, focusing on sustainability or addressing critical social and environmental impact. Startups can also leverage global startup accelerators, incubators and crowdfunding platforms.
One way to go about this path is by building networks and showcasing their potential through a solid business plan with a minimum viable product (MVP). Proper research on the legal and regulatory requirements is essential to attract international investments, particularly for international startup competitions and hunting for global angel investors to help secure funding.
Further, a constant lookout on the new government policies, grants and schemes of various countries for foreign startups is important to leverage international investment opportunities.
With investment options available globally, each financial institute comes with its drawbacks. It boils down to the startup’s smart formulation of the right combination of funding capital to thrive to succeed. The nature of capital funds to tap can be determined better by understanding the cash flow of the startup.
For instance, the startup can tap into equity when there is uncertainty on the timing of cash flow and debt when there is certainty on the timing of the cash flow.
The Indian economy remains the fastest-growing economy with its special spotlight on the startup ecosystem. This growth has also invited tough competition among these startups to attract capital funds. From the investor’s standpoint, due diligence by the startups is of utmost importance.
A deep understanding and evaluation of the financial requirements, market demand and technical know-how of the startup that fits investors’ expertise and portfolio ensures a successful partnership.
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