Beyond VC: Funding Options for Early-Stage Startups
Equity financing through venture capital is a popular funding option for startups owing to its strategic benefits, such as significant capital injection and guidance and advice from mentors. However, equity-based financing may not be the best option for some early-stage startups - both for the entrepreneur and the startup investor in India.
If you are a startup that has crossed the seed stage and is demonstrating consistent and stable growth but does not want to opt for VC financing, we will discuss some alternative funding options.
Funding Options for Startups
1. Bootstrapping:
To build confidence among investors and prove the viability of your business, you can opt for self-funding or bootstrapping. Bootstrapping is a feasible startup funding option with low initial costs and serves as an ideal proof of concept for startup investors in India who may ask for traction before putting in their money.
2. Angel Investors:
Angel investors are high net worth individuals or networks of startup investors in India who have a sizable surplus amount they are willing to invest in early-stage startups. To hedge their risks and offer higher funding, a group of angel investors may pool their funds in an angel network.
Angel investors conduct detailed initial research and screening of the startup and offer funding options for your startup and mentorship in return for equity ownership or debt convertibles.
3. Government Grants:
In 2016, the Government of India launched the Startup India Programme to invest in startups. The scheme puts its funds in Alternate Investment Funds and venture capital that invests in startups. In 2021, the Government of India started the Startup India Seed Fund, which offers funding options for startups at the early stage.
4. Revenue Financing:
Revenue financing entails the provision of upfront funds for future revenue requirements of the startups for funding the marketing, inventory or advertising costs. A pre-decided percentage of the monthly revenue of the business is fixed as the repayment amount.
5. Banks and NBFCs:
One of the conventional funding options for startups and businesses in India, banks and other lending institutions offer various types of loans, such as working capital loans, startup loans, etc. However, note that startups may be subject to higher collateral.
6. Crowdfunding:
Startups and retail startup investors in India can connect on authorised platforms to invest a fixed amount (peer-to-peer lending) for higher returns. Crowdfunding for startups is slowly gaining popularity in India with a few registered startup crowdfunding platforms. However, SEBI also warns of fraudulent and illegal platforms.
7. Integrated Incubators:
Integrated incubators are comprehensive, one-stop solutions for new businesses - incubation, funding, mentorship, guidance, acceleration and business development. They are the perfect platforms for startups, mentors and startup investors in India to network, connect and invest.
Venture Catalysts is India’s first integrated startup incubator that offers an end-to-end ecosystem for early-stage startups and startup investors in India.
Conclusion
If you are an early-stage startup looking for funding options in India beyond equity financing and VC financing, the above-mentioned options are viable alternatives. However, make sure you chart out a specific plan to use the capital before raising the funds.
No matter the end use - hiring a senior resource, setting up a new department, investing in advertising and marketing efforts - ensure you have an in-depth plan for scaling, growth and use of the raised funds.
