Learn Funding Options for New Ventures

Are you all set to launch your new venture?

Right from an extraordinary business idea striking your brain, to taking it up a notch or two to reach your goal, you’ve come a far way. Apart from all that it took for you to reach this position, financing and funding are one of the most crucial aspects of a venture, might it be for a newbie to kickstart or an old hand to sustain.

Inadequate knowledge on funding options and lack of funds often shatters self-confidence faltering one’s steps forward. Reaching out to people who can educate and encourage you to keep going can lead you a step closer to your milestone and Girichandra Kuchangi is one such ray of sunshine.

An Investment Director at 1Crowd, Girichandra Kuchangi has spread his light of knowledge and brightened up many budding ventures with valuable insights on funding opportunities. Here are a few keynotes we’ve put together that we really hope you soak up like a sponge!

Firstly, let’s answer a key question all of us just starting out tend to have.

When does one need funds?

1. If you’re a profitable venture, with slow growth, but enough to source your investments, then there is no need to finance.
2. If you’re currently a non-profiting venture but have projected growth for the next 3–5 years, then in order to cover the loss you’ll require some finance. Having a clear growth trajectory and higher returns, only needing some funds is a good place to be.
3. If you’re a fast-growing venture — an extreme model along the lines of Zomato, meaning you’re not profitable in the long term, then you require consistent funds but have a higher long-term profit. This may mean you will have lesser shares, but the company is much larger.

What are the different financing options?

1. Equity Financing

No repayment is expected, meaning the Startup is basically giving away a part of its company as shares to the investor without actually needing to pay the back.

It’s a high risk with high returns endeavour. The concept of dividends also comes in here, which is a means to share the profits made by the companies. Remember, Investors, are here to make money with you. Sort of like betting but on your company, all in good faith. Here, founders, family, and friends can also put together the money, apart from Angel Investors, VCs, and Private Equity.

A little more elaboration on who brings in the funds is as listed below:

#1 Angel Investors

• Fast Investors
• Generally individuals
• Flexible
• Invest around 1–2 Cr

#2 Venture Capitalists

• Businesses
• They raise funds to raise profits
• Invest around 50–100 Cr

#3 Private Equity

• Do serious investments in mature companies
• Invest more than 100 Cr

Note: Equity Financing requires Startups to reach a certain stage, such as Product Market Fit, only then are they credible enough to reach out to investors.

2. Debt and Loan Financing

These must be repaid and are mostly short-term with close to 12–13% interest. It suits profitable companies since these institutions ask for collateral.

According to the speaker, the market is not very evolved in India for Debt financing since a lot of youngsters partake in Startups, and carry no experience or reliable sources to back them.

3. Grant Financing and Govt. Support

These schemes are mainly designed to help companies to whom the commercial market doesn’t cater. Most individuals like scientists or engineers working on high-impact or social projects can avail these funds. There’s no repayment involved, just impact metrics. It is focused on deep tech and research, where these companies have milestones to show progress to the financing institution.

Why are Incubators your best bet as a new venture?

For a lot many reasons, some of which are listed below.

Incubators provide:

1. Networking avenues
2. Mentoring
3. Access to funding — VCs and AI
4. Access to knowledge
5. Brand Building
6. Seed Capital

There is a level of credibility when supported by an incubator as, as a Startup, you come out understanding the know-hows on graduating or exiting.

The next stage to Incubators are Accelerators

Large MNCs tend to have Accelerators to support up-and-coming startups. They don’t take equity and provide access to their team of engineers (like Google) and resources to the Startups. They also pump capital to help you get to the next level.

What do Angel Investors and VCs look for?

1. Strong founders — Passion and credibility. Ability to answer tough questions and explain what the startup has as an advantage over others.
   Additional questions to founders: How good are you at building a team? Why should a VC back you? Is the market big enough? (Requires proof of customer interest)
2. Proof of concept
3. Business Plan
4. Innovative Product
5. Size of Opportunity
6. Valuation/Exit options

As suggested by the speaker, the best way for new founders to get to fundraising is by first attracting a good number of customers through time and effort in Incubators and Accelerators, following which the numbers of the company will look good enough to gain investors’ attention. It’s advisable to identify domain-specific incubators!

Wishing you all the very best and make sure to keep these pointers in mind as you advance!

For more insights on funding options, watch the webinar “Learn funding options for new ventures” on our Youtube channel, here.