How to get Seed Funding for Startups in India

Improved startup ecosystem and economic environment have made India the third-largest market for startup funding over the last decade. India is producing innovations, ideas, and businesses that are attracting investors to put their money in Indian startups. During the early stage of the startup, funding is very crucial since product development, marketing, and hiring talent requires resources.

A startup raises funds in many phases like pre-seed funding and seed capital is raised during the early stage while during the growth stage series A, B, C rounds of funding are done by the investors. Pre-seed funding and seed capital help a startup to have a strong foundation.

The timing and method to raise the seed capital are important for a startup.

When should a Startup try to raise Seed Capital?

The path from having a business idea to make it realized is paved by capital. The timing to raise the capital is crucial for starting and the business and putting it on the right growth trajectory. Before starting to ask for funds from various sources an entrepreneur should consider the following points:

• The founders must have their idea and a meticulous and robust business model in place.
• The founders have done extensive market research and have a clear roadmap for product development.
• The product should at least be in the last phase of development or the prototype should be ready.
• The founders have run a marketing campaign to test the proof-of-concept if their budget allows.

How to Raise Seed Capital

There can be various methods to raise initial funds to make the business started but ideally, the initial fund should be enough to meet basic requirements to create production capacity, market the product, hire a competent team, and put the business on the growth path. Following are the ways through which startups can raise seed capital:

• Crowd Funding

Crowdfunding is one of the most popular avenues to raise capital get the business started. Depending upon the product or service and the business model if capital requirement is not very high the funders can raise money from friends and family. There are various crowdfunding platforms that the founders can approach. This method allows the founder to raise the capital without diluting the stake. Once the business starts generating revenue it can self-finance for further needs.

• Bootstrapping

Founders may start the business with their savings deployed as seed capital and with luck, the funds raised through first sales. This method may put financial pressure on the founders but there is no obligation to return money to the borrowers.

• Corporate Seed Funds

Large corporations keep an eye for innovations and invest in such startups. This method brings huge visibility to the idea and funders get functional support also in various fields such as product development, sales, and marketing, etc. though the founders have to share the stake in such model and are also accountable to the management of the investors.

• Incubators

Incubators provide facilities such as office space and management training to startups along with seed investments at a very early stage of ideation. This type of setup provides support to the startups to nurture the idea for setting the product or service that is fit for the market.

• Accelerators

Accelerators help the startups in scaling up the business by providing small seed capital. Accelerators also provide mentoring, office space, networking services for further accelerating the business.

• Philanthropic Impact Investors

There is a class of investors that especially invests in the business ideas that are dedicated to address social issues and leave a social impact.

• Venture Capital

Venture capitalists help startups through professionally managed funds, expertise, and monitoring.  Venture capitalists take the stake in the startups and once the business grows big enough to bring its IPO or is acquired by a corporation, they leave. A startup opting for funding from venture capitalists should be open for close monitoring incorporate the inputs of the VCs.

• Angel Investment

Sometimes a group of individuals with surplus cash come together and form an angel network to invest in companies during their early stage. Angel investors pick the equity and come with high-interest expectations to earn their share once the business grows to its potential.

Many other options like financing from NBFCs, banks, and debt funding from venture funds are also available. Startups that are involved in research and development may seek funding in the form of grants from the Government and private institutions. For the success of a startup, adequate and timely funding is very important.