Startup Funding In India: An

Overview
O C T O B E R 1 , 2 0 1 9   7 M I N S R E A D

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Table of Contents
 What is funding?
 Stages of funding 
o Pre-seed funding or self-funding
o Seed funding
o Series A funding
o Series B funding
o Series C funding 
o Series D funding
o Series E funding
 How to get funding for startup?
o Create a detailed business plan
o Visit a local bank 
o Seek help from friends & family
o Venture Capitalists
o Angel Investors
o Crowdfunding

Etymologically, funding is the money raised by a startup or provided by an

individual, organisation or government bodies to a startup for a particular
purpose.
Getting started with a business and planning the growth ladder is full of
challenges and tough decisions. One of the most critical stages is when you step
out to raise funds for your business. Read this article to know everything you
should about startup funding, before you reach out to investors or vice versa
because there’s not a lot of ‘fun’ in ‘funding’!

What is funding?
Etymologically, funding is the money raised by a startup or provided by an
individual, organisation or government bodies to a startup for a particular
purpose.

Stages of funding 
While a founder knows that his or her startup is excellent, it is difficult to
convince people to invest millions in your company. Funding for startups is a
slow and gradual process, and it is essential to know each stage well in advance.

Pre-seed funding or self-funding

Before even starting the business, the founder(s) must ascertain as to how much
amount will they invest from their own pockets. At this stage, people also prefer
to take help from family & friends as this does not require lengthy
documentation and they can save on heavy interest rates, which the bank would
otherwise charge. This is also called the bootstrapping stage of your business.

Seed funding
This is the very first set of money that a startup raises from an external investor.
As the name suggests, this is the seed that (hopefully) helps a company grow
when it is just planting itself. Usually, the amount raised from the seed funding
during the process of startup funding round is used for market research and
product development.
Angel investors are the most common type of investors at this stage. While this
is the starting stage for many startups, it is also a ‘wrapping up’ stage, If the
startup fails to utilise the first round and get in some results, it gets difficult for
them to move to the second round of funding that is, Series A funding.

Series A funding
Once a startup passes through the seed stage and has some traction on their
website/app (it can be in terms of users, revenue, views or whatever the set KPI
is), they are ready to go for Series A round.
In this round, startups are expected to have a plan in place for the future
development of the product or service they offer. These businesses are also
likely to use the raised money to increase revenue.

Series B funding
Any startup that has reached the Series B has already figured out their product-
market fit. All they need is assistance in expanding it.
Usually, the expansion that occurs after raising the Series B round is not limited
to focusing on gaining more customers but also in building a strong team to
serve the growing customer base. 

Series C funding 
At a stage when a startup is ready to acquire other businesses or develop new
products or expand to new markets, it can be said that the startup is ready to
make it to Series C funding.
The common trend suggests that a startup gets ready to raise Series C round
when they plan to go out of their home country or to acquire like business
models. (similar to the one they have)
It is also seen that Series C is the last round that most of the companies go for.
However, some companies move ahead to Series D & Series E rounds too.

Series D funding
This round of startup funding is a little more complicated than the other rounds.
As mentioned, most companies usually exit the funding rounds after Series C.
However, some companies move to Series D. Two of the common reasons here
are:
Positive side- The startup has discovered new opportunity for expansion before
going public or has found more opportunities to acquire businesses and increase
the value of the business. 
Negative side- On the other hand, another reason a startup might want to raise
Series D can be because they have failed to hit the expectations laid out in the
previous rounds. 
Series E funding
A very few companies make it to Series E round for the startup funding.
Startups looking to raise funds at this point have usually failed to meet their
expectations from the previous funds raised. Another reason can be that they
still need some external help before going public.

How to get funding for startup?

Now that you know what are the different stages and rounds of funding, here are
some of the alternatives about how you can raise funds by yourself, by investors
and other ways!

Create a detailed business plan

Before you begin with anything, have a precise business plan in place. The
reasons are simple: no one would like to invest money in your business if you
don’t have a detailed and long-term plan in place. Different type of investors
will need to see financial projections before they even offer your business a
dime. This plan should cover topics like:
 Who are you?
 What do you do?
 What are your long-term & short-term goals?
 SWOT analysis
 Competitor analysis 
 Defined roles of all the employees
 Detailed financial projections (this is the most important parts)
Pro-tip: Make sure you don’t over-commit and have realistic expectations in
place.

Visit a local bank 

It is a better idea to approach a local bank and get into a conversation and check
what the loan amount that they can offer to you, the interest rate and other pre-
requisites. 
Be professional and showcase your requirements.
Get in touch with several lenders and see what works best for you.
Seek help from friends & family
These are a bunch of the most trustworthy people you have. Do not be afraid to
ask for help during your startup funding stage from them. The best part is that
you will not have to pay any interest in case you raise money from them. 
A research report also suggests that loans taken from friends and family
contribute to a startup’s success as they have an add-on motivation of faith and
support.

Venture Capitalists
These are well-heeled investors that often invest their capital in businesses with
indelible growth opportunities. This infused capital is called venture capital. 
The bitter side of this kind of fundraising is, you might have to be prepared to
give away a portion of your business. 
Read Beginner’s Guide to Venture Capitalists to know more.

Angel Investors
Commonly, an angel investor is an individual (or a group of a few people) who
provides capital to a startup, usually in exchange for convertible debt or
ownership equity. 
It is very common for these investors to be an entrepreneur themselves. If you
find the right angel investor, you may also benefit from their expert advice and
management skills!

Crowdfunding
To put it very simply, crowdfunding is a practice of funding a project or venture
by raising money from a large number of people who each contribute a
relatively small amount, usually via the internet or via gatherings. 
There are mixed views about whether a company should go for crowdfunding or
no, but the final call lies with you!
These are some of the most common ways to fetch in funds for your startup.
You can decide what suits your startup the best and plan your roadmap
accordingly!