Startups can raise funds from a variety of investors and platforms depending on their needs and stage.
In this article, NIKOLOGY represents 12 funding options for startups..
The Indian startup ecosystem has come a long way, with several tech startups going public and around 42 companies becoming unicorns in 2021. According to report Indian Tech Startup Funding Report 2021, Indian startups raised $42 billion in 2021 across 1,583 deals and 2,487 unique investors participated in startup funding. A bulk of the funding went into software-as-a-service (SaaS), e-commerce, fintech, and consumer services segments.
As the business grows, you need money for operations, expansion, marketing, and production. Depending on what stage your business is in and the potential to generate returns, you seek seed funding from angel investors, then venture capitalists, and later launch an initial public offering (IPO).
There are three types of startup funding: equity funding, debt funding, and government grants. Each funding option has its pros and cons. For example, in equity funding, there is no repayment pressure, but you have to give up a stake in your company, making it the most expensive form of funding.
The startup funding ecosystem has evolved beyond angel investors and venture capitalists. Startups can raise funds from a variety of investors and platforms depending on their needs and stage.
Angel investors are individual investors or a network of individuals with family connections or rich experience. Most of them are experienced entrepreneurs who have gone through the process of starting a business. They understand pain points and opportunities.
These investors have surplus cash that they are willing to risk in your venture at the seed stage. Before investing, they vet the startup, do research and see how much the founder has invested. Once they’re convinced, they give you funding in exchange for convertible debt or equity ownership in your startup.
But they invest lesser amount than venture capitalists and expect higher returns. Some popular individual investors are Kunal Shah, Rajan Anandan, and Ritesh Malik.
Angel Network & Platform
Angel network and platform is where angel investors pool their funds to invest in startups. As they work as a group, these investors can provide large funds and hedge exposure. The platform gets equity ownership of the startup, and benefits as the startup thrives.
Some popular platforms are Angel List, Venture Catalysts, and Lets Venture.
Venture Capital Funds
Venture Capital Fund is an institution whose business is to provide capital to promising startups. This point is where startup funding moves to the next level. Since Venture Capital Funds are an institution, they provide large amounts of capital to a company for growth and expansion and monitor its progress to ensure that their investment provides sustainable growth.
Venture capital funds receive equity or equity-linked instruments from startups in exchange for funding. They leave the company when the company issues an IPO or gets acquired.
One branch of venture capital is micro VC, with fund sizes of around $60 million – $70 million. Micro VCs invest in idea-stage startups and receive an equity stake in return.