6 Different Options For Startup Funding Every entrepreneur should understand the nuances of raising funding before starting up

Raising capital for a startup is one of the most difficult aspects of running a business. And, when global conditions are unstable, it gets even tougher to raise funding. For instance, while investors poured huge rounds of funding into tech startups in 2020 and 2021, the second half of 2022 and so far in 2023, the pace has been slower.

However, whatever the macro conditions be, it is important to know the nuances of raising funding. One such thing to know is to be aware of the options one has to raise startup funding at the beginning of your startup journey.

Here are six such avenues using which one can raise funding.

Bootstrapping

At the beginning of the startup journey, one often goes for self-financing or bootstrapping. This means either the founders can use their savings to start up or they can seek capital from friends and families. Basically, they won't take funding from external companies and by sharing equity. In fact, many startups stay successfully bootstrapped for years. This helps them stay away from the pressures of investors and also with this they don't have to dilute their shares. However, this is a tougher route.

Incubators and accelerators

Incubators nurture businesses at the start of the journey before they find their product market fit. That is why the name 'incubator'. Accelerators are also very similar in the way they operate, but they come in a slightly later stage than incubators and give the startups the necessary push. Along with funding, startups receive mentorship and guidance from incubators and accelerators. 4-10 months is the time duration these places offer support.

Angel investment

Angels come into play when a startup launches a product or service after ensuring product market fit. Angel investors are a great source of capital during the early stage. They also help startups reach their first set of customers. Usually, startups with a value of three to six million dollars approach angels. These investors often take a bet on the entrepreneur rather than the business potential.

Bank loans

Many banks offer loans to startups for fixed interest. While offering capital, banks ask for business plans, customers, valuation details, etc. Based on these, funding is sanctioned. Most banks today offer repayment tenure of 3 to 5 years today and offer loans ranging between INR 50,000 and INR 75 lakh. Also, SME finance is very popular among Indian banks such as Bank Of Baroda, HDFC, Axis, and others.

Venture capital

Venture capital is one of the biggest sources of funding for tech startups. These come from firms or funds that specialize in choosing the right company. In most cases, when entrepreneurs do not get financing from banks, venture capital is something they seek, as these investors often take the risk. Banks, however, hesitate to pour money if the startups do not fit certain criteria.

Government schemes

The government has also been supportive of startups. It comes up with many programs and schemes time and again, through which financial aid is offered along with mentorship. They also come up with competitions and offer grants to the winners. For instance, under the Swachh Bharat Grand Challenge, Startup India worked with the Ministry of Water and Sanitation to recognize Startups spearheading novel innovations in the field of waste management, water management, air quality management and
sanitation. Two startups under each sector were awarded cash grants.