3 Things to Keep in Mind While Deciding the Funding Path for Your Startup The boom in entrepreneurship has initiated alternative financing methods

By Baishali Mukherjee

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.


Getting funds for a business is challenging irrespective of the prevalent economic climate of the country or region. Be it capital for a start-up, or for expansion or for tiding offer difficult times, securing funds remains a tough affair.

The boom in entrepreneurship and start-ups have initiated alternative financing methods and today a number of financing options and routes are available for start-ups and small businesses. However, it is important to know and understand that the feasible methods of financing a venture will vary from business to business.

Options to raise funds in India

Crowd-funding (gift based) – family and friends

Seed-Angel Investment - 10L to 1CR

Incubator/Accelerator Program - 10L- 30L

Angel Investment Networks - 30L upwards

VC/PE Ventures - mostly 1 crore upwards

Traditional Bank Loan on profitability and cash flow

SEDBI –many schemes starting from 1L

"The sheer variety of funding option for start-up businesses these days can be misleading," shared Alok Patnia, Founder & CEO, Taxmantra.com. "It also becomes difficult to decide the category of funding which will be right for you. The good news is that one can easily understand the variety of options that exist in the market today," he added.

What to raise?

It is now a well-known fact that based on the type of business, one should decide whether he / she should go for Equity or Debt. According to Patnia, "debt does not dilute ownership in the company, unlike equity, as debt must at some point be repaid.

"While taking a decision on loans one has to keep in mind that interest is a fixed cost which raises the company's break-even point. Also high interest costs during difficult financial periods can increase the risk of insolvency. Cash flow is required for both principal and interest payments and must be budgeted for. Also the larger a company's debt-equity ratio, the more risky the company is considered," he notified.

It has also been seen that debt instruments often contain restrictions on the company's activities, preventing from pursuing alternative financing options. Besides, pledging of assets of the company is required as collateral, and business owners are in some cases required to personally ensure repayment of the loan.

"The good thing about debt is it ensures ease of operations as the company is not required to send periodic reports to investors, hold periodic meetings of shareholders, and seek the vote of shareholders before taking certain actions. However, the debt funding typically should be accessed only after 3-4 year of operations," Patnia pointed out.

When to raise?

The fundamental rule here is to invest equity and get a few paying customers before approaching an investor. Before going to the investor you must also have a functional team or at least a co founder.

So when should you raise? - Raise money when you do not need it or raise it when you really need it. "The answer lies in between somewhere," says Subir Dutta, Director, Doshi Chatterjee Bagri & Co. "We advise entrepreneur to have a runway of at-least a year and half and then start fund raising activities accordingly," he shared.

From whom to raise?

According to Abhishek Kaushik, Vice President and Product Manager - Current Accounts, Kotak Mahindra Bank, raising money is like getting married. "If you do not choose the right partner, it can prove to be disastrous, in the long run. Always keep five mantras while raising money- industry familiarity, finding investors you can trust, knowing what you want investors to provide for you or who can solve your current problems, be sure that investors who tell it to you straight are priceless and find investors who are aligned with your interests," counselled Kaushik.

Baishali Mukherjee

Former Freelancer

Related Topics


International Security Firm Welcomes Female India Native to an Essential Leadership Position

Yasmin Brar has been appointed as the Operations Strategy Director, a role that underscores the company's commitment to innovation, expansion, and strategic management


The Deeptech Innovator: Aman Singh, Co-Founder & Head of Analytics, Intangles

Their next trigger of growth centres around expanding presence and offerings in the global market

Growing a Business

How to Bridge the Gap Between Aspirations and Reality in Business

Bringing a vision to life requires a good dose of self-honesty and a multi-year plan for incremental progress.

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

News and Trends

Kaynes Semicon To Invest INR 4,000 Crore On OSAT/ATMP

The investment is expected to create around 1,000-plus jobs

Business Solutions

Stay Organized with This Task Management Tool, on Sale for $30

A Study Planr Pro subscription is just $30 for life.