Basics of Fundraising

One of the the hardest part of being a founder is raising money. This is the second challenge after  making the service or product that customers want. Most startups tackle existential threat because of difficulty of raising money. Fundraising is harsh terrain. Fundraising is just like sales and investors are like customers. It is not about how hard you are trying but whether the product or service is solving a customer problem. There are certain fundamentals about fund raising.

  1. Investors are not experts but try to make an educated guess about the opportunity. The most successful VCs fail 80%-90% of the time in startups investments. They have some randomness to their choices

  2. There is a limited set of investors in India. About 300-400 active angel investors, 90+VCs at early to late stages and 200+ corporate venture capital firms

  3. All startups are not funding ready. The funding readiness is subjective but almost all the investors have similar grading mechanism for evaluating investment opportunity. The risk appetite may vary. You can check venture handle  funding readiness here

There are following stages and options for raising funds for a early stage founder

  1. Angel/Seed Round- The seed round can be raised from Angels, Incubators or VCs that have focus on seed round. This starts from INR 30 lakhs (USD40K) to INR 15 Crores (USD 2-3 Million)

  2. Series/Pre Series- These is subsequent round of financing that founders can raise from VCs and corporate investors. The range can go upto billions. Each round has options and target for startups to achieve post which the funds are disbursed.

  3. Venture Debt/Bank Loan- There are host of private venture debt funds that provide debt ( usually to startups that have raised a round of series or seed from VCs). The venture debt model is like standard bank loan that can be used by founders to fuel expansion plans without diluting equity.

  4. Government of India Mudra Yojna provides bank loans to entrepreneur across diverse range f amount starting from INR 5 lakhs

  5. BSE Startup-This is another option to raise funding for startups by accessing public markets of BSE startup. The BSE Startups Platform as per the rules and regulations laid down by SEBI. BSE Startups Platform offers an entrepreneur and investor friendly environment, which enables the listing of Startups from the unorganized sector scattered throughout India, into a regulated and organized sector. 

Important:To raise once the startup is funding ready. Evaluate all the possible options. Equity financing is most expensive form of fundraising

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