Funding for start-ups: 9 best ways to get start-up financing in 2022

Startup Funding

 

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If there's one thing that founders seek after a brilliant idea, it's funding for start-ups. . Business funding for start-ups is needed to scale substantially- be it operations, production, licenses, expansion, or marketing.

With the start-up ecosystem flourishing, India is home to 105 unicorns as of 2022, and stands as the third largest start-up ecosystem in the world! In such booming times, the need for start-up financing is actualized by three forms of funding: equity financing, debt financing, and grants. 

If you're a business owner wondering about the most effective options on funding for start-up businesses, you've come to the right place. This article explores a list of 9 options that will help answer all your start-up business funding-related queries, so let's dive right in.

1. Bootstrapping

Bootstrapping is a way to do something about the problems you have without letting someone else give you permission to do them.

-Tom Preston Werner (Cofounder, GitHub)

Bootstrapping, also called self-financing, is a practice where owners use personal finances or the company's operating revenue for start-up financing, without any external support. Zerodha, an online trading finance company valued at 2 billion dollars, is a prime example of a successful bootstrapped start-up.

Bootstrapping translates to funding for start-ups, but with no equity dilution and no debt. 100% ownership is retained, and owners have complete freedom to take business decisions unlike in other start-up business funding options.

However, since the entrepreneur has a lot of skin in the game, all liability for the company is in the owner's hands. Moreover, a lack of proper funding could hamper the business’s growth over time.

2. Friends and Family

Interestingly (as per an annual study conducted by the RBI), friends and family were reported to have contributed nearly 42.9% of funding for start-ups in India compared to other traditional options.

Asking well-wishers and family for start-up financing is a fairly decent option, less formal than other investments. But, it comes with its fair share of problems.

Complex financial matters could potentially ruin relationships, and any loss in the business is equally shared by the investors.

That said, while merging money with personal relationships can be risky, the trade-off might be worth it if owners are clear about all possible risks and present a comprehensive, detailed set of expected outcomes.

3. Government Grants

With the start-up ecosystem thriving in India, the government offers many grants for owners to procure funding for start-up businesses. Pradhan Mantri Mudra Yojana is one such government scheme launched in 2015 that assists Indian entrepreneurs with bank loans up to 10 lakhs. It is divided into 3 categories: 

  • Shishu (baby): For new businesses- loan up to INR 50,000
  • Kishor (teenage): For mid-aged businesses- loan up to 5 lakhs
  • Tarun (young man): For mature businesses- loan up to 10 lakhs

Start-up India Seed Fund is another scheme that provides business funding for start-ups to use it for product trials, prototype development, commercialization, proof of concept, and the like.

|Did you know? The government of India allocated a staggering INR 283.5 Cr to the Startup India Seed Fund in 2022.

4. Accelerators and Incubators

Incubators help entrepreneurs in very early-stage start-ups to expatiate business ideas, create a business plan, network with other magnates and determine the product-market fit. They're like prep schools that nurture early-age start-ups, after which the business pitch is proposed to potential investors or the community to find business funding for start-ups. 

Accelerators, on the other hand, are highly selective organizations that aim to catalyze the start-up's growth, usually assisting them for 3-6 months. Accelerators are mainly for start-ups with a minimum viable product (MVP) that shows immense potential to scale rapidly. A cut in equity may account for the mentorship and resources provided.

5. Bank Loans

While newer financing options are gaining popularity, bank loans are still a viable option to get funding for start-ups. Depending on the type of loan needed, there are different types available such as start-up loans, working capital loans, equipment loans, etc. For businesses with good collateral and financial record, acquiring loans is a fruitful way for start-up business funding.

However, getting loans from banks may be difficult if you do not have a credit score or financial history. In such cases, approaching Micro Finance Institutions (MFIs) or Non-Banking Financial Companies (NBFC) is a better option.

6. Angel Investors

Angel investors are individuals with surplus cash who are willing to invest in start-ups at the seeding stage, in exchange for equity or debt. Angels usually bring to the table a lot more than just money- they may also mentor founders and help with networking and industry expertise.

But there's a catch- the dilution of valuable equity and subsequent loss of ownership need careful consideration before founders plan to approach angel investors for start-up financing.

7. Venture Capital

Venture capital is where the big money lies. It is a form of private equity investing in start-ups with long-term growth potential. While it's a high-risk option for investors, expecting attractive returns from a high-potential start-up is the driving force.

Usually, VCs enter in exchange for equity and exit when the start-up launches an IPO or is acquired. However, the dilution of equity and loss of complete control may make the world of VCs a tough terrain to find business funding for start-ups in.

8. Crowdfunding

As the name suggests, crowdfunding is the practice of using small amounts of capital from a large number of people to raise funding for start-up businesses. It allows for a plethora of diverse supporters to invest in your idea with minimal amounts. Kickstarter, Patreon, Indiegogo, and SeedInvest Technology are noteworthy crowdfunding platforms trending in 2022.

9. Subscription-based financing

The most feasible option for start-up business funding in 2022 is subscription-based financing. Platforms like BridgeUp take less than a week to evaluate and raise funding for start-ups with recurring revenue streams. Turning this recurring revenue into assets without any debt or dilution paves the way for an impressive funding option- one that beats all traditional ones in terms of viability.

If you'd like to scale faster and better with BridgeUp, call us at +91 -9819660287 or drop a query on the contact form here.

While the vast range of start-up financing options can be overwhelming for any business owner to understand and navigate, taking into account factors like your business strategy, track record, and company stage will help you make the right decision to find funding for start-ups. Your best bet is to choose an option that fits your start-up's financial needs well, without a significant loss of stake.

Related Resources

Zeus Dhanbhura

Zeus Dhanbhura

CEO at BridgeUp