It is necessary to get a capital investment to start any business, no matter how big or small. This capital investment can be raised from the business partners and promoters or via loan or equity funding. The trend for startup funding via equity funding has seen a rise in recent time. These startups get investment usually from angel investors or venture capital (VC) firms against their equity. So in this blog, we will discuss seven important points one should definitely keep in mind for raising funding for their startup.
Table of Contents
Startup Funding Key Points:
1. Starting a Private Limited Company
It is absolutely necessary to have a private limited company for raising any funds in India. This is because for equity investment one needs to give their company’s shares to the investors. And, only a private limited company can issue their shares. If your startup is proprietary or partnership, then it is not possible to raise funds from VCs or angel investors. Additionally, private limited funds have to comply to government laws such as audits, KYC, etc. This in return, solidifies the investor’s trust in them. Hence, getting startup funding is easy. It is also important to maintain regular expenses, regular KYC, compliances, etc in a private limited company, with heavy penalties for faults.
2. Technology utilization
Since 9 out of 10 startups usually end up failing, VCs only like to invest in those startups which give them a return of up to 100 times, to reduce their risk. It is only possible to have such a scalable business when a part of it requires the
For instance, Swiggy is an online food delivery application, which utilizes technology to coordinate among the various restaurants, delivery executives and customers to bring the business together. This is why, it was able to raise funds, owing to the scalability of the business idea.
3. Market size
The size of the market one is targeting matters a lot. The annual revenue of the sector where one is planning to start a business is important. Example, Flipkart caters to e-commerce, Ola Cabs caters to transport and Byju’s caters to education. All of these sectors have a market worth billions of dollars in just India itself. Hence, only when the proposed business has a vast market size will the funding be easy to receive. As a thumb rule, for getting VC investment, the market size for your business should be at least worth $1 billion.
4. Full-time and dedicated founders
Usually, people tend to start a business with their existing business or job. But startup founders who are serious about their venture prefer to leave their existing titles to work on their startup idea full-time. This dedication and risk is what encourages VCs to invest in them. Along with that, having own as well as friends and family invest in the startup also encourages VCs. Hence, VCs always look for people who will turn all tables to make their startup successful.
5. Having a reliable team
It is lame and unsatisfactory for a VC to hear that a startup founder will hire a team or a tech person once they are able to get an investment. If one is not able to get even a tech person onboard with his startup, then how can he expect an investor to be on board with him. Thus, having a reliable team, especially a tech professional, when one is into a technology-based startup, is important. If you are thinking of outsourcing your core technology requirement, then it is difficult to pursue a VC for investment.
6. Have a Minimum Viable Product (MVP)
Any business begins with a minimum viable product (MVP). So instead of pitching your idea to an investor as just an idea, it is recommended to have a small pilot of your business idea already in place and running. For example, Airbnb began with its founder renting out his own apartment as proof for the concept. Uber which is currently a $70 billion firm, started out with just 3 cabs as a pilot project. On the basis of these MVPs, the founders were able to raise funding worth billions for their startup. Furthermore, have a paid customer base and proof of concept also helps with fundraising.
7. Have paperwork in place
One should always have their business plan and revenue model before approaching an investor. All details regarding your product development, fund utilization, customer acquisition plan, marketing plan, unit pricing revenue projection and planned growth, are just some of the documents one should have ready on paper at least.
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