Any startup cannot survive or even begin operation without enough money. Therefore, acquiring sufficient funds is important during the startup stage and even when growing or sustaining it. Although venture capital and angel investment are popular methods through which startups get funded traditionally, India’s startup ecosystem has experienced a rise in unconventional financing systems over the recent years.
These sources of finances have their own benefits that cannot be found anywhere else which suits different types of entrepreneurs. This article will discuss the top 4 alternative Funding Sources for Startups in India.
Alternatives Funding Options for Startup in India
1. Corporate Venture Capital (CVC)
CVC is corporate venture capital that involves investments made by big companies in small startups. Corporations make such investments to gain access to new markets, talented teams or innovative technologies which they lack internally. There are various benefits that startups stand to gain from CVCs including industry knowledge, sharing opportunities, support through mentoring, among others. There might be potential partnerships that may arise as a result of being introduced into the investing company’s customer base.
In India some well-known firms have set up funds dedicated specifically for this purpose or launched their own programs aimed at supporting early-stage companies through financial backing . Reliance Industries Limited ‘GenNext Hub’ invests in technology driven healthcare ecommerce startups while Mahindra Partners focuses on mobility agriculture renewables
2. Revenue-Based Financing (RBF)
Revenue-based financing (RBF) represents another way for firms to raise funds by which investors offer money to startups in return for a share of their following incomes. The startup that is receiving this kind of capital does not have to guarantee any assets or provide other securities unlike with standard loans. What happens instead is each month’s earnings are used to repay what was invested until an agreed amount has been reached plus an additional percentage.
For companies which make regular sales but lack a large asset base needed as collateral when seeking credit facilities from financial institutions can consider using a revenue based finance model. In addition, it allows them to change payment terms according to how well they are doing business therefore easing financial strain during slow periods.
Various platforms like Velocity, Klub and Upfront have been established in India to enable such investments across different industries within the country
3. Private Equity
For startups in India, Private Equity (PE) firms are a great source of alternative funding. High growth potential companies are the ones in which PE firms invest. This is usually done by acquiring a significant equity stake and also having a seat on their board. Instead of focusing on early-stage startups like venture capitalists do, more mature companies that already have established business models as well as revenue streams tend to attract these types of investments.
Startups may benefit from substantial capital injections through PE investment besides industry expertise and strategic guidance towards scaling up their operations. Nevertheless, the stringent due diligence processes often employed by such organizations can be demanding.
Various sectors including consumer technology, fintech or even healthcare have received investments from different startup businesses across India which were made by some well-known PE firms like Sequoia Capital, Blackstone, KKR among others.
4. Incubators and Accelerators
Incubators as well as accelerators are methods that have been developed to help start-ups in their early stages through mentorship, networking opportunities and seed funding. Longer term backing and office spaces are usually provided by incubators while accelerators give time-bound intensive programs aimed at scaling up businesses quickly for startups.
India has witnessed the establishment of a large number of incubators and accelerators often backed by academic institutions, corporates or government bodies among others. These programs do not only offer initial capital but also other support services such as industry expert mentorship, coworking spaces access points as well as chances for presenting ideas before potential financiers.
The notable ones include Atal Incubation Centers (AICs) which are under NITI Aayog; Indian Institute of Technology (IIT) incubators and corporate accelerators like Microsoft Accelerator or Google Launchpad.
Final Words
The startup ecosystem in India is flourishing. Previously, entrepreneurs seeking funds were limited to conventional venture capitalist and angel investor options. However, today there are numerous other avenues for funding available within the Indian market.
For example, corporate venture capital, revenue-based financing, private equity or even incubators/accelerators each have their own advantages that help cater towards specific needs at different stages for these young companies.
FAQs on Alternative Funding Sources for startups
Startups in India can be alternatively funded using various other funding sources like the corporate venture capitals (CVC), the revenue-based financing (RBF), private equity, incubators, and accelerators.
For startups, corporate venture capital (CVC) offers a wide range of valuable advantages and support. CVC provides access to the extensive domain knowledge and expertise of the established corporation, allowing startups to tap into their wealth of industry experience and insights.
Revenue-based funding (RBF) is a financing strategy in which investors offer capital to new businesses in return for a share of their future revenues.
Bank loans are generally difficult for early startups to get in India. This is because they need to have collateral, which is something owned by the borrower that can be seized if they fail to pay back the loan.