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Top 5 Sources To Raise Seed Capital In India
Capital Raising In India - Options For Startups
Very often I get to speak to entrepreneurs who have recently set their business off the ground and are now looking to raise capital in India for their seed stage startup. I keep enquiring about their preferences regarding financing options and, no wonder, they all have their own specific reasons for choosing different sources.
There isn’t any right or wrong source when it comes to raising capital for your startup. It is more like a trial and error process which will ultimately lead you to your suitable investor. However, just in case you are looking to raise capital in India, here are a few fundamental options you may want to explore.
5 Sources To Raise Seed Capital In India
1. Personal Fund
The seed stage is comparatively more demanding than all the other stages of development of a startup. At this stage, apart from putting tremendous amount of efforts, you may also have to make a certain amount of investment from your personal fund, if possible.
If you can make 25 to 50 percent of the investment from your own account, there is nothing like it but if that’s is beyond afford, you can try for at least 10 percent. This is definitely one of the easiest ways to convince a professional investor whom you might approach for later stage fundings.
2. Friends And Family
Your friends and family can be one of the most reliable sources of seed capital. However, there are certain risk factors. The seed stage is usually very risky so, if you have friends who trust your idea and are willing to invest in exchange of a stake, it is better to give them a reality check so that their expectations do not soar high.
Moreover, since they are non-professional investors, they might treat the investment as a loan and expect that you will repay that after a certain period. Now, by that time if you partner with any professional investor, they will never allow you to use their capital for earlier loan repayment which can lead you to trouble.
3. Grants And Prizes
Here’s an option that can give you access to a non-repayable fund that, usually, comes from a government organization. There are contents or grants announced almost every week in India that gives you an opportunity to participate and pitch your business plan with an aim to win a prize money. However, the process is quite time taking as there are several rounds of competitions and even the amount of prize money isn’t that large enough.
4. Angel Investments
Angels, usually, come forward to back risky startups with great market potential not with an aim to make money but to bring a positive difference to the society. Unlike VCs, who make investments using other people’s money, the angel investors pour money from their personal accounts. They look forward to a clean partnership so that they can connect not only with your business but also with you as a person. They usually expect a minimal profit after a short tenure, say 1 to 3 years and then prefer to make an exit.
5. Venture Capital
Venture capital is, perhaps, the most sought after sources for startup fundings as it is the only source that can offer you the highest amount of capital. Venture capitalists invest with an aim to earn huge profits from their investments. They usually expect a 25 to 35 percent profit on each year’s investment and the overall tenure ranges from 3 to 8 years within which they aim to take the company to a successful position.
Some of the prerequisites for raising venture capital include a unique business idea, an innovative model, a great team, market traction, a strong value proposition and all important documents and valuation papers. Venture capitalists usually prefer to invest at a later stage but there are many who are willing to invest at seed stage so you have to first identify the right investor and then start chasing them or else, it will only be a waste of resources.
Conclusion
At seed stage, you may ideally raise capital from multiple sources and there is no single best source that you can rely on. However, that’s a totally different thing if you fortunately get a potential venture capitalist to invest at your seed stage startup as there are chances that the investor would come up with a long-term investment plan. If you have a highly innovative idea, it won’t be impossible to find a suitable investor for your startup so just go ahead with the best of preparation and keep your eyes on a potential investor.
For more information on sources to raise capital in India, feel free to visit Merger Alpha http://mergeralpha.com/.
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