According to the annual report, India continues to maintain its position as the country with the third-largest startup ecosystem in the realm with the summation of more than 1,300 startups till 2019. It was the talk of the town since the Government of India initiated the Startup India Scheme for the generation of employment and wealth creation. Government encouraging for startups in India gave birth to the many government funding schemes is in India creating the vision of development and innovation of products and services and increasing the employment rate in India. Benefits of Government funding in startups involves is Simplification of Work, Finance support, Government tenders, Networking opportunities
Need to know about the Government funding reaches for startups in India.
- Online portal and application are set-ups by the government to facilitate registration from anywhere and anytime.
- The government has set-up Startup India hubs to gather all the works related to business, registration, grievance handling, inquiry, etc.
- Patent acquisition and registrations are now fast for startups.
- Need to that according to the Insolvency and Bankruptcy Bill, 2015 expedites quick winding up of the startups this donates that new startup can wind-up itself within 90 days of the incorporation.
Government finance support
Startups are playing a vital role in India’s development and this became the reason for Government to motivate the startups, providing various financial supports.
- Financial Benefits
- Income Tax Benefits
- Registration Benefits
- Government Tenders
- Huge Networking Opportunities
Registration to generate funding for Startup can be done only from the following types of companies.
- Partnership Firm
- Limited Liability Partnership Firm
- Private Limited Company
Eligibility for Registration under Startup India Scheme
- The created company must be a private limited company or a limited liability partnership firm.
- The firm needs to obtain approval from the Department of Industrial Policy and Promotion.
- The firm must have a recommendation letter by an incubation.
- The firm needs to provide innovative schemes or products.
- The firm needs to be new or not older than five years.
- The total turnover of the company should be not surpassing 25 Cr.
- The business should not be the existing product of splitting up, or reconstruction, of a business already in continuation.
Challenges faced while generating fund for startups
- Startups are about a new idea or plan is just a myth, but the reality check happens during the execution of such a plan as it is necessary than just thinking about it.
- For the success of any new business, a competent workforce is necessary and all these aspects are examined by the government before funding on the other hand especially in the case of startups, the proficient workforce is impossible due to the lack of funds at the initial phase.
- The risk of failure is much higher in the startups as compared to other organizations because of the tendency to take steps quite fast.
Government schemes for Startups in India highly focused on providing the much-required funds for investment at subsidized interest rates, that encourage people to realize their ability to turn dreams into reality and create successful ventures.
To make startups more expeditious there are tons of schemes available here are some government funding schemes to boost startups in India
Mudra scheme is widely known by many people The Micro Units Development and Refinance Agency or MUDRA. Consist of a flagship program by the government of India to grant funds to micro, mini plants, and small scale enterprises. MUDRA is a much famous scheme and slightly different than other loan schemes due to the fact that no collateral (Mortgage) is required to avail of this loan. Manufacturing, trading and even confederated agricultural services are capable business types for the Mudra scheme.
Mudra scheme includes 3 modules:
- Shishu (loan up to 50,000),
- Kishor (Loan between 50,000 and 5 lakh) and
- Tarun (Loan between 5 lakh and 10 lakh).
Popular among the village industry The National Bank for Agriculture And Rural Development, or NABARD, is undoubtedly introduced to aim towards adding credit benefits to agriculture, cottage, village, and rural industries. Not only that it also renders finance to bestowing literacy foundations in villages. This scheme involves food processing plants and integrated rural development and uplifting the cottage industries. NABARD works in association with the RBI to execute and manage financial compensation in rural areas.
- NABARD also contributes to the Dairy Entrepreneurship Development scheme and offers up to 90% of the project cost (minimum 10 lakhs to maximum 150 lakhs) to aspiring entrepreneurs.
Credit Guarantee Scheme :
The CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) provides business funds to micro and small industries and for both new and existing enterprises with zero collateral(security) by the government of India. The benefit of the scheme is that new and forthcoming startups can avail funding for the nourishment of their business at profoundly subsidized interest rates without any security and this scheme work along with SIDBI (Small Industries Development Bank of India).
- The government provides a supreme amount of up to 100 lc. under this scheme, for encouraging new enterprises as well as reconditioning existing ones.
- Manufacturing units are much more eligible for this loan can be availed in the form of working capital or term loan.
Stand Up India Scheme:
This scheme was executed to cater to women entrepreneurs, as well as those from SC and ST communities in 2016 by the government of India. The amount ranging from 10 lakh to 100 lakh, it is convenient for Greenfield ventures in manufacturing, trading, and service units. Under this scheme, the funds are granted to at least one woman entrepreneur and one SC/ST unit per branch.
- This scheme promotes woman entrepreneurship among the ST/SC this means in case of non-individual businesses, 51% stake should behold by the woman entrepreneur in the unit.
- With the maximum return tenure of 7 years, the loan can be provided as working capital.
Bank Credit Facilitation Scheme:
The scheme originated by National Small Industries Corporation (NSIC), to MSME’s registered in India. Under this scheme, NSIC encouraged collaboration with various private and nationalized banks to arrange credit.
- The tenure of this fund repayment depends upon the income generated, it varies from 5 to 7 or even till 11 years.
Under MSME, the Credit Linked Capital Subsidy Scheme provides the subsidy to manufacturing units who have improved their machine with state-of-the-art equipment. Under this scheme, manufacturing units are encouraged to buy the latest equipment and promote technology up-gradation and contribute to smart work.
- It works in this way that any SSI unit which has upgraded its machinery can petition for a 15% subsidy on a fund amount of up to 1 Cr.
The SIDBI Make in India Soft Loan Fund for Micro, Small, and Medium Enterprises is a scheme to provide sheer funds to MSME units at reasonable terms, which can help to meet the debt-equity ratio of a unit or to expansion and growth. The fund is applicable for a maximum tenure of 3 years. The amount of disbursement varies according to the category:
- 10% or a maximum of 20 lakhs for General category,
- 15% or a maximum of 30 lakhs for SC/ST, PwD, and women.
Seed Funding In India
Fundraising in the form of seed funding is a crucial part of any startup whereas the timing and the manner of raising funds in this manner are often determined as the long-term success of the startup.
One of the most challenging aspects is to convince investors for seed funding. As you already know over the past decades India has boomed in terms of startups and that has attracted a lot of investor attention towards the new ideas and innovations coming from India. It is a well-known fact that any new plan needs accurate market timing and the support to take it to market. Fundraising is the most crucial one during the early stages when even getting talent onboard is conditioned on funding.
When To Raise Seed Funding
Seed funding has gained a definite amount of popularity due to its nature of being the most wanting option for any new business — which includes funding from external investors, bootstrapped funds or from your known personnel. But here where’s the big question arise when it best time to raise seed funding.
The appropriate timing is really important while seed funding, Aa precise business plan, market research and roadmap for product development need to be prepared by founders and entrepreneurs.
And that is also not the maximum case it involves the product as well, it should also be ready to hit the market or at the very least in an advancement or prototyping category. During the process of raising seed money, founders need to estimate for product prototypes or to do plan to convince investors of the skill or the potentialities.
How To Raise Seed Money
It not maybe the probability for all startup decide to raise seed funding at the same time, but the process to raise seed funding is regardless the same for all the sector. Though it becomes a bit easier if a founder has practiced before with any other venture.
But when it comes to new founders and fresh startups, it is crucial to conjecture the seed funding market which includes whom to approach, when to approach and how to approach. There is not estimated correct or wrong path to get seed money, as it may vary from one startup to another and startups which can involve multiple sources too. Approaching friends, family, incubators, angel investors or any crowdfunding hardly matters, in the end, is that the seed round is the funds need to be raised and product or service to gain friction in the market and achieved the whole sole target.
Sources Of Seed Funding For Startups
To cater the way through the seed funding, the first step is understanding the different type of investors or potential investors as there are multiple sources where one can aid from:
Generating revenue through the startup being built is one of the most popular ways to raise seed funding. Recently, gained market eye due to involving any complexity of soliciting external funding or weakening stake. A diversity comes for this is crowdfunding, where the product is marketed to inherent investors with the stepping stages of development. Consuming more than 500 crowdfunding platforms counted as one of the most popular seed funding platforms.
Personal Savings Or Bootstrapping:
When it comes to seed funding by Bootstrapping Founders can go head to invest their personal savings as seed funding. Though bootstrapping involves extra financial pressure but the founder has no burden of returning the money to any investor.
Corporate Seed Funds:
This seeding involves mega-corporations and tech monsters who seeking the opportunity to invest in innovation and idea to spot in the market. This method involves Tech giants such as Apple, Google, and Intel back startups regularly with seed money. It brings a clear vision for the startup brand and indicates the possibility of the startup being a successful one in the future.
Incubators involve small seed investments include the share of investment by offering services such as office space or management training for startups at the very initial stage. It is not the case by the incubators generally to hold stakes in the startup rather they do offer support beyond just funding. Significantly, they work as a mold to shape the idea and to strengthen the baby foot of the startup.
Accelerators are the active one and work with startups in surmounting the business which not means backing and nurturing early-stage innovation is not just the case. In fact, they believe in addition through small seed investments along with professional services, market opportunities, network, training and workspace and more.
Other than the multiple options marked above there are micro VCs or micro venture capital firms have which have augmented a lot of attention in recent times within a small span. These firms dedicate their investment towards the institutional money when the startup is at its early stage.
Angel funds are the most trusted and the oldest method of seed funding there is a time when investors gather to form angel networks or packs to invest small amounts in the idea or the company during the initial stage of any startup. The influential angel networks popular for seed funding are AngelList, Indian Angel Network, Lead Angels, as well when it comes to any startup hub in India Angel networks come together to show their interest.
Seed funding has gained eminence in India as well within the past few years. Though many startup founders are still not aware of many Government funding schemes in India or about seed funding like how to get it? when to get, from whom to get it?
And that is why it is significant to do thorough research before going ahead with any step. The article stated above provides you with the proper guidance and scheme knowledge to take your first towards your dream startup. Comment below and let us know what is an exclusive Idea for your dream startup also feel free to comment for any suggestion or query regarding the above-stated article?