Startup funding have been booming in India in 2016, which has become one of the major reasons of startups mushrooming across India. If we really look into how these startups are growing and where do they get capital for expansion of operations and services, there are numerous alternatives in India for one to get funding for their venture and those are as following:
If we go by numbers as per the grant thorton deal tracker, investments worth $ 2 Billion have been made in over 600 companies in 2015. If we check the CAGR for growth over the period of time, in the case of the value of investments it is 91.6% and in the case of volume, it is 122.6% over the period of last five years.
The factors responsible for this growth in investments over the period of time is that, earlier investments were limited to mostly IT sector and Consumer & Retail, but in the recent case, there has been growth in investment in the E-commerce, payment platforms, healthcare, logistics, food tech etc.
Let’s get into some ways from which sources, are actually the capital is coming from the startups.
- Incubators: They are the most helping hand in assisting new startup in their initial phases of growth and development providing services such as equipment, office space, etc. They also help startup to raise capital from other different sources and help them in networking across the platform.
- Venture Capital: This source of funding is often considered by companies when they are looking forward to raising more than $ 1 Million from the market, often taken in growth stage by the company when they are hugely investing in marketing and scaling up operations across the geography. A disadvantage in this funding, is that VC takes a substantial equity share in the company for the investment made by them in the startup.
- Angel Investors: Another source of investment that comes in handy in case the company is not looking for raising a huge amount of money, but the investors in this scenario are very critical and they need to be convinced by passion and feasibility of the idea.
- Other sources: There are diversified sources of funding available in the market such as taking loans from a financial institution, IPO (initial public offerings) in-case company is going for getting publicly listed but again is considered in the later stage as legal rules and regulation get complicated.
Since we have discussed how a startup is funding there operations with different alternatives of investments there are some major drawbacks also associated with it which are as following:
- In case there are huge investments made by the third party such as angel investors or venture capitalist, they tend to look more towards the profitability or quick revenue generation from the Startup and founders also at times follow their path towards earning short term profits and not building a steady brand name in beginning.
- Decision Making in Investors hand: This is one of the major drawback, as when investors have invested some amount of capital in the startups they tend to take decisions of the next future course of action as they are the one who are aiding the business so they get an upper hand, which often lead to clash between investors and founders because there working style are totally different and founder might have different course of action, but know in needs to get approved by investors as they are influencing the capital needed by founder for running the startup.
A very contrasting fact that comes into the discussion is also that in case the investors are not willing to invest in the startup, even after a lot meeting and tires, the founder might get disheartened, should not give up but the same does not go with the team.
One of my personal experience when I was working in startup, every person had different priorities, some were willing to go and support idea and business even when they were not being paid, but others were restless and made switch or went to pursue higher studies and it’s not even their fault, actually its circumstances that lead to people taking decisions.
So summing up the scenario of investments in startups in India, I would draw an attention to a very important point that in India the startup industry is booming and one can easily get investments in business in early stage, but before making selecting the investment alternatives make sure at what is the cost to be paid in case startup fails because the idea being sold to investors might not be easily sellable to consumer because every person have different priorities, and a lot of startup success depends on the sentiments of consumer of how they perceive it.