How to obtain finance for your start-up

What is a start-up?

A startup is an entity, incorporated or registered in India, not prior to five years, with an annual turnover not exceeding ₹25 crore in any preceding financial year, and working towards the innovation, development and commercialization of new products, processes or services.

What is start-up finance?

It is the initial infusion of money needed to turn an idea into something tangible, by starting a business.

Ways to raise start-up finance

1.Self-financing, friends and family

Self-financing, also called boot-strapping is a method of building a company with only existing resources, usually personal savings. Small loans can also be obtained from friends and family. Online stock broking company, Zerodha is an example of a company which was started without outside financial assistance.

2. Angel investors

Angel investors are wealthy people, who invest in start-ups in exchange for equity. For example, Jeff Bezos, CEO and Chairman of invested $3 million in Uber for around 3% equity, during its initial stage.


This refers to the use of small amounts of capital received from a large number of individuals. Did you know that the ‘Veronica Mars’ movie was crowdfunded by fans of the television show ‘Veronica Mars’?

4.Vendor financing

Vendor financing refers to the lending of money by a vendor to a customer who uses that capital to purchase that specific vendor's product. This is sometimes also called ‘trade credit’. Vendor financing depends on one’s creditworthiness.

Startup Funding Stages

Pre-Seed – This is the stage at which the entrepreneur conceives the idea and starts self-funding this idea to turn it into a business.

Seed Capital – Seed is the investment sought by the business to launch their product or service into the market. It helps the business in identifying and creating a perfect direction for their startup. Most entrepreneurs raise this capital by taking small loans, or by pitching their idea to angel investors.

Series A – Series A investment is done when the business starts turning lucrative. It is mostly used for marketing, improving brand credibility, tapping new markets and helping the business grow further. The source of funding is usually bank loans and venture funds. An example of a venture capitalist group is SoftBank.

Series B and C – New customers and rapidly increasing turnover leads to Series B and C investment. Here, the investment is usually done by private equity firms and investment firms. For example, KKR & Co. is an investment company, which has made private equity investments in EuroKids and SBI Life Insurance.

IPO – When the business has stable revenue and an established customer base, it would most likely go for a public issue of shares through Initial Public Offer (IPO).

Exit – Exiting by selling the business to a larger company is also alternatively done instead of going for an IPO. For example, acquisition of Whatsapp by Facebook.

Startup India Initiative

Launched on 16th January 2016, the Startup India Initiative has rolled out several programs with the objective of supporting entrepreneurs, building a robust startup ecosystem and transforming India into a country of job creators instead of job seekers.

The Key Pillars of support under this initiative –

1. Simplification and Handholding –

Easier compliance, easier exit process for failed startups, legal support, fast-tracking of patent applications and a website to reduce information asymmetry.

2. Faster Exit for Startups –

Ministry of Corporate Affairs has notified Startups as ‘fast-track firms’ enabling them to wind up operations within 90 days vis-a-vis 180 days for other companies. An insolvency professional shall be appointed for the startup, who shall be in charge of the company for liquidating its assets and paying off its creditors within 6 months of filing an application in this regard.

3. Funding & Incentives –

The recognized startups that are granted an Inter-Ministerial Board Certificate are exempt from income-tax for a period of 3 consecutive years out of 7 years since incorporation.

4. Intellectual Property Rights (IPR) –

To promote awareness and adoption of IPRs by startups and facilitate them in protecting and commercializing the IPRs, Startup India provides access to high-quality Intellectual Property services and resources, including fast-tracking of startup patent applications, a panel of facilitators to assist in IP applications, etc.

5. Relaxation in Public Procurement Norms –

Government of India has authorised its Ministries, Departments and Public Sector Undertakings to relax norms in all public procurements. Startups are entitled to avail exemption on prior turnover, prior experience, earnest money deposit, etc.


Obtaining finance for a start up has now become relatively easy, especially with the Startup India Initiative by the Government. While there are a large number of finance options to get your start up going, make sure to select that option which you feel will work out for you and your business. Also, try to understand the exact financial assistance required and have a solid plan to use the resources available.

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