Adv. Aazmeen Kasad is a practicing corporate advocate with over 20 years of experience and a Professor of Law for 15 years. She mentors Start-ups at the IIT, Bombay. You could write to her to answer your specific legal queries. Follow her legal updates on Twitter @Aazmeen

The season of Spring heralds new beginnings and growth across nature. If you’re an entrepreneur looking to expand your startup / business this Navroz, but are seeking financial support, this article helps you gain insights into available options – from bootstrapping to grants, and helps you select the one best suited for your business needs.

(I) BOOTSTRAPPING – Or self-funding entails using one’s own savings or revenue generated from business or borrowing from family or friends. Usually resorted to by startups with low initial expenses, it provides the founder with complete control over one’s business, requiring no need to dilute equity. However, it puts one’s personal finance at risk.

(II) GOVERNMENT SCHEMES – The GoI has launched numerous schemes to benefit startups, including: The Atal Innovation Mission, Pradhan Mantri Mudra Yojana, Venture Capital Assistance, Credit Guarantee Trust Fund for Micro & Small Enterprises, Credit Linked Capital Scheme, Multiplier Grants Scheme, New Generation Innovation & Entrepreneurship Development Scheme, and the Startup India Seed Fund Scheme (SISFS). The latter provides financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization, enabling them to graduate to a level where they can raise investments from angel investors / venture capitalists / loans. (Details: https://seedfund.startupindia.gov.in/ )

(III) EQUITY BASED FUNDING – to expand the startup beyond the initial stage. This includes:

Crowdfunding: Raising small sums of investments from a large set of individuals via online platforms. Though it requires effort, crowdfunding helps startups meet their working capital requirements towards marketing, product development, etc.

Angel Investors (AI): are high net-worth individuals (HNIs) who invest in initial or seed stage startups, in return for an equity stake or convertible debt, resulting in loss of exclusive control for the founder. AIs invest less than Venture Capitalists and offer mentorship / strategic guidance.

Venture Capitalists (VCs): are institutional investors providing funding to startups with a potential for rapid growth, expansion and high returns, in exchange for larger equity stake or equity linked instrument. As the sum invested in the startup is higher, they conduct due diligence which takes time. VCs also offer mentorship, industry contacts, strategic guidance.

Private Equity Firms: invest in startups which are more established, and are looking to scale the business to a higher growth trajectory or restructuring the business.

Accelerators And Incubators: support a start-ups’ growth by providing necessary resources, like office space, equipment, management training programs, for a duration of 4-8 months, networking with specialised professionals, thus providing entrepreneurs with funding assistance, and a platform to connect with investors and other startups, in exchange for an equity stake.

(IV) DEBT BASED FUNDING – Taking loans for business requirements is not uncommon, but it increases the cost of doing business, apart from the requirement of having to offer a security to the lender.

Bank / NBFC Loans: Banks and non-banking financial companies (NBFCs) offer loans to startups to tide over short-term and long-term funding requirements and other debt products. Schemes like the Pradhan Mantri Mudra Yojana loan help micro and small startups at more effective rates. These loans are categorized into Shishu (covering loans up to ₹50,000), Kishore (covering loans from ₹50,000 – ₹5 lakh) and Tarun (covering loans from ₹5 lakh – ₹10 lakh) for different sections of borrowers and different businesses.

CGT-MSE Loans: The Credit Guarantee Trust Fund for Micro and Small Enterprises (CGT-MSE) is one of India’s largest startup funding schemes which provide loans to micro-level / small-scale / startups without security. Eligible MSEs can obtain a maximum amount of up to ₹ 1 crore through the Ministry of MSME and Small Industries Development Bank of India (SIDBI). Primarily meant for manufacturing units, this loan can be availed as working capital or a term loan.

Venture Debt: NBFCs provide an alternate form of debt funding to VC-backed startups under a hybrid scheme known as Venture Debt funds, which lend money in exchange for Non-Convertible Debentures (NCDs) and equity warrants. These funds are gaining prominence.

Debt Financing: Entrepreneurs can raise funds by issuing bonds or taking on other forms of debt. This includes options like convertible debt or mezzanine financing.

External Commercial Borrowings (ECBs): are raised from non-resident lenders via loans, buyers/suppliers’ credit, securitised instruments like fixed rate bonds, floating rate notes and non-convertible / partially convertible preference shares.

(V) GRANTS – Offered in specific industries, Grants don’t entail any equity dilution or debt for start-ups. But one needs to meet the criteria of the grantor and getting the grant could be complex / time consuming. For e.g. The GoI’s Multiplier Grant Scheme (MGS) promotes collaborative research and development between industry and academia. Under this scheme, if the industry supports the R&D of products which can be commercialized at the institutional level, the government provides financial support, which could be up to twice that provided by the industry. The financial support is limited to a maximum of ₹2 crores per project with the project duration being less than 2 years.

Selection of the right funding option at different stages of a start-ups’ life-cycle is critical, requiring the entrepreneur to evaluate the business needs, the pros and cons of each funding option; and then making an informed decision to propel the startup towards success.

Here’s wishing you the best! Ushta Te!