Startup culture is one of the crucial aspects for a country that is witnessing the growth phase. These startups play a crucial role in the economy, as they provide a country with economic and soft power, and through that, they can create a significant impact on both the GDP and GDP per capita of the country.
Startups are one of the single biggest sources where it works with the latest technology and employs a lot of talented individuals who are working on important projects and helping the startup to grow. Nowadays, these startups are becoming a significant factor for employment as they hire a lot of individuals for the service they provide or for manufacturing.
However, in a startup, the fundamental aspect is growth, and the mentality is known as growth hijacking. To do that, a company needs a source of funds that will help it establish itself, compete with other brands, and gain mass market dominance. A startup can take the help of DSA partners to get loans at the best interest rate from the lender, which will help them to grow their venture.
In this blog, we will look into the financing options that a startup can use to get funds to run its operation, grow the venture, and expand at a faster pace.
Equity Financing
It is the type of financing where a company offers a stake to the investors, and in return for the capital inclusion, the investors are making in the board. One of the most fundamental aspects of these investment options is that they have zero liabilities as a person or a company that is investing. They get a percentage of ownership of the firm, which helps to become a part of the profit-sharing process.
- Angel Investors
A startup founder is someone who is looking for funds that will help the company go from the idea stage to the operation stage, where the startup can build an app or streamline its services, which will help the business grow.
In the initial stage, it’s the angel investors who come to the rescue as they are the ones who invest in the range between Rs.50 lakhs to 3 crores, and that helps a business start the initial mode of operation.
- Venture Capitalist
Venture capitalists typically invest in a startup after a series A or B round of funding. These are the firms that search for emerging startups and look for those that have set a minimum track record.
They then invest in ventures that have the potential for growth and can help a company expand. It’s the process where a company can get external funds from a group of investors, which makes the investment amount higher, thus dragging up the valuation of the company.
- Private Equity
Private equity firms can buy a significant chunk of the company. These companies typically invest in startups that have built a good track record and have the chance of becoming profitable. They provide an exit to the early investors, providing them with a hefty return on their initial investment.
A PE firm generally takes the company to the IPO, and through that, they can make money for their investment and become a long-term shareholder of the company.
Debt Financing
Debt financing is an instrument that helps a company get loans at a certain interest rate. During the loan tenure, a startup needs to return the principal at that interest rate.
- Bank and NBFC Loans
The first thing a startup can do is go to the banks and NBFCs for loans, check the eligibility of the firm, and get the required capital at a fixed or floating interest rate.
- Commercial Borrowings
The ECB (External Commercial Borrowings) has been the source from other companies and lenders, and it can come in a variety of ways. Suppose a supplier is giving credit to the startup, and in the initial days, it’s not recovering the cost from the startup. Hence, they can take the money back in the form of debt with some added interest.
These are some of the most fundamental options that are available to the startup, and through that, it can borrow the funds and drive the company toward growth and profitability.
