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Tuesday, February 27, 2024

Here’s what experts say about when startups should seek funding from investors

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Some startups attract investor attention from the very first presentation, while others do not even after several gruelling rounds. A startup should begin its funding rounds whenever it is certain in the market potential and economic feasibility of the business.

In the last several years, sustained government initiatives to stimulate new-age entrepreneurship among the youth have shown benefits, with the number of companies jumping from 452 in 2016 to 84,012 in 2022.

However, young business entrepreneurs are unsure whether they should contact investors – at the idea or vision stage, the early-growth stage, or the mature stage. In 2022, Indian companies raised $25 billion in investment, representing a 40% decrease from the previous year.

According to a new ‘Annual Indian Startup Funding Report 2022,’ while seed-stage businesses drew investors’ interest in 2022, values for growth and late-stage firms suffered a correction and are currently being adjusted.

Funding cycles, whether for pre-seed or growth capital, are significantly longer than in the past. Founders should remember this and be cautious of their runways. Approaching investors early but not pitching for urgent cash is another effective tactic. This manner, you inform investors that you are creating something of interest and value, and you allow them to see and track your development so that they may participate in the appropriate round of funding. This strategy can assist save a significant amount of time for future financing rounds.

Centricity WealthTech founder and CEO Manu Awasty believes that entrepreneurs cannot expect investors to support a firm based just on a business plan and a vision.  Your company must already be in existence and have proven its capacity to do business.

Awasty stated, “Choosing the right investor might make or break your company, regardless of whether you use crowdsourcing or prefer private financing. Before providing money to any firm, especially a start-up, a prudent investor considers the long term.”

He also stated that there is no one optimal moment to invest; rather, it is critical to connect a company’s stage of development with the proper investors.

Some people attract investor interest right once, while others don’t acquire it until they go through several rounds of screening.

If we’re talking about investors, we should look at figures since that will ultimately get their interest. She noted that, in addition, it is necessary to have a strategy in place so that you are well prepared to express your actual thoughts and are able to transmit them in a proper manner. In this study, R&D is critical. A startup should begin its funding rounds whenever it is certain in the market potential and economic feasibility of the business.

The government has also taken many steps to help businesses, including the Startup India Action Plan, the Fund of Funds for Startups Scheme, and the Credit Guarantee Scheme for Startups. The government has launched the Fund of Funds for Startups (FFS) and Startup India Seed Fund Scheme (SISFS) as part of the Startup India programme to offer money at various phases of a startup’s business cycle.

As of November 30, 2022, the FFS has authorised about Rs 7,527.95 crore of the Rs 10,000 crore corpus to alternative investment funds (AIFs).

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