Tough market conditions often present hurdles in obtaining the much-needed funding entrepreneurs need to kick-start their start-ups. Tracxn Geo Quarterly Report: India Tech - Q1 2023 showcased that, as opposed to the first quarter of 2022, this year’s first quarter witnessed a 68 per cent decline in early-stage funding of start-ups in India.
Despite this situation, in a country that has taken the lead in encouraging entrepreneurial skills, India has many inventive avenues that facilitate and aid small businesses, giving them financial support. This extends from forming partnerships to achieve a common goal to business forums and a community-based approach apart from business loans.
The modern economy has entered a new era where small and fledging businesses have assumed a prominent role in the nation’s economic growth. Driven by the entrepreneurial spirit, they have facilitated the much-needed innovation to deal with our current complex social and economic problems.
Access To Capital
The entrepreneurial spirit allows for challenging conventional wisdom and curating newer approaches to the market. As a business practice, it has gained traction in recent times, with a noticeable rise in recognised startups from 452 in 2016 to 84,012 in 2022, partly due to the chaotic market conditions created by the pandemic, and the rest is down to their astuteness of understanding of identifying the existing gaps in the market.
However, entrepreneurship remains a risky prospect—research shows that most new ventures face endless barriers and challenges. Entrepreneurs globally have to face hurdles such as assuming personal financial risks, estimating market validation limited access to capital, talent and infrastructure, just to name a few.
This can affect the trends and outcomes associated with entrepreneurship and dissuade inspiring entrepreneurs. The lack of access to finance or capital remains one of the biggest impediments facing small businesses.
It was also observed by a 2017 Forbes study, wherein economists found that 90 per cent of Indian start-ups fail within the first five years, and they cited lack of funding as a significant cause of this failure.
Finance allows entrepreneurs to launch and expand in moments of opportunity and sustain during periods of economic hardship. The concerns pertaining to securing initial funding, encompassing various forms such as seed investment, bootstrapping, and pre-revenue stages, have gained heightened significance in recent times, primarily due to the prevailing conditions induced by the pandemic. At this juncture, start-ups are left with selective options from where they can raise much-needed funding.
Forging Partnerships
Collaborating with other start-ups is a viable way of securing access to capital. Infusion of ideas can allow partners to innovate, collaborate and curate new strategies and products which could appeal to the market and potential investors. Leading start-ups have joined their bandwagons with other startups tapping into resources, funding as well as an additional consumer base that mirrors its own. The successful collaboration between Netflix and Boat is a case in point of such symbiotic growth.
Sole proprietorship or sole ownership makes the process of obtaining finance difficult, whereas, with partnerships, the combined credit rating is comparatively stronger.
Leveraging Business Forums and Platforms
Tying up with organisations and forums which are run by trusted advisors and industry leaders could prove to be highly beneficial for start-ups looking for funding-related advice. Such a pairing could allow start-ups to access a huge network of investors, advisors, and industry experts.
For instance, leading startups across sectors, such as Myntra, Wow! Momo or BharatPe have actively received funding from various angel networks such as AngelList or Venture Catalysts.
Forums, national and international, can allow entrepreneurs to raise the much-needed initial capital by connecting them with support groups and committees catering to young start-ups. Such forums can help young entrepreneurs reach out directly to Angel investors for initial funds.
Community-based Approach
If ‘community’ forms a critical element of what you are building as a start-up, considering the community-based approach can be a great option. This approach can allow you to reach out to the investors from your targeted ‘community’.
Raising initial funds can allow start-ups not just to bolster (aid) their hold among community investors but also send strong signals to future investors. Young entrepreneurs can leverage to engage with the targeted community and strengthen their trust amongst them. Forging relationships before startups ask for money is the idea behind this approach.
Small Business Loans
A large number of investors offers these loans, these loans can help young start-ups raise initial funds, grow, and expand into new territories. There are many options that young entrepreneurs could choose from. These include:
- Small business line of credit - Start-ups under this line of credit can access funds as and when required. These are renewed annually, and a small fee is charged on the loans.
- Working capital loans – This is a type of debt-borrowing mechanism that start-ups can use to finance their daily operations. The loans can cover any fluctuations that are experienced in revenues.
- Apart from these entrepreneurs could also take advantage of technology and online lending platforms have emerged as alternative sources of funding for small businesses.
- Nupur Goenka, GSEA Chair, EO Gurgaon, and Director, GD Goenka Group
