In the US it is quite common for a startup to get its 1st round of funding from SBA (small business association) or an overdraft of $100K from the neighbourhood bank. After that if cash flows can support you should be able to get more credit from the bank. Then there are Mezzanine funds which will give you convertible debt. Infact VC funding is considered very rare in the US.
In India most lending is asset based lending and not cash flow based, meaning you have to have some kind of asset such as a house inorder to raise any debt. Or you have to have parents and family that support you. But how does the average guy get started? There are some inspirational stories about how some did it and it would be great if we can hear them!
So how did you fund your startup?
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I started my media business in August 2007.
I quit my job as a M&A consultant with a Big4 in Feb 2007. I got the idea in April 2007.
The first funding was for R&D and sustenace and were met by:
-savings of Rs 2.5 lakhs (I didnt disturb my PPF balance though)
-Loan of 2 lakhs from family.
With this money, I had a scaled-down demo version of the product at an actual location. A friend happened to see the demo and liked the concept very much. He was willing to invest into the business and gave a loan of Rs 2 lakhs to enable me to a go to an extended “proof-of-concept” stage.
He then offered to invest Rs. 50 lakhs as equity and wanted to work part-time in the business. I offered my contribution to be at Rs 10 lakhs, including what I had already spent on R&D and trials. We agreed to this arrangement.
While he was willing to put the entire money upfront, I wanted it to come in stages linked to milestones. I didnt want him to burn his fingers. So we decided on 5 rounds of 10+2 lakhs each. We are now at 3rd round and looking at 4th and 5th shortly. Both of us withdraw sustenance costs as required, but have capped the amount.
There was an ex-Boss who was willing to invest at a very early stage before this friend came in. I refused the offer because I wasnt very sure of the idea being workable in a real-world scenario and I didnt want to lose investor’s money. He is still interested.
We are now looking at a debt portion from a nationalised bank to get some addtional traction before approaching a VC. But we are stuck for want of collateral.
I would like to share my learnings and thoughts. This reply has already become huge, so I would post them separately.
Regards
BB
Me and my co-founder Vibhore saved from our 2 year work experience after graduation (the saving was actually just the final bonus).
This was used to fund the business for the first couple of months. Post that we took a small angel investment round which has helped us prove our concept in the market (all this while the day to day expenses were managed by asking money from parents)
And from hereon in the next few months we shall look to raise more funds for expansion.
Institution funded:
For us, it will be too early to comment, we are yet to become a ‘story’, But since RYK asked for an institution, i need to reply, we are Day 1 funded startup from NirmaLabs. We got associated with NirmaLabs, Ahmedabad exactly 2 years ago, and now we are about to exhaust their first seed investment of Rs.2 million (real cash). Will start pitching for next round soon. This fund comes at cost of 10% equity and also complete amount as soft loan. But there is no collateral, NL makes money when we make money. Funding has helped us in completing more that 70% of product development (Hardware), genuine technology development and we use to get sustenance allowance also to survive! All this is 100% full time activity. NirmaLabs funded us when we had a word document called Business plan. All because of a man who kept his word on promoting techno-entrepreneurship and trusted us, Dr. Madhu Mehta, Chief Architect, NirmaLabs.
For those who are not aware, NirmaLabs is a Technology Business Incubator based in sprawling (green) Nirma University campus in Ahmedabad. Details on http://www.nirmalabs.org . There are 5-6 more similar stories here.
Govind Agrawal
Anaxee Technologies Pvt. Ltd.
http://www.anaxeetech.com
At Agni we managed to start up with 30K plus a computer each. One non-exec director gave us some office space to start up, and we spent a whopping Rs. 3600 just to get that 180 sq. ft. carpeted. A phone, dial up internet account, a printer and business cards, plus the incorporation expenses were our first runs. Two of us were ok as we stayed with our folks, so no rent, but the other two got day jobs to support the rents. We had a three month cut-off – make our last salaries or quit the business. We made salaries. Didn’t look back.
Second startup is now, Moneyoga. I’ve saved up for a while, and have moved to Mumbai (and so will my co-founder) and we’re on for a little longer than the three months at Agni, and now we’ve got families and children and therefore not quite the freedom to code till 3 AM, but that just makes life a lot more interesting. The opportunity cost is humongous but I’m the kind of person that like a back-loaded return. We both ditched consulting gigs at our last employers so we could focus – I can’t speak for everyone but I can’t think of how to make it if I had another source of income that required me to digress.
I’m part of an entrepreneur’s club in Bangalore where members went through various funding sources. VCs are one, and there are funds like KitVen which do a lot of interesting funding. At one point there was a Karnataka fund that offered debt to graduates – so you could get a few lakhs for your BE degree. Kuch kaam to aayega types. As you might imagine, that no longer exists. Banks do provide some level of non-collateralised debt (though most want a one-year relationship which is kinda stupid) and to be honest another source of funding is rolling credit card debt (roll over balances, some cards provide three month interest free rollovers, and you can rotate amongst them) and even personal loans. One friend has managed an amazing line of credit from a (public sector) bank, which has kept increasing by the month. Whatever you may have heard, try the public sector, they are much much easier to work with for debt.
If you have a woman on board, you can get funding from a lot of sources that encourage women in startups. I don’t have links handy unfortunately. While relatives can provide money a big source is to try and get stuff done for cheap – for ex. get a microsoft partnership for software (18K for all you might need for a developer), servers – intel and sun have programs etc. Acer laptops are cheap – 37K for a brand new very good machine. We got a logo designed in the US for $200, plus stationary – cheaper than blore rates. Can’t get people cheap, but maybe if you can wait a year or so…’nuff said.
Organised funding is not easy, and we’re finding that out the only way one can find out. And yes, we don’t need much either, but I wish the only reason people didn’t fund us was that they wanted to give us more – no, I think we haven’t got the Rs. signs flashing in their eyes just yet. We’ll get money exactly when we don’t need it, and man I hope that time comes soon.
Leonard: Nothing illegal about selling your shares, mate.
We are 6 months into our venture, and we plan to fund the first year from our own pockets – with savings from previous jobs.
One thing I learnt very quickly is the amount of leverage you have while working for a big company vs. doing your own. While a salary can earn you a couple of hundred thousand dollars annually, making that much money from your own startup is a completely different story.
So, give yourself a strong reason why aren’t working for someone else and keep believing in it.