Different Methods to Raise Funds for Startups in India: A Complete Guide

Overview : Starting a business seems quite exciting, mainly for youthpreneurs, but securing the funds to fuel growth can feel like navigating a maze. India’s startup ecosystem has many funding options, each having its pros, cons and ideal use cases. Whether you are a first-time entrepreneur who has a revolutionary idea or a seasoned founder looking to scale, navigating the different funding options can make a significant difference in your startup journey by taking it closer to success.

Starting a business can be a roller-coaster ride in this rapidly expanding business ecosystem in India. Opting for fundraising methods can come up as the need of the hour of your business to sustain, expand or grow it further. So, funding can play a crucial role in the growth or expansion of a startup. It even allows small startups or innovative ideas to come into play. In this guide, you will learn about the different methods to raise funds for startups in India, helping you gain insights into how each funding option works and which one is best suited for your startup.

1. Bootstrapping: Fund Yourself

Bootstrapping is the art of self-funding your startup using your personal savings, revenue generated from early sales or minimal external help. Many iconic companies, including Zoho and Mailchimp, were started as bootstrapped ventures before scaling big.

Why does Bootstrapping Work?

Bootstrapping lets founders have complete control over their business without diluting equity. Since entrepreneurs are relying on their own resources, there’s no external pressure such as from investors to meet competitive growth targets. This approach encourages lean operations and thus forces entrepreneurs to prioritise profitability and sustainable growth from day one better without taking any pressure.

But bootstrapping isn’t without its challenges. Scaling a business without external funding can be slow and founders often face financial strain, especially in capital intensive industries. If your startup requires significant upfront investment, this may not be the most viable long-term strategy. This capital-raising method is best suitable for solopreneurs, service-based businesses and startups that possess the goal of generating early revenue.

2. Friends and Family: The First Outside Investors

For many entrepreneurs, close contacts like friends and family can turn to be the foremost external source of funding. This route is often more accessible than formal funding channels as loved ones may be willing to invest in your vision based on trust rather than strict financial metrics.

While this can be a quick way to get initial capital, mixing personal relationships with business can be risky. Disagreements over repayment terms or business decisions can strain relationships if not handled carefully.

Which startups is it best for?

This funding method is suitable for the startups in ideation or early validation stage requiring small amount of capital to get started or come into existence.

3. Angel Investors: Early Stage Support with Mentorship

Angel investors are affluent individuals who invest in startups in exchange for equity. Unlike traditional lenders, many angels also offer mentorship, industry connections and strategic guidance – making them valuable partners beyond just funding. Angels invest in people as much as ideas. A strong pitch, a clear growth strategy and a capable founding team are essential.

In India, platforms like Indian Angel Network (IAN), Mumbai Angels and LetsVenture connect startups with potential angel investors. These investors fund early-stage startups, with investments ranging from ₹10 lakhs to ₹2 crores for 5% to 20% equity.

Which startup is it best for?

Choosing angel investors as the optimal source to raise funds is ideal for startups with a proven concept that is looking to scale, especially in tech, SaaS, or innovative consumer products.

4. Venture Capital: Fueling High Growth Startups

Venture capital (VC) firms invest in those startups with high growth potential, typically injecting larger sums (₹5 crores and above) for equity. While raising funds from VCs, be prepared for intense due diligence. VCs scrutinise market size, unit economics and the founding team’s capability before investing.

Top VC firms in India, including Sequoia Capital India, Accel Partners and Kalaari Capital fund startups across sectors like fintech, edtech and e-commerce. However, securing VC funding is highly competitive and investors expect significant returns, often pushing for aggressive scaling.

What kind of startups can benefit from it?

Startups with a healthy scalable business model, strong traction and a clear path to profitability. In a nutshell, VCs are ideal for startups looking to scale big, dominate the market or get acquired.

5. Government Schemes and Grants: Non-Dilutive Funding

The Indian government has launched several initiatives to support startups, offering grants, subsidies and low-interest loans. These schemes are best for tech-driven, social impact or R&D focused startups. Some notable programs are the Startup India Seed Fund Scheme (SISFS which provides up to ₹20 lakhs for early stage startups and the ATAL Innovation Mission which funds research-driven innovations. MSME loans providing collateral-free credit up to ₹10 lakhs is another option.

For which startups is it best for?

Startups that are involved in sectors like Agritech, Cleantech, Healthcare and Deep tech.

6. Crowdfunding: Validating Demand While Raising Capital

Crowdfunding platforms like Ketto, FuelADream and Wishberry allow startups to raise funds from a large number of people, often in exchange for early access to products or equity. This method not only provides capital but also serves as market validation. Reward-based crowdfunding is popular for creative projects, while equity crowdfunding is gaining traction among high-growth startups.

Which startups is it suitable for?

This funding option can be suitable for Consumer-focused startups, Creative Projects and Hardware Innovations.

7. Bank Loans and NBFCs: Traditional Yet Reliable

For startups with steady cash flow or collateral, traditional bank loans and NBFCs (Non-Banking Financial Companies) can be a viable funding source. Banks like SBI and HDFC offer term loans, working capital loans and lines of credit while NBFCs like Lendingkart provide quicker albeit costlier financing. In such fundraising options, Interest rates can be high (10-18%) and collateral is often required.

For which startups is it suitable?

This fundraising option is suitable for established startups with predictable revenue streams.

8. Corporate Funding and Accelerators: Fast-Track Growth

Many large corporations, including Google, Microsoft and Reliance, run accelerator programs that provide funding, mentorship and networking opportunities. Programs like Y Combinator (YC), Techstars India and Axilor Ventures are highly competitive but offer unparalleled growth opportunities. Accelerators often take equity so evaluate the trade-off between funding and long-term control.

For which startups is it suitable?

The corporate funding method is ideal for Startups looking to scale big and industry connections.

Choosing the Right Funding Path

Choosing the best funding option depends on your startup’s stage, industry, growth ambitions and scalability potential. Early stage startups may benefit from bootstrapping or angel investment while scaling ventures might need VC or corporate funding. So, it’s crucial to first analyse and determine the funding requirements of your startup considering the above points.

Conclusion

Every business begins with the right financial plan. Whether you choose bootstrapping, venture capital or government grants, your funding approach has to align with your long-term vision. Choosing the right funding option can turn out to be a game-changer for startups. In this rapidly evolving business era, accessing funding options has become the need of the hour. Go through this blog comprehensively to explore the fundraising options available for startups to ensure their scalability and sustainability!

Choose the most appropriate funding option and let your startup thrive!

Author Bio

Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.