One show on the Indian television has been popular in the recent past like none other. You probably guessed it. It’s Shark Tank.
With over 150 million viewers of the first season alone, Shark Tank has been an influential endeavour towards the spirit of entrepreneurship.
The show not only exemplifies the growing rise in entrepreneurship but also inspires an ordinary citizen to make their idea come to reality. If you have watched it, there must surely have been a time you too aspired to be standing there pitching your idea.
But what is Entrepreneurship?
You might recognise these names that have gone down in history to be among the most visionary entrepreneurs. Steve Jobs, the co-founder of Apple, and Ritesh Agarwal, who started OYO Rooms at a young age, Mark Zuckerberg, the co-founder of Facebook. They started with an idea, a vision, and through perseverance, built empires that not only created wealth but also revolutionized industries.
Now let’s talk a little more about entrepreneurship in the Indian context.
India, with its diverse culture, booming technology sector, and a plethora of problems seeking solutions, offers a great opportunity for entrepreneurship. The country has seen a dramatic rise in startups, especially in sectors like technology, e-commerce, healthcare, and education. Indian unicorns, such as Flipkart, Byju's, and Paytm, are no longer just names but inspirations for the youth and a household name for some, either as companies spoken about or in terms of investments. This surge is supported by government initiatives like "Startup India" aimed at promoting innovation and creating a robust startup ecosystem.
Now, undoubtedly, starting a startup is thrilling, yet it requires engaging with many financial considerations.
Let’s discuss some of them.
A startup goes through various stages, starting from the pre-seed phase, sometimes called the ‘ground-zero’ of the startup. At this stage, founders of the startup usually utilise their own savings or turn to family and friends for the initial investment. This stage usually involves validating the business concept, building a prototype, or conducting market research.
The seed round is where the idea is nurtured. As the name suggests, it is an early stage of idea implementation.
Seed funding is the funding a startup gets in this seed phase for the requirements of getting the startup running. This involves financial backing from angle investors, early-stage venture capitalists, or startup incubators.
Moving to early-stage financing, it is primarily for product development and market research. It is usually when the startup has already started functioning but is at an early stage, requiring more funds to grow.
And then to later stages involve series of funding. Literally, ‘series’.
Series A, is the term given to the funding that comes post early stage funding. This is when the startup is ready to move to the next level, and needs funding for it. Investors at this stage are typically venture capital firms, and the amount raised can be significant, intended to cover salaries, marketing, and further product development.
Series B is when the business has passed the development stage, has a solid user base, and shows great potential for growth.
The funding from this round is typically focused towards scaling up, incfreasing market reach or working towards improving the product.
Series C funding is when the company is at a stage to scale operations rapidly, enter new markets, acquire other companies, or develop new products. Investments at this stage are usually a sizeable amount and are also often used to bolster the company’s valuation before an IPO.
(We have an article on IPOs, if you haven’t checked it out already, go check it out.)
Series D funding could be used for one last push for growth or to survive adverse market conditions. It usually is with the intention of planning an IPO.
Series E involve companies that need additional capital after Series D either to achieve greater scale or because they’re not yet ready for an IPO will enter Series E. It's less common and typically indicates that the company is seeking to adjust its valuation or requires further time before going public.
Now, an alternative to funding also exists, which is called bootstrapping. Which means they invest the money they make back into the business and grow without external funding.
This may or may not be difficult depending on the product you are making, how investment heavy it is, and how much of your own funds you are able to put into it. Especially because bootstrapping requires you to make money from the product or service enough to be put back and have an impact on the growth.
Zerodha is a great example of this. They have grown to become one of the biggest stock broking company in the country, all while staying bootstrapped.
As an example, and contrary to Zerodha’s journey, Ola Cabs raised initial funding from angel investors before securing investments from venture capitals.
This goes to show the diversity in funding paths.
Each startup's journey is unique, filled with its set of challenges and milestones. There's no universal blueprint for how one can raise money for their startup.
No matter what your startup needs, there is a path for every entrepreneur for every type of investment.
And with that, you now know of the different types of investment options for startups to keep in mind for the time when you may possibly start your own business!
Until next time, stay tuned!
FAQs on Entrepreneurship:
1. What should entrepreneurs prioritize when considering different funding options?
Entrepreneurs should assess their company’s current stage, growth potential, the amount of control they’re willing to share, and their long-term business goals before choosing a funding option.
2. How do investors determine the valuation of a startup at various funding stages?
Investors consider several factors for valuation, including the startup’s market size, revenue, growth trajectory, competitive landscape, and the founding team's experience.
3. Can a startup skip certain funding stages, like going directly to Series A funding?
While not typical, some startups may go directly to Series A if they demonstrate significant traction, a clear path to profitability, or if they're led by experienced entrepreneurs with a strong track record.
4. What are the advantages and disadvantages of bootstrapping a startup?Bootstrapping allows
for full control and ownership retention, but it may limit growth speed due to financial constraints. It's ideal for businesses that can generate revenue early without substantial initial investment.
5. How do startup funding rounds in India differ from those in other countries?
Startup funding in India may involve more scrutiny on long-term profitability due to market dynamics and investor sentiment. Regulatory frameworks and available government incentives can also differ.
6. What legal considerations should startups be aware of during the funding process?
Startups should be aware of regulatory compliances, equity dilution, investor rights, and intellectual property laws. Due diligence is essential to ensure legal obligations are met for both parties.
7. How does a founder’s equity get affected through successive funding rounds?
In successive funding rounds, a founder's equity percentage typically decreases as new shares are issued to investors. However, the company's valuation increases, which can lead to the founder's remaining equity being worth more despite the smaller percentage.