How to get startup funding in India – a basic guide.

Roughly a year back in Jan I was doing rounds of CIIE, an incubator in IIM Ahmedabad, trying to get them to fund my startup idea. But I come from a simple middle-class family with no business links. So I had no clue on how to get startup funding in India. Expectedly, I failed in getting one. 

Later my co-founder decided to pursue other plans and I was left alone to figure out the startup myself. I struggled for a few months. Meanwhile, I moved to Bangalore – the startup capital of India, in hopes that I’ll be able to figure something out here. 

A few months of struggle later, I came to know about a startup incubator called YCombinator. They had just launched a course called Startup School. It taught me all that I needed and helped me immensely in shaping my journey so far. 

How to get startup funding in India?

How to get startup funding in India

Before we get to the how, we need to answer the why. Why do you need startup funding? And before you start talking about the expense to hire and develop the product – I request you to answer the below questions:

  1. What is the problem that you are trying to solve?
  2. How urgent is the problem for the user?
  3. Is the problem painful enough for the user to pay for it?
  4. Why should the user choose your solution of all that are available?
  5. Have you talked to enough users to know your answers are true?

Many first-time startup founders will struggle to answer these questions. And that’s a completely different way to look at a startup problem. And the way you find answers to the problem is by going out and talking to as many prospective users as possible. You wold be surprised with the insights you get from the conversations and you’ll also start seeing the problem very differently. Because by now, you will understand the user.

And that is the first step to get startup funding. The more you understand the user, the better you’ll be prepared to answer the tough questions of the VC. You’ll also be confident about the solution.

Now, let’s come back to the second part of the questions:

  1. Can you test with a small prototype of your solution and get user feedback?

The small prototype or as they say in startup parlance, MVP (Minimum Viable Product) is basically a validation of your hypothesis. A hypothesis that your solution is going to fix the problem that users have and that users are excited to use the solution.

Now, it is normal to not have the best solution in the first attempt. What I suggest is to keep iterating with your basic prototype till the user is moderately satisfied with the solution.

Often times, many startup founders feel that they need money to build this prototype. This is a common misconception. Your objective of the MVP is just to see the level of excitement of your solution for the intended userbase and to see if the user think it is going to solve their problem.

Dropbox company made a 8-min video telling everyone what their product could do and gathered feedback via Reddit and other sites. This told them that the idea could work and will have customers.

So make sure you do this before you wonder about the question – how to get startup funding in India?

Assuming you have done all this the next step is to figure out what you need the money for and how much? Now remember a fundamental rule of startup funding – earlier to try to get funding the more equity you have to give and less leverage you’ll have to decide company direction.

Your first source of funding must be your own, then your family/friends, then equity-free investments and finally VC funding, in that order. It is often rare to get quick funding if you are a first-time entrepreneur without credible experience that improves the odds of startup success.

To approach the VC network, you can start by going to funding related events that keep happening in many cities. Start following public social handles of popular VCs in India and learn more about there interest areas.

Once you find these information, the next step is to prepare your pitch.

How to pitch your startup

How to pitch your startup

If you have done your initial research well, you will be in a good position to pitch to investors. The way you should go about it is exactly how you tested your hypothesis.

You start with the problem you are trying to solve. Then you talk about how painful the problem is and how your solution solves that problem. Then you talk about the user feedback and the results of your MVP testing. And finally you talk about how much you need and for what purpose.

That’s all there is to know about how to pitch your startup. I know it sounds easy, but it takes months of effort to reach here.

What is a VC looking for

What is a VC looking for

Let’s look at it from a VC’s perspective. What is a VC looking for from your startup? Imagine yourself as a VC, you are investing your or your backers’ hard-earned money into a hypothesis. What would you look for? Why would you invest in it instead putting it in an FD?

So, clearly you are looking of a rate of return that is much higher than an FD, right? You also would know that there is a higher chance of a startup failing than succeeding. This means you have to take out more from a successful investment.

So the first thing a VC would look for is:

  1. Does the Startup have the potential to grow exponentially?
  2. If yes, why?
  3. And how much can I get back in 3 years time?

And all you as a founder pitching your startup has to do is to answer these questions. You have to prove it to the VC that your startup can give him exponential returns. They only way to convince the VC is to prove your hypothesis by testing it out in the market.

If there is one take away I want you to take from this article is this – Do not assume. Test your hypothesis and validate. Improve at every step.

As Mark Zuckerberg said – Move fast, break things.

What do you think about this approach? I would love to know your feedback.

Regards,

Shyam Govind

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