Page 40 - Banking Finance December 2017

ARTICLE

Investors are generally most attracted to those new com- The amount invested at this stage is still very low as com-
panies distinguished by their strong co-founding team, risk/ pared to others as this is only the basic capital needed to
return profile and scalability. That is, they have lower start your business. Investors expect a share of the equity
bootstrapping costs, higher risk, and higher potential return in exchange for their investments. Usually, these funds are
on investment. Successful startups are typically more scal- only used for market research and are useful till a startup
able than an established business, in the sense that they have finds venture capitals to invest in their business.
the potential to grow rapidly with limited investment of
capital, labor or land. Timing has often been the most im- Angel Investment (AI): An angel investor is typically an in-
portant factor for biggest startup successes, while at the dividual with a lot of money who wants to invest in your busi-
same time it's identified to be one of the hardest things to ness in exchange for equity. These investors are wealthy
master by many serial entrepreneurs and investors. individuals looking to invest in early stage startups. Angel
investors usually only fill in the gap between self-funding and
Startups encounter several unique options for funding. Ven- raising a round of series funding. The amount invested by
ture capital firms and angel investors may help startup com- them can be anywhere between only a few thousand dol-
panies begin operations, exchanging seed money for an lars to a couple of million dollars.
equity stake. In practice though, many startups are initially
funded by the founders themselves. Factoring is another Venture Capital (VC): Venture Capital is money provided
option, though not unique to startups. Other funding oppor- by professionals who invest and manage young rapidly grow-
tunities include various forms of crowd funding, for example ing companies that have the potential to develop into sig-
equity crowd funding. This paper intent to explore govern- nificant economic contributors. According to SEBI regula-
ment initiatives to startup India, startup financing life cycle tions, venture capital fund means a fund established in the
and also what is the institutional funding and incentives are form of a company or trust, which raises money through
providing to the entrepreneurs. loans, donations, issue of securities or units and makes or
proposes, to make investments in accordance with these
II. Conepts regulations. The funds so collected are available for invest-
ments in accordance with these regulations. The funds so
Startup: A startup is a company that is in the first stage of collected are available for investment in potentially highly
its operations. These companies are often initially bankrolled profitable enterprises at a high risk of loss. A Venture Capi-
by their entrepreneurial founders as they attempt to capi- talist is an individual or a company who provides.
talize on developing a product or service for which they
believe there is a demand. A startup may have the follow-
Private equity (PE): Private equity investments are made
ing features.
in companies that have not gone public yet. Private equity
Y Incorporated for three years or less
firms invest huge sums of money with the aim of acquiring
Y At a funding stage of Series B or less a good position with control in the company. Firms get their
Y An entrepreneurial venture/a partnership or a tempo- return on investments commonly when these companies
rary Business organization have their Initial Public Offering. They also get their returns
via mergers with other companies or when the company is
Y Engages in development, production or distribution of acquired by another company.
new products, processes or services

Y Revenue of up to INR 25 cr. III. Objectives of Startup India
Y Employing 50 people or less 1. To prepare students as they gain benefits from Start-
up India programme.
Seed funding (SF): Seed funding is the earliest form of fund- 2. To encourage Science and Technology students to
ing received by a startup. When a startup is looking for ini- choose entrepreneurship as their careers.
tial funding, the primary source of seed funding is personal
investments by the founder, His/her family and friends, or 3. To motivate students to convert their Detailed Project
angel investors. There's no actual source of income or prof- Reports (DPRs) and projects into viable B-plans.
its, so companies survive on the seed capital only. 4. To create a common virtual platform and ask institu-

40 | 2017 | DECEMBER | BANKING FINANCE

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