(12 votes, average: 4.25 out of 5)
Loading ...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?
you can go to cgtsi,banks will provide up to 50 lakhs,collateral-free credit to the SSI sector
All,
I am looking at approaching one of the Technology Business Incubators for my start-up. Could anyone please help me with anwers to these questions?
1) What is your experience with TBI’s? What are the pros and cons of approaching a TBI?
2) Which are some of the most popular TBIs in the country?
3) What would be the typical pre-requisites for approaching a TBI?
Rita
We are a new startup , we integrate sofware solutions & security solutions for Banks , we have APAC wide tie-ups with some niche technology providers. I have do do this part-time , and have job in an MNC , but now I need to hire a full time resources - I need some 7 lakhs to pay salary to a sales guy and some 25 L - 30 day credit against a PO , to buy the software.
Now no bank will give 7 L , which I will payback in 1 year with interest , because I am sure of the orders. All my cashflow go into my current housing EMI’s , so I cant strech out.
Even a 40 day LC credit is not possible. Private loan sharks want 10% per month for a LC Credit.
Worse case I will have to sell , my house .
BB,
Well said, It’s always better to create some value, before you approach VC’s or raise funds from private investors. Value can be in terms of the partnerships we build / traction / alpha product launch / prototype etc.
So start withe friends / family or schemes like CGTSI or TEPP or even i believe there is nothing wrong in taking up a PL and use this funds effectively to prove your concept and the investors will be more happy to invest in you. Rather than the business plan let your product ( and if possible a few happy customers) speak for you.
Karana
I agree with you completely. This is the essence of the post which I was basically planning to write.
Most guys start their businesses with only VCs in mind. The truth is you build businesses only for customers. VCs only “also participate” in the process. You never build businesses for VCs. VCs become relevant at a certain stage but certainly are not the startpoint.
However, starting without external capital will not work in every scenario. I am into a services business but need large investment into tangible assets to provide services.
RYK, Deepak, Anish
I am pitching again to other PSU banks, especially to SBI under their entreprenuer scheme. Here’s the link.
http://www.sbi.co.in/viewsection.jsp?lang=0&id=0,203,206,211.
Will post the outcome.
Deepak,
While the cost of capital under CGTSI would be 6.5% higher than PLR, I guess it would still be less than cost of funds from VCs, where the minimum IRR would be 25%+. If a startup has some of kind of revenue visibility but is unable to raise the money from VC for some reason, CGTSi is worth exploring.
We are 2 people, we saved all our salaries for a year and jump started it ourselves. For the kind of products we make, we figured we wouldn’t need outside funding. But then the approach does not work for large financial requirements.
I just worked from home for the first three months - had enough just to sustain home for 2 months - pitched aggressively in an area of expertise - Media Buying and Planning. Got a client - worked like a maniac - all alone - with a borrowed laptop. Six months into this now I have a capitalised billing of 15 Crores, no staff yet and I am still able to manage on my own with one secretary and now as business is growing and profitability, scale and expanse of business is allowing me I am hiring staff. I think the best way to startup in India is not go for any startup funding ( angel or bank loans) - just keep it simple and go for it on your own with whatever little or more you have and invest all the profits back in the business and let growth happen organically.
Karana Verma
http://www.cgtsi.org.in/jsp/Home.jsp
You’ll end up paying about 6.5% higher than PLR (3% higher for hte loan, plus 3.5% as fees) and the loan is for IT companies in specific hubs (Mumbai not included unfortunately!). 25 lakhs of which CGTSI will guarantee Rs. 18 lakhs.
Might take some time to turn around, there is some paper pushing required. SBI is listed as a bank in the scheme.
RYK,
If you are planning to approach the SMB manager today press the stop button..dO some strong research about CGSTI on google ( actually i couldnt find the CGTSI website on web …mean while do check out
http://www.keralaindustry.org/e_magazine/credit_guarantee_fund.htm
for details ( till last year the maximum loan cap was 25 lakhs which has been raised to 50 lakhs ). As far as e-business / web 2.0 is concerned they may raise concerns…but you can overcome this by positioning your company in a different way ( software product company etc). So do have a strategy before approaching the manager also it is advisable to register the firm as an SSI unit ( take’s a days time).
I know more than 3-4 startups who have raised capital via CGTSI scheme . please note that they don’t cover working capital but expenses like computer/server/ equipments/software cost ( Well again if you work out a little bit strategy you can turn this into working capital and i don’t see any thing unethical in doing so….bcoz here in India we don’t have a source for startup capital like US..so there is nothing wrong in applying a li’l bit of strategy…after all if the startup succeeds..it’s the nation who benefits the most by way of more employment / tax etc.
Anyway will try to post the specific guidelines and other details here soon.
Also again if your product is a pure innovation, you can also look forward for the TEPP funding ( max 50 lakhs) from the dept of science and technology. You can apply it via the nodel centres in each state ( http://www.dsir.gov.in/tpdup/tepp/tepp_tsc.htm ).