From my perspective, being an entrepreneur entails so much more than just starting a business. Once a business idea is in place, the next and most critical step is to make sure that investment is available to scale the business. How a startup works, its lifecycle, and how to raise capital is taught by Prof. Sanjay Kathuria in Bada Business. This article sums up the major points of his course and outlines the journey each entrepreneur needs to take.

What is a Startup?

Is it a buzzword or is it a concept? A startup evokes definition both in terms of its global perception and how the Indian government recognizes it.

Standard Definition of a Startup

A startup is defined as the “offspring” of an idea that has a potential to solve an existing issue. There is always a parent to every offspring who in this case could be a student, an entrepreneur or a businessman who finds a problem and comes up with a solution. This solution leads to a business foundation which eventually matures into a startup.

Definition of a Startup from the Indian Government Perspective

The Indian government has clearly defined guidelines for recognition of a startup. A company is recognized as a startup if it complies with the following criteria:

It should be a Private Limited Company, a Registered Partnership, or an LLP registered in India, and the entity must have been in business for less than five years. For instance, a company incorporated prior to the year 2016 will not qualify as a startup.

The turnover in the last financial year must be less than ₹25 crore.

The enterprise must not have been formed by way of demerger or reorganization of an existing entity.

Most startups take advantage of the technology or IP (intellectual property) owned by other people. A case in point is Bada Business Pvt. Ltd, which has developed an app and has proprietary content. Therefore, it is considered a startup.

Startups are a world-wide phenomenon, and the culture of startup is expanding fast across the globe. USA has more than one hundred thousand startups, India has more than fifty thousand startups, which is on the rise. After the Make in India campaign, there has been a boost for new ventures in the country.

Accomplished Startups in India

There is a number of startups that have changed sectors and are great examples for many to look up to. A few of the well-known and promising startups in India are:

Urban Company

Zomato

Grofers

First Cry

OLA

OYO Rooms

Snapdeal

Flipkart

Food Panda

All these startups recognized unique and demanding challenges and provided fresh ideas to solve those issues. For Instance, Flipkart changed the dynamics of online shopping in India whereas Zomato simplified ordering food and finding restaurants.

The Phases of a Startup

All businesses face various hurdles at different stages of their operation and growth. By knowing these stages, one can improve planning and growth scale of the business.

Discovery: This is the point where an entrepreneur comes across a problem and starts thinking about ways to offer a solution.

Validation: This is where the entrepreneur finds means to confirm the idea by building a MVP. The MVP, is a basic version of the product that allows the firm to test the waters and see if there is demand for the better version of the product or service.

Efficiency: After validating the product or service, the next step for a startup is to make the business productive. This includes cutting expenses and making the processes more efficient to increase profits.

Scaling: This is when the business begins to operate on a larger scale. For example, scaling up production from 100 units to 10,000 units, hiring additional staff, and increasing marketing to gain more customers.

Maintenance: After scaling, the business needs to take some time to maintain operations. This phase includes tracking the business and making sure it continues running efficiently without any additional growth.

Sale: After maintaining operations for a period of time, business owners can choose to sell, further scale the operation, or continue business as usual. A great example here is Flipkart, who has been through these stages and is now owned by Walmart.

These stages guide one in the life cycle of a startup knowing that each stage brings unique obstacles, opportunities and the need for distinct approaches.

Why Raise Funds?

Almost all, if not every entrepreneur will tell you that raising funds is one of the main goals of establishing a business. That said, it is not recommended as the only reason for setting up a startup. The core purpose of a startup should be solving a problem. Money raised should only serve as an asset to grow and scale the company.

At the starting point, a business may need payment for some core activities such as:

• Product development
• Employee Hiring
• Technology Buildout
• Sales and Marketing

Even though customers may take time to pay, a business has to seek funds to meet the above expenses. However, funds should not be raised merely to get money – Funds ought to be raised while building value within the business.

How is Funds Raised?

For each start-up there exists myriad options to raise funds and it is critical to examine all as exhaustively as possible. The most common options include:

Friends & Family: Most first-time entrepreneurs start by seeking funds from immediate family and friends. People are happy to put money, for example, in return for wishing shares in the startup or money at a later point in time.

Institutions: SIDBI, IFCI and other private equity companies like Sequoia Capital and SL Capital Partners are important businesses which can provide requisite funds.

Private Equity Investors: Funded by wealthy individuals who meet the criteria and are willing to pay directly to the company in exchange of acquiring shares.

Accelerators: These provide funds alongside critical business services like marketing, HR, technology, business mentoring, and idea evaluation too. They support startups through funding and mentoring the startup.

How to Find Money for Your Startup?

You have to do all of the research necessary on where to network and pitch your startup before you begin thinking about building your strategy:

Events: You should always try to go to networking events created by bodies like FICCI, CII, and NASSCOM because there are always likely to be investors willing to put in funds.

Pitch Sessions: These have to be my favorite and for sure some of the most useful when it comes to pitching your startup ideas. Programs like Shark Tank are popular, so use them to understand how investors deconstruct the business ideas and value your participation.

Colleges: Many top colleges including IITs and IIMs have entrepreneurship cells which is great because they can aid you in founding your business and getting funding as well.

Finding the right startup funding will require some effort on your part.

When to Raise Funds?

Raising money has the foremost important factor of timing. It is best to work out how your business is expected to grow and plan funding rounds where you can gauge your potential need of capital within the next 18-20 months. Remember to never leave it until the last minute when you are running low on options.

Conclusion

It’s not all peaches and cream when it comes to a startup. Everything from identifying a problem to raising a fund is essential and requires meticulous planning for execution. Understanding when, how, and where to raise a fund is critical to a startup’s success. As previously discussed, if entrepreneurs follow the strategies, they will be able to build a successful business around the ecosystem of a startup.