1. New Methods of Funding
Money is always eager and ready to work for anyone who is ready to employ
it
By- SALAJ GOYAL

2. For entrepreneurs with a lot of money saved up, the only obstacle to starting a business is
coming up with a viable idea. However, many aspiring business owners have the opposite
problem — the idea is there, but the capital is not. Clearing the startup-financing hurdle is
made even more difficult by the fact that brand-new entrepreneurs are often turned down for
business loans. Traditional bank loans have always been tough to secure, and although loans
funded by the Small Business Administration are typically more accessible, it is getting more
competitive.
When an entrepreneur asks for money, he is to explain to the potential investors how he
plans to spend their money. Straightforward, right?
The only problem is that most descriptions of “use of funds” are incredibly generic and
standard, typically involving the following:
· hire key personnel
· product development
· sales & marketing
Entrepreneurs should have an idea on what critical milestones need to be
achieved to justify the next big step. Maybe it is a certain number of paying
customers, or a certain number of free users. It could be traffic, or some other key metric
(or a few metrics / targets) of importance.
Apart from funding your business through Bootstrapping, Friends and family, Loans
or lines of credit, Incubators, Angel investors, Venture capitalists, Bartering, Forming a
partnership, Committing to a major customer or from philanthropists, there are
other sources available around us which will ensure easy money and less
equity dilution like:-
Government of India (Budget 2015-16)
When finance minister, Arun Jaitley was about to open his ‘Goodie Bag’ while presenting
the union budget 2016, expectations from the start-up community were sky high. In order to
boost small business and MSME sectors, Mr. Jaitley announced various schemes and
policies in sync with the Startup India Action plan announced previously by PM Modi.
· Rs 500 Crores earmarked for SC/ST and women entrepreneurs under the
Startup India scheme.
· Setting up of a fund to raise Rs 2,500 crore annually for four years to finance
startups.
· 35 new incubators in existing institutions. The Central Government for
establishment of new incubators for which 40% funding by the respective State
Government and 20% funding by the private sector has been committed shall
provide funding support of 40% (subject to a maximum of INR 10 crore). The
incubator shall be managed and operated by the private sector.
· 35 new private sector incubators. A grant of 50% (subject to a maximum of INR
10 crore) shall be provided by the Central Government for incubators established
by private sector in existing institutions. The incubator shall be managed and
operated by the private sector.

3. · ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited
(MUDRA) ‘starts with an initial corpus of Rs. 20,000 crore to extend benefits to
around 10 lakhs SMEs.
Entrepreneurs are supposed to submit the business plan and once approved, the
loan is sanctioned. They get a MUDRA Card, which is like a credit card, which
they can use to purchase raw materials, other expenses etc. Shishu, Kishor and
Tarun are three categories of loans available under the promising scheme.
Examples:-
· Venture Capital Funds Promoted by the Central Government
o SIDBI Venture Capital Limited (SVCL)
o IFCI Venture Capital Funds Limited (IVCF)
· Venture Capital Funds Promoted by State Government
o Gujarat Venture Finance Limited (GVFL)
o Kerala Venture Capital Fund Pvt Ltd.
o Punjab Infotech Venture Fun
o Hyderabad Information Technology Venture Enterprises Limited
(HITVEL)
Convertible Bonds
When a company is young, quantifying its valuation is often an arbitrary, pointless
exercise. There may not even be a product in hand, let alone revenue. But companies at
this stage may still need to raise money, and if investors decide on a pre-money
valuation of say, $100,000, another $100,000 suddenly buys control.
Convertible debt (also called convertible notes) is a financing vehicle that allows Start-
Ups to raise money while delaying valuation discussions until the company is more
mature. Convertible notes are meant to convert to equity later, usually a round of
funding. (Often notes convert to equity during a Series A round of funding.)
Capped Notes V/s Uncapped Notes
Entrepreneurs and investors agree to a “capped” round, a means that they place a
ceiling on the valuation at which investors’ notes convert to equity.
Therefore, if a company raises $500,000 in convertible notes at a $5 million cap, those
investors will own at least 10% of the company after the Series A round
($500,000/$5M).
An uncapped round means that the investors get no guarantee of how much equity
their convertible debt investments will purchase, making these kinds of investments
most favorable for the entrepreneur.

4. A company that raises $500,000 in an uncapped round. If they end up making so much
progress that, they convince Series investors to agree to a $10 million valuation, this
means that their convertible note investors are left with just 5% of the company, half of
what they would get if they capped the round at $5 million.
Viability Gap Funding
There are many projects with high economic returns, but the financial returns may not
be adequate for a profit-seeking investor.
For instance, an investor may seek connectivity of several villages to a nearby town. This
would yield huge economic benefits by integrating these villages with the market
economy, but because of low incomes, it may not be possible to charge user fee. In such
a situation, the project is unlikely to get private investment. In such cases, the
government pitches in and meets a portion of the cost, making the project viable. This
method is known as viability gap funding.
Working of the scheme
Under VGF, the central government meets up to 20% of capital cost of a project being
implemented in public private partnership (PPP) mode by a central ministry, state
government, statutory entity or a local body. The state government, sponsoring ministry
or the project authority can pitch in with another 20% of the project cost to make the
projects even more attractive for the investors. Potential investors bid for these projects
based on VGF needed and Business Feasibility Model.
Eligible sectors
Projects in a number of sectors such as roads, ports, airports railways, inland waterways,
urban transport, power, water supply, other physical infrastructure in urban areas,
infrastructure projects in special economic zones, tourism infrastructure projects are
generally eligible for viability gap funding. The government now proposes to add social
sectors such as education and health to the list.
BIRAC
The Department of Biotechnology is implementing the following measures along with its
Public Sector Undertaking Biotechnology Research Assistance Council (BIRAC):
· Bio-incubators, Seed Fund and Equity Funding

5. · Biotech Equity Fund – BIRAC ACE Fund in partnership with National and
Global Equity Funds (Bharat Fund, India Aspiration Fund amongst others) will
provide financial assistance to young Biotech Startups
WARRANTS
Warrants are a special type of instrument used for long-term financing. They are useful
for start-up companies to encourage investment by minimizing downside risk while
providing upside potential.
For example, warrants can be issued to management in a start-up company as part of
the reimbursement package.
A warrant is a security that grants the owner of the warrant the right to buy stock in the
issuing company at a pre-determined (exercise) price at a future date (before a specified
expiration date). Its value is the relationship of the market price of the stock to the
purchase price (warrant price) of the stock. If the market price of the stock rises above
the warrant price, the holder can exercise the warrant. This involves purchasing the
stock at the warrant price. Therefore, in this situation, the warrant provides the oppor-
tunity to purchase the stock at a price below current market price. Generally, warrants
contain a specific date at which they expire if not exercised by that date
Leasing Business Equipment
Equipment leasing is a loan in which the lender buys and owns equipment and then
"rents" it to business at a flat monthly rate for a specified number of months. At the end
of the lease, the business may purchase the equipment for its fair market value (or a
fixed or predetermined amount), continue leasing, lease new equipment or return it.
Advantages include getting your hands on needed equipment without paying the costs
up front. Lines of credit stay freed up because the leases are not bank loans, and lease
payments can potentially be deducted as a business expense. It is also possible to easily
upgrade equipment once a lease expires.
Royalty Financing
Business owners guarantee investors a percentage of their revenue over a period, paying
them back the advance of cash. Deals usually run at 2 to 6 percent of increased
revenue and deals can run into the millions of dollars. It is well established in
industries from mining and music, in which revenue is steady when it is coming in, but
also unpredictable. This is a potentially great financing mechanism for business owners
who need a quick infusion of cash for their enterprise, and do not want to give up control

6. to equity investors. In addition, there are no worries during a down month for sales,
because payments are tied to a percentage of revenue.
Crowd funding
Crowd funding is the process of raising money to fund what is typically a project or
business venture through many donors using an online platform, such as
· Kickstarter
· Indiegogo
· Wishberry
· Ketto
· Fundlined
· Catapooolt
· Crowd funder.
Crowd funding is typically done through an online platform that allows the fundraiser to
set up a public campaign for accepting donations. People can donate a specified amount
through the fundraising campaign’s website and often receive some sort of
acknowledgement or reward in return for their donation.
TYPES
· Donation-Based Crowd funding: - Broadly speaking, a campaign in which there
is no financial return to the investors or contributors as donation. Common donation
based crowd funding initiatives include fundraising for disaster relief, charities,
nonprofits, and medical bills.
· Rewards-Based Crowd funding: - It involves individuals contributing to your
business in exchange for a “reward,” typically a form of the product or service your
company offers.
· Equity-Based Crowd funding: - It allows contributors to become part owners of
your company by trading capital for equity shares. As equity owners, your
contributors receive a financial return on their investment and ultimately receive a
share of the profits in the form of a dividend or distribution.
· Debt-based (peer to peer, P2P, marketplace lending, crowd lending):- Borrowers
apply online, generally free, and their application is reviewed and verified by the
website management. Investors buy securities in a fund, which makes the loans to
Individual borrowers or bundles of borrowers. Investors make money from interest
on the unsecured loans.

7. Examples
· Pebble Smartwatch- $10.2M
· OUYA- $8.5M
· PonoMusic- $6M
· Bivtore- $4.5m
Incubators & Accelerators
Early stage businesses can consider Incubator and Accelerator programs as a funding
option. Found in almost every major city, these programs assist hundreds of startup
businesses every year.
Though used interchangeably, there are few fundamental differences between the two
terms. Incubators are like a parent to a child, who nurtures the business providing
shelter tools, training, and network to a business. Accelerators so more or less the same
thing, but an incubator helps/assists/nurtures a business to walk, while accelerator
helps to run/take a giant leap.
These programs normally run for 4-8 months and require time commitment from the
business owners. You will also be able to make good connections with mentors, investors
and other fellow startups using this platform.
In US, companies like Dropbox and Airbnb started with an accelerator – Y Combinator.
In India, popular names are
· Amity Innovation Incubator
· Angel Prime
· CIIE
· IAN Business Incubator
· Villgro
· Startup Village
· TLabs