Angel Investors Equity Funding
Angel investors are usually very high net worth solo investors, who, like Venture Capitalists, invest in startups in and acquire either equity or potentially a convertible note, to be transformed into equity at a later date. Usually, Angels are either former founders and entrepreneurs or retired executives who want to contribute their talent, skills and money to the new generation of entrepreneurs for a profit, of course!
There is a difference between an Angel and someone who would just casually invest, but doesnt do it professionally. The Angel is much more sophisticated and knowledgeable than a Fool type investor. Angles will do comprehensive due diligence on the company and will work to understand the companys business plan in great detail. Another difference between Angels and their more institution al counterpart, VCs, is that they usually invest their own funds. This means two things: more skin in the game and more flexibility. Angels are usually more personally involved and more open to custom arrangements, as VCs often are bound by more complex formalities. For you as a founder, this could be either a positive or a negative: an Angel may want more equity or they may provide more hands-on help when the company needs it.
Startup Scheme 1: Single Point Registration Scheme
Launched In: 2003
Headed By: National Small Industries Corporation
Industry Applicable: Sector-agnostic
Eligibility: All micro and small enterprises registered with the Director of Industries /District Industries Centre as manufacturing/service enterprises or having an acknowledgement of Entrepreneurs Memorandum are eligible for registration under this scheme by the Indian government. Those who have already commenced their commercial production but not completed one year of existence, a Provisional Registration Certificate can be issued to them under SPRS scheme with a monitory limit of INR 5 Lakhs, valid for the period of one year from the date of issue.
Overview: With a view to increasing the share of purchases from the small-scale sector, the Government Stores Purchase Programme was launched in 1955-56. NSIC registers micro & small enterprises under the Single Point Registration Scheme for participation in government purchases.
Fiscal Incentives: The eligible micro and small enterprises will get an exemption from payment of Earnest Money Deposit and will be issued tender sets free of cost. In tender participating, MSEs quoting price within the price band of L1+15 per cent shall also be allowed to supply a portion up to 20% of the requirement by bringing down their price to L1 Price where L1 is non-MSEs.
To know more about this startup scheme by the Indian Government, click here.
Develop Or Refine Your Business Plan
Im not saying you shouldnt have a business plan. You should.
Your business plan is an essential piece of the funding puzzle, explaining exactly how much money you need, and where its going to go, and how long it will take you to earn it back.
Investors will look first to a summary, and then a pitch but if you get through that screening, theyll want to see a business plan for the process of due diligence. And even before that, during the early stages, theyll expect you to have a business plan in the background, for your own use.
Most commercial banks require a business plan as part of a loan application. A plan is also required for applying for a business loan guaranteed by the Small Business Administration .
Everyone you talk to is going to expect you to have a business plan available. They may not start their discussions with you by looking at the plan, but dont get caught without one when they ask to see it.
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Erp Regional Aid Programme: Support For Investments In Structurally Weak Areas
The ERP Regional Programme supports projects in structurally weak regions. It is operated by the KfW banking group on behalf of the Economic Affairs Ministry. Structurally weak regions are defined as the German regional aid areas identified on the regional aid map of the European Commission as specially eligible areas . These are the eastern German Länder including Berlin and certain selected western German assisted areas.
Startup Scheme : Credit Enhancement Guarantee Scheme
Headed By: Indian Renewable Energy Development Agency
Industry Applicable: Renewable energy, clean energy, green energy
Eligibility: Commercially viable, grid-connected renewable energy projects with a minimum average DSCR of 1.2 can apply under the scheme. Also, the minimum issue size of the proposed bonds should not be less than INR 100 Cr.
Overview: This scheme by the Indian government acts as a non-fund partial credit guarantee instrument for project developers/ promoters to raise bonds against commissioned and operationally viable renewable energy projects.
Fiscal Incentives: The IREDA will provide credit enhancement by way of unconditional and irrevocable partial credit guarantee to enhance the credit rating of the proposed bonds. The IREDA can extend guarantee upto 25% of the proposed issue size of the bonds and, in any case, it should not be more than 20% of total capitalised project cost. The guarantee fee to be charged by the IREDA shall be in the range of 1.8%-2.9% p.a. of its exposure.
Time Period: The guarantee period will be linked with the period for which bonds are issued, the maximum tenure of the project bonds may be upto 15 years.
To know more about this startup scheme by the Indian Government, click here.
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We’ve All Heard About Sba Loans But How About Nmtcs And Cdfis Here’s How To Start Cutting Through The Alphabet Soup And Get Some Dough
Were from the government, and were here to help.
If, as an entrepreneur, these words strike fear into your heart, we get it. Nonetheless, the government backs, funds, runs, or otherwise supports a number of programs that can help you find growth capital, and sometimes even startup funds, for your business. They range from the relatively well-known Small Business Administration offerings to Community Development Financial Institutions and the somewhat more complex New Markets Tax Credits. Together, they can provide access to financing and opportunities that would otherwise be missed, even by the most aggressive entrepreneurs.
Here are three sources of government funding every entrepreneur should know about:
SBA Loan Programs: The SBAs 7 loan program is the largest government-backed loan program for entrepreneurs. Its designed to encourage lenders to work with companies they might otherwise consider too risky. The SBA doesnt actually make loans itself. Instead, it guarantees a portion of the loans made to entrepreneurs by traditional financial institutions.
Depending on the size of the loan, the SBA generally guarantees from 75% to 85% of the total loan amount. The 7 loan program can help finance up to $5 million, which can be used to buy a business, for long-term working capital, or to purchase equipment.
In 2008, the SBA backed about 2.3% of all small business loans in the U.S.
Friends Families & Fools
Consider starting with your friends and family they know you, trust you, and believe in you. This could be a great source of funding if youre an early stage founder with no prior track record in business or in your industry, or are an upstarter with ambition. Many successful businesses have been started with a loan from a relative, and its a useful place to get your first capital injection.
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Startup Scheme : The Venture Capital Assistance Scheme
Launched In: 2012
Headed By: Small Farmersâ Agri-Business Consortium
Industry Applicable: Agriculture
Eligibility: Assistance under this scheme by Indian government will be available to individuals, farmers, producer groups, partnership/proprietary firms, self-help groups, companies, agri-preneurs, units in agri-export zones, and agriculture graduates individually or in groups for setting up agri-business projects. For professional management and accountability, the groups have to preferably form into companies or producer companies under the relevant Act.
Overview: Venture Capital Assistance is financial support in the form of an interest-free loan provided by the SFAC to qualifying projects to meet the shortfall in capital requirements for implementation of the project.The Scheme was implemented during 2012-17 in the XII Plan. SFAC has formed tie-ups with 41 banks to provide financial support.
Fiscal Incentives: The quantum of SFAC Venture Capital Assistance will depend on the project cost and will be the lowest of the following:
> 26% of the promoterâs equity.
> INR 50 Lakhs
for projects located in North-Eastern Region, Hilly States and in all cases in any part of the country where the project is promoted by a registered Farmer Producers Organisation, the quantum of venture capital will be the lowest of the following:
> 40% of the promoterâs equity.
> INR 50 Lakhs
Time Period: This startup scheme is valid for the period between 2012-2017.
Business Loans For Startups By The Indian Government
There are more than 39,000 startups in India at present who have access to many private equity and debt funding options. However, it is a challenge to get funding when the business is just an idea or is in the early stage. Also, the Micro, Small, and Medium Enterprises sector in India only has limited access to formal credit which is why the Government of India decided to roll out startup business loan schemes for MSMEs and startups.
The Small Industries Development Bank of India has also begun lending to startups and MSMEs directly rather than channelising it through banks. The interest rates on these loans are lower than the one offered by banks by almost 300 basis points. Some of the most notable and popular schemes offered by the Indian government for startups and MSMEs are as follows:
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Facts And Figures On Financing For Start
has been leveraged via the INVEST programme since May 2013
% more start-up projectshave been approved under the EXIST programme since the new promotional guidelines were introduced in 2014
have already been assisted under the High-Tech Start-Up Fund
equity stakes of the micro-mezzanine fundhave created new financial options for small and new companies
Start-ups
What Is A Grant From The Government
A grant is one of the ways the government funds ideas and projects to provide public services and stimulate the economy. Grants support critical recovery initiatives, innovative research, and many other programs. You can find a list of projects supported by grants in the Catalog of Federal Domestic Assistance . You can also learn about the federal grant process and search for government grants at Grants.gov.
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Startup Scheme 4: Extra Mural Research Funding
Launched In: N/A
Headed By: Science and Engineering Research Board
Industry Applicable: Chemicals, technology hardware, healthcare & life sciences, aeronautics/aerospace & defence, agriculture, AI, AR/VR , automotive, telecommunication & networking, computer vision, construction, design, non-renewable energy, renewable energy, green technology, fintech, Internet of Things, nanotechnology, social impact, food & beverages, pets & animals, textiles & apparel.
Eligibility: Indian citizen residing in India, holding a regular academic/research position in a recognised institution can apply. The proposals can be submitted by an individual or by a team of investigators. The proposal will be funded if it has novelty and the investigator has the competence to execute the project.
Overview: The Board funds all the areas of science and engineering without discriminating between disciplines for EMR projects.
Fiscal Incentives: The research grant covers equipment, consumables, contingency and travels apart from overhead grants. No budget limit is prescribed. The budget is decided based on the requirement for its successful implementation. The Investigator should propose a budget which is realistic, taking into account, the infrastructure and resources available at the implementing institutions. The average cost of the EMR project is INR 35 Lakhs for a duration of three years.
Time Period: Funding is provided normally for a period of three years.
What Type Of New Business Grants Are Available
Government grants are available in all kinds of forms from reduced costs and free equipment, to cash awards to help your new business grow. Generally, government grants come in the form of a direct grant.
Direct grant this is money given to your new business to cover start-up essentials such as training, investment in equipment, or reaching new markets such as overseas exports. Most grants will expect your business to provide 50% of the value of the grant, but funds of up to £0.5m are available depending on your business sector.
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Assistance From The Erp Special Fund
The ERP Start-up Loans and ERP Capital for Start-ups programmes offer a tailored set of instruments to provide outside capital, offering start-ups and young companies the capital they need to launch, start growing, and transfer to a next generation. The Economic Affairs Ministrys ERP Start-up Loan programme offers low-interest loans to fund commercial and professional start-ups and young companies for up to 3 or 5 years after the launch. The ERP Start-up Loans programme consists of two parts: The ERP Start-Up Loan Startgeld provides a maximum of 100,000 in loans to help small-scale start-ups. The ERP Start-Up Loan Universell offers a maximum of 25 million in loans to larger start-ups. Find out more .The Economic Affairs Ministrys ERP Capital for Start-ups programme offers low-interest equity-like capital in the form of subordinate loans to fund start-ups and young companies for up to 3 years after the launch. Find out more .
Alternatives To Business Grants
Business grants may not always be available or suitable for your business. But the good news is that there are alternatives to business grants out there, such as:
Equity finance This is when you sell a share of your business in return for finance. Some equity finance schemes, such as the Seed Enterprise Investment Scheme, offer up to a 50% reduction in income tax on investments made in new businesses up to £100,000. Businesses have to be less than two years old and have fewer than 25 employees.
Soft loan These are similar to grants, but are actually loans with lower interest rates and more generous terms than can be found via other lending routes. Backed by the government, the Start Up Loans scheme offers personal loans of up to £25,000 with a 6% interest rate and access to free business support and mentoring.
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Stages Of Startups And Source Of Funding
There are multiple sources of funding available for startups. However, the source of funding should typically match the stage of operations of the startup. Please note that raising funds from external sources is a time-consuming process and can easily take over 6 months to convert.
This the stage where the entrepreneur has an idea and is working on bringing it to life. At this stage, the amount of funds needed is usually small. Additionally, at the initial stage in the startup lifecycle, there are very limited and mostly informal channels available for raising funds.
The Sbir And Sttr Programs
If youâre looking for government grants for startup businesses, there are only two awards you really need to know about: The Small Business Innovation Research program and the Small Business Technology Transfer program. Known as âAmericaâs Seed Fund,â these awards are powered by the US Small Business Administration and serve as âthe largest sources of early-stage capital for technology commercialization in the United States.â Both are designed to help American-owned and operated small businesses to engage in the research and development needed to commercialize their ideas. More specifically, the program aims to:
- Stimulate technological innovation.
- Meet Federal R& D needs.
- Encourage innovation and entrepreneurship.
- Increase private-sector commercialization of innovations derived from Federal funding.
While both the SBIR and STTR programs provide startups with a valuable source of funding, there are a few important differences between the two programs:
- Under SBIR the Program Director/Principal Investigator must be primarily employed with the small business at the time of award and for the duration of the project period.
- Under the STTR program, primary employment is not stipulated, so the Program Director/Principal Investigator may be primarily employed by either the small business concern or the collaborating non-profit research institution at the time of award and for the duration of the project period.
2. Non-Profit Research Partner
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Who Can Get A Grant
The federal government awards grants to organizations including:
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State and local governments
-
Non-profit organizations
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Businesses
The intent of most grants is to fund projects that will benefit specific parts of the population or the community as a whole. What you might see about grants online or in the media may not be true. The federal government does not offer grants or free money to individuals to start a business or cover personal expenses. For personal financial assistance, the government offers federal benefit programs. These programs help individuals and families become financially self-sufficient or lower their expenses.
Things To Keep In Mind When Looking To Apply For A Startup Business Loan
Startups looking to get such a loan should ensure the following:
- Make a crisp and detailed business plan.
- State clearly how you intend to use the loan amount in your business plan.
- Summarise the objectives and goals of the business along with a chart that will highlight the potential returns and growth of the venture.
- Give a clear approximation of the funds.
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How Much Will The Investor Be Entitled To
Investors may be making significant contributions to your business, but you must put measures in place to protect your present and future interests. Before engaging with an investor , consider how much equity youd be willing to exchange for an injection of capital. Getting clear on this aspect of acquiring an investment is crucial, as you might be giving away some control over your business decisions.
You must set a value, not just for your physical assets but also for your business idea. For example, if all your physical assets are worth $5,000 and you are developing a mobile app that you deem worth $100,000, your companys pre-investment value would be $105,000. The trick is to persuade the investor that your company is scalable and can fetch massive returns. The investor may decide to put $100,000 into the business, bringing the total value of the business to $205,000.
Theoretically, the investor percentage would be calculated like this.
× 100 = 48.8%.
This gives you an idea of how the investors equity is determined. Nonetheless, several other factors come into play when negotiating how big a piece of the pie an investor ultimately gets.
