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Unit 5: Funding and Schemes

1. What do you mean by Equity, Debt Funding by angel Investors?​

Equity Funding

A method of raising capital in which a company issues shares of ownership to investors in exchange for funds.

The Investors become shareholders and are entitled to a portion of the company's profits and assets.

Key Points:

  • No need to repay the money.
  • You give up some control and ownership.
Debt Funding

Debt Funding is a method of raising capital where a company borrows money from investors or lenders with a commitment to repay the actual amount along with interest within a specific period.

Key Points:

  • Interest payment is mandatory regardless of profit.
  • You keep full ownership of the business.
  • Can create financial pressure if revenue is low.

2. Define Venture Capital (VC), It's Types​

A venture capital fund is a pooled investment fund that provides capital to early-stage, high-potential startups and small businesses in exchange for equity (ownership shares) in those companies.

  • Funds are collected from Investors.
  • Usually takes equity (ownership shares) in the company.
Types

  1. Seed Capital

    • Provided at the initial stage of a business.
    • Used for research, product development, and business planning.

  2. Start-up Capital

    • Given to newly established companies.
    • Helps in launching products and starting business operations.

  3. Early-Stage Capital

    • Provided when the company has started operations but has not yet achieved profitability.
    • Used for production and marketing activities.

  4. Expansion Capital

    • Given to growing companies for expanding production capacity, entering new markets, or launching new products.

  5. Bridge Financing

    • Short-term funding provided before an IPO or major acquisition.
    • Helps the company meet immediate financial requirements.

3. How does the professional venture capital industry work?​

  • The Professional Venture Capital Industry refers to organized firms that provide finance to new and growing businesses with high growth potential. Venture capitalists invest money in startups in exchange for an equity share in the company.

  • These firms collect funds from wealthy individuals, banks, insurance companies, and financial institutions. Before investing, they carefully evaluate the business idea, market demand, management capability, and future profitability of the company.

  • Apart from providing finance, venture capitalists also offer technical guidance, managerial support, and business contacts to help the business grow successfully. They earn profits by selling their shares when the company becomes successful through an IPO (Initial Public Offering) or acquisition.

Thus, venture capital is a high-risk but high-return form of investment that promotes innovation, entrepreneurship, and business growth.

4. What Are Advantages of Bank Loans for Startups​

Bank loans provide essential financial support to start and expand a business.

Advantages:

  • Ownership remains with the owner: The entrepreneur doesn't need to share profit with others.
  • Flexible repayment: Loans can be repaid in installments over a fixed period.
  • Lower Interest Rates: Often have lower interest rates compared to private borrowings.
  • Improves Bussiness Growth: Funds can be used for equipment, raw materials, and expansion.

5. Describe 12 Government Schemes For Startups In India​

The Government of India provides several schemes to support the startup ecosystem:

  1. Startup India Scheme: Provides tax benefits, easy registration, and support for patents and funding.
  2. Startup India Seed Fund Scheme (SISFS): Provides financial assistance for making products, testing ideas, and starting operations.
  3. Fund of Funds for Startups (FFS): Provides investment support through venture capital companies.
  4. Pradhan Mantri Mudra Yojana (PMMY): Offers small business loans without security or collateral.
  5. Stand-up India Scheme: Provides bank loans specifically to women and SC/ST entrepreneurs.
  6. Atal Innovation Mission (AIM): Promotes innovation and helps startups through various programs.
  7. SAMRIDH Scheme: Specifically supports tech and software startups.
  8. TIDE 2.0: Supports startups in AI, robotics, and emerging technologies.
  9. PMEGP: Helps people start small businesses with the help of subsidies.
  10. Credit Guarantee Scheme for Startups (CGSS): Helps startups get loans easily by providing government guarantees to banks.
  11. CGTMSE Scheme: Provides collateral-free loans to small businesses.
  12. NIDHI-PRAYAS: Funding for new inventions and prototypes.

6. State MSME / SSI Registration Benefits​

MSME stands for Micro, small or Medium Enterprises. These are bussinesses classified based on their investment and annual turnover.

They play impornant role in job generation, industrial growth, and economic development.

Registering as a Micro, Small, or Medium Enterprise (MSME) offers several advantages:

  • Easy Bank Loans: Access to loans at lower interest rates.
  • Collateral-free Loans: Ability to get loans without giving security or property.
  • Government Subsidies: Access to various financial supports and subsidies.
  • Protection from Delayed Payments: Buyers must make payments on time to registered MSMEs.
  • Tax Benefits: Various tax concessions and exemptions are available.
  • Lower Electricity Bills: Possible concessions on electricity charges for registered units.
  • Business Growth Support: Access to government schemes for expansion and development.