There are numerous ideas floating around for starting a startup, but securing the necessary funds to bring those ideas to life can be a formidable challenge. For entrepreneurs, funding is the lifeblood of their ventures, and without it, even the most brilliant concepts remain mere aspirations.
In an exclusive interview with Amrit Tiwari, the Head of Investment Management at IIM Lucknow Enterprise Incubation Centre (IIML EIC), we delve into the intricacies of startup funding.
Understanding the Funding Landscape
Startup funding is not a one-size-fits-all scenario. The amount of funding required depends on the stage of the startup. Tiwari emphasizes that startups can be categorized into various stages, including pre-seed, seed, and pre-series A or series A. Each stage has distinct funding needs.
Pre-Seed and Seed Stage: In the early stages, such as pre-seed and seed, the funding requirements are relatively modest. At IIML EIC, they typically invest up to 50 lakh rupees from their own corpus to support startups at this stage.
Pre-Series A and Series A: As a startup progresses and requires more capital for expansion, team growth, and talent acquisition, the funding needs increase significantly. IIML EIC extends its support by collaborating with corporate partners to invest up to five crore rupees, earmarked as pre-series A or series A funding.
It's clear that tailoring funding to the specific needs of startups at various stages is crucial for their success.
The Dual Role of Incubation Centers
Incubation centers like IIML EIC play a pivotal role in the startup ecosystem. They not only provide direct funding but also facilitate connections with individuals and organizations that can contribute to a startup's growth.
"See we do both. We also provide the funds through our own Corpus. We parallely have different programs, be it from the Government of India, be it from the corporates, be it from the private sector. So we are running different programs as far as the IIM Lucknow is concerned. As far as connecting with the VCs or Angels, we are also exploring opportunities for the incubated startup to raise funds from the VCs or the Angel networks," Tiwari explained.
This dual approach ensures that startups have access to a comprehensive support system.
Scaling the Funding Heights
When it comes to the maximum funds raised or provided by IIM Lucknow's Incubation Centre, the numbers are impressive. While the maximum funding support for a single startup exceeded 20 crore rupees, the average investment hovers around five crore rupees. This funding is often secured from reputable corporations like HPCL and ONGC, with typical ticket sizes ranging from one crore to five crore rupees. Startups aligned with the interests of these corporations have a unique opportunity to tap into this vertical.
"So through our incubation center, as I mentioned we are permanently working with the PSUs and the Corporate sector. So the maximum fund that we have helped startups to raise is more than 20 crore rupees for a particular startup, I'm saying. However, on average, it is five crore rupees that we have invested in these startups and they have raised the funds from corporates such as HPCL and ONGC where the average ticket size may range from one crore rupees to five crore rupees. So if any startup is coming to us and they are falling under the scope of the area of ONGC or HPCL, they have an opportunity to raise funds up to five crore rupees in that vertical," he explained.
Essential Considerations for Startups
As startups seek funding from incubation centers, Mr. Tiwari emphasizes several key points that entrepreneurs should bear in mind:
Founder's Background: The founder's background and passion for the startup are paramount. It's not just about the idea; it's about the person behind it.
Talent Acquisition: Building a talented team is crucial. Funds can be allocated for hiring skilled individuals who will drive the startup's success.
Capital Investment: Capital is needed for product or service development. It can also address working capital gaps, market capture, market validation, prototyping, testing, and research.
Financial Planning: Entrepreneurs are encouraged to create projected financial statements and detailed business plans covering 18 to 24 months. This helps determine the exact funding required to sustain the startup during this critical period.
The journey from a brilliant idea to a thriving startup requires financial support, guidance, and a solid strategy. Incubation centers like IIML EIC play a pivotal role in bridging the gap between innovative concepts and financial resources. As India's startup ecosystem continues to evolve, the importance of such centers in nurturing entrepreneurial dreams cannot be overstated.