Rajat Negi

Startup finance and funding

Screenshot 2022 05 25 220509 1024x812 - Startup finance and funding

Have you watched that TV show?

Yes, I am talking shark tank, where entrepreneurs from all over India came to get the funding for their startup or business in exchange for ownership of the business. 

Raising capital leads to business growth, and there are several methods for startups and SMEs to raise cash in today’s environment.

Every business needs money to grow and for that, there are only two ways for a startup. Let’s discuss those, funding is also known as financing.

Type of Funding

Equity Funding

In this type of funding, the company offers some of its shares in exchange for money or capital. It is a risky investment since the investment purely depends on the business. there is no presence of collateral or mortgage of assets of the company. 

Example:-Jain Automobile needs capital to open a new showroom in Kolkata so the owner of Jain Automobile needs capital so I can help them with the capital but in exchange, they need to give me some ownership in the business.

That’s how the Shark Tank show goes on, where existing owners of businesses ask for capital to grow and in exchange for it, Sharks ask for ownership in the business. 

Do you know the most favored business structure for raising money? 

The most preferred business entity for finance is a company with a Pvt. Ltd structure. HNI (High-Networth Individuals), Venture Capitalists, and Angel Investors are common ways to generate capital by issuing shares.

Crucial things to think about when funding

  • There can’t be more than 200 shareholders in a company.
  • Prohibition on the sale of shares to the general public.
  • Ownership that is shared.
  • Shareholders can vote.

there are more ways to raise funding. let’s discuss them also .

Private Placement

  • A chosen set of people (VCs, Angel Investors, HNIs, etc.).
  • A minimum subscription of Rs.20,000 of the security’s face value
  • The contribution must be in the form of anything other than money.
  • Within 60 days of receiving the application fee, the shares must be distributed.
  • Within 15 days, submit an allotment return.

Rights Issue

  • Existing stockholders are given shares.
  • It can be issued if a board resolution is passed.
  • Renunciation is a legal privilege.
  • Within 60 days, you will get your allocation.
  • Within 15 days, submit an allotment return.


The equity shares are given to the company’s directors or workers at a discount or for anything other than cash in exchange for their expertise, intellectual property, or value improvements. In a private limited business, such stockholders will not be included in the maximum of 200 shareholders.

  • A special resolution must be passed by the shareholders to authorize it.
  • A minimum of one year must elapse since the company’s formation.
  • These shares cannot be transferred by an employee to another individual.

Funding in case of LLP and Partnership

  • Firms can raise cash from current partners as well as by bringing on new ones.
  • It might be monetary or non-monetary.
  • Non-monetary forms include intangible or intangible possessions, promissory notes for service contracts, and so on.
  • An LLP partnership firm must pay extra stamp duty to alter the partnership deed.
  • After entering into supplemental dead, an LLP must file an e-form with the MCA, and a partnership firm must file a form with the Registrar of Firms within 30 days to implement necessary adjustments.

Debt Funding

Through MOA and AOA, the director is given the authority to borrow. If the amount to be borrowed and the amount already borrowed exceeds the paid-up capital, free reserves, and security premium, a special resolution is required. There are two types of loans: secured and unsecured. There is a fixed interest rate that must be paid. Only banks, financial institutions, members, directors, or relatives can provide a loan to a Pvt. Ltd. company. Such deposits necessitate the filing of returns. In the event of a closure, priority in repayment is given.

Types of Debt Funding


It can only be issued by a corporation. Any debt instrument, such as a debenture stock, a bond, or a loan. With a special resolution, convertible debentures can be converted into shares. There are no voting privileges. Non-payment of interest has repercussions.

Bank Loan

For all business models, this is the most prevalent method of fundraising. Filing of a charge on assets forms with MCA, with or without security. Overdraft, credit facility, or bank guarantee are all options. Interest is charged at a certain rate. The deduction is allowed. 

Trade Credit

Credit purchase of products or raw materials. Working capital is a term used to describe the amount of money There is no requirement for collateral security. For startups, this is the best option.

Hire Purchase

Purchasing capital goods on a monthly basis. Unlike a straightforward payment plan. After the final payment, ownership passes from the vendor to the buyer. The buyer has the right to utilize it.


Selling a future receivable for a commission. The buyer is referred to as a factor. Payment will be received in the future. In the event of bad debts, there is no liability. Adaptable in the face of debt 

Final Words

Capital is just like that fuel without which a car cannot run. 

I hope, I gave you some insights about funding your business and startup and delivered it in the best possible way. 

If you have any queries related to the same then do leave a comment, and I will respond to it. 

DO SHARE THIS ARTICLE with your friends or family who are not aware of funding.  You can tweet out your thoughts by tagging me @rajatinr on Twitter.

To your Success

-Rajat Negi, Logging Out 🤗

IMG 1433 1 225x300 - Startup finance and funding

Rajat Negi

Compound Investor (Who loves to talk to stock)
Digital Marketer (Who loves to make brands)

Leave a Comment

Your email address will not be published.

Most Read