Raising funds is one of the most critical milestones for a startup founder. Whether you’re just starting or scaling your business, understanding the various funding stages, requirements, and key investment terms is essential. This guide simplifies the funding process for Indian startup founders, helping them navigate the investment landscape effectively.

Stages of Startup Funding

1. Pre-Seed Stage

• Purpose: Idea validation, initial prototype, market research.
• Source of Funds: Personal savings, friends & family, angel investors, incubators.
• Typical Investment: ₹8 lakh – ₹1.5 crore.
• Investor Expectations:
  • Strong founding team.
  • Proof of concept or early prototype.
  • Market potential assessment.

2. Seed Stage

• Purpose: Product development, early customer acquisition, business model testing.
• Source of Funds: Angel investors, seed funds, accelerators.
• Typical Investment: ₹1.5 crore – ₹15 crore.
• Investor Expectations:
  • Minimum Viable Product (MVP).
  • Early traction (users, revenue, partnerships).
  • Market demand validation.

3. Series A

• Purpose: Scaling the business, hiring key talent, expanding customer base.
• Source of Funds: Venture Capital (VC) firms, and institutional investors.
• Typical Investment: ₹15 crore – ₹120 crore.
• Investor Expectations:
  • ₹4 crore – ₹25 crore in annual revenue (ARR).
  • Strong user growth and engagement.
  • Scalable and sustainable business model.

4. Series B

• Purpose: Market expansion, optimizing operations, product diversification.
• Source of Funds: Growth-stage VCs, strategic investors.
• Typical Investment: ₹120 crore – ₹400 crore.
• Investor Expectations:
  • Significant revenue growth.
  • A clear path to profitability.
  • Competitive advantage in the market.

5. Series C & Beyond

• Purpose: Market dominance, global expansion, acquisitions.
• Source of Funds: Late-stage VCs, Private Equity (PE) firms, and corporate investors.
• Typical Investment: ₹400 crore+.
• Investor Expectations:
  • Market leadership and industry influence.
  • Strong financial metrics.
  • IPO or acquisition potential.

6. IPO (Initial Public Offering)

• Purpose: Raise large-scale capital, and provide liquidity to early investors.
• Source of Funds: Public investors (Stock Market).
• Investment Size: ₹800 crore+.
• Investor Expectations:
  • High credibility and compliance.
  • Sustainable profitability.
  • Brand recognition and market confidence.

Key Requirements for Raising Funds

• Pitch Deck: A compelling business presentation for investors.
• Traction Metrics: Revenue, user growth, CAC (Customer Acquisition Cost), etc.
• Valuation & Cap Table: Clear understanding of company valuation and shareholding structure.
• Legal & Compliance: Proper registration, contracts, and financial audits.
• Exit Strategy: Defined plan for IPO, acquisition, or secondary sale

Understanding the Term Sheet

A Term Sheet is a non-binding agreement that outlines the key investment terms before drafting the final legal contracts. It serves as a blueprint for the funding deal.

Key Components of a Term Sheet

1. Investment Amount – The capital investors will provide.
2. Equity Stake – Percentage of ownership investors receive.
3. Pre-Money & Post-Money Valuation – Company valuation before and after investment.
4. Liquidation Preference – Determines payout order in case of exit or liquidation.
5. Board Composition – Defines investor role in decision-making.
6. Anti-Dilution Clause – Protects investors from valuation drops in future funding rounds.
7. Vesting Schedule – Ensures founders stay committed for a defined period.
8. Exit Clauses – Conditions for IPO, acquisition, or investor exit strategy.

Final Thoughts

For any startup founder in India, understanding the funding process and investor expectations is crucial. From validating your idea at the pre-seed stage to preparing for an IPO, each funding round comes with unique challenges and opportunities. Having a solid business model, a clear growth strategy and a well-negotiated term sheet can set your startup on the path to success.

If you’re planning to raise funds, start by refining your pitch, ensuring strong financial metrics, and seeking the right investors who align with your vision.

If you are a startup founder and need support in raising funds for any stage of investment like Angel Round, Pre-Seed, Seed, and even Series A, we are happy to help – reach out to Aashish.singh@indianstartuptimes.com.