April 30, 2011

Fund-raising options other than VC

Economic Times has an article on some of the lesser known funding options available for start-up ventures.
Govt grants and loans
The Small Industries Development Bank of India (SIDBI) has also formed the SIDBI Foundation for Risk Capital to develop and provide appropriate risk capital products for Micro, Small and Medium Enterprises (MSMEs) in different industry segments. Some of the products introduced are equity and equity-like instruments and mezzanine instruments like optionallyconvertible debt and subordinate debt for MSMEs.

With a corpus size of 2,000 crore, the fund will invest a minimum of 25 lakh and a maximum of 10 crore in the form of term loans or assistance. “Our products are easy to work around with. Risk capital has both the characteristic of equity and debt. It’s a very flexible product,” says SIDBI general manager R Dharmaji.

...Credit Guarantee Scheme
It is to bypass the issue of collateral that the government has come up with the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Set up by the government of India and SIDBI, this fund gives a guarantee to banks that the fund will make good, up to 85%, the loss incurred by the bank on account of nonrepayment. Loans of up to 1 crore are given under this scheme to SMEs and are collateral-free.

In an accompanying article, Kanwaljit Singh, MD of Helion Ventures, recommends an angel investor round before approaching venture capital firms.
A new class of investors has started emerging — high network individuals, very aptly called Angels; and seed funds who will back you as a start-up if they see the potential. Every city has some of these and it's worth reaching out to them. You could also link up with a lot of wealth managers who manage HNI money as they are also looking to pool their client money and invest behind interesting businesses.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. Click Here to learn about Venture Intelligence products that help entrepreneurs reach out effectively to the investing community.