A DESCRIPTIVE RESEARCH ON START-UP FUNDINGS AND INVESTORS RIGHTS

Author- Jyotika Sharma

Mentor- CS Sapna Sarda



ABSTRACT

As there is a growing demand for entrepreneurship in India, we have seen tremendous growth in start-up enterprises in recent years. It is critical to determine the funding sources, how the company will fund its operations, how it will run, and its stakeholders. Funding can be gained through personal sources or via the assistance of others. There are far more financial options available to businesses nowadays than there were previously. The principal purpose of this paper is to give alternative funding options and investor's rights. Investors are the entrepreneur's backbone and play a critical role in a venture. Investors must be protected and aware of their rights. This paper discusses the funding sources available to start-ups at various stages and a brief explanation of the government's schemes that support start-ups. This paper examines investor rights and the various initiatives taken by SEBI to protect investors' rights and provide a grievance redressal mechanism at stock exchanges and the role of the SEBI Complaints redress system.


INTRODUCTION:

Startup India is a government of India flagship scheme designed to create a robust ecosystem for innovation in growth and entrepreneurship in India. This will make sustainable growth sustained and create wide-ranging employment. The government aims to encourage start-ups to expand through creativity and design via this initiative. The Government of India announced an Action Plan addressing all facets of the start-up mechanism to fulfill the proposal's purpose. The Government's Action Plan aims at speeding the spread of the digital technology trend across a wide variety of industries, including healthcare, education, and others.


Prime Minister Narendra Modi initiated the campaign for the first time in his Red Fort address of 15 August 2015. The fundamental goal of this campaign is to support bank funding for start-up firms to boost entrepreneurship and encourage the development of jobs. In addition, it was aimed at restricting states' position in the political arena and eliminating "license raj" and obstacles, such as property allowances, environmental clearances for a foreign investment proposal. The Department of Industrial Policy and Promotion has organized it.


FINANCE FOR START-UP IN INDIA

Blood is the primary source of survival for the human body; similarly, finance is the lifeblood of every business or company. Therefore, the Government of India established , or Micro, Small, and Medium Enterprises, in compliance with the MicrMSMEo, Small, and Medium Enterprises Development (MSMED) Act of 2006. These businesses are primarily involved in producing, manufacturing, processing, or preserving goods and commodities. Therefore, it is crucial to help MSMEs in establishing and expanding their operations and developing new products.


India has a well-developed financial sector that includes banking, non-banking financial institutions, and venture capital firms. Many of these institutions provide for the various financial needs of both start-ups and established companies.MSMEs are essential for the growth of the Indian economy. They make a significant contribution to our socio-economic growth, creating employment opportunities and contributing to the development of the nation's backwardness.


Banks and financial institutions are adopting various schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises, Credit Linked Capital Subsidy Scheme, Credit Guarantee Scheme, MUDRA Yojana under PMMY, and many more. These schemes are adopted to meet the financial needs of micro, small, and medium-sized enterprises. A business enterprise requires funding at nearly every point of its life cycle. MSMEs often struggle to secure sufficient financing for their activities, as well as for expansion and development. These businesses can raise funds in different ways. Some of the methods for raising long-term and short-term capital are listed below.


SOURCES OF FUNDING

1.Bootstrapping its start-up business:

Self-funding, also known as bootstrapping, is an efficient method of start-up finance, especially when the start-ups are just getting commenced. They can invest from their investments or can also contribute to their family and friends. This would be simple to lift due to fewer formalities, compliances, and low raising costs. In most cases, family and friends are willing to work with a reasonable interest rate.


2.Crowd-funding

Crowd-funding is a relatively modern method of funding a start-up that has achieved popularity recently. It is the same as taking a loan, pre-order, contribution, or investment from several people at the same time. Crowd-funding works in this method: An entrepreneur will create a detailed description of his business and post it on a crowd-funding platform like Kickstarter, Wishberry, Indiegogo.

He will discuss the goals of his company, plans for profit, how much financing he requires and why, and so on, and then consumers will learn about the business and donate money if they like the idea. He will discuss his company's goals, plans for profit, how much financing he requires and why, and so on, and then consumers will learn about the business and donate money if they like the idea. Many of those who contribute money will make online pledges to pre-purchase the product or make a donation.


3.Angel Investment in Startup:

Angel investors are surplus money individuals who are keen to participate in future start-ups. They also collaborate in network communities to examine the plans together before they invest. They can also provide mentoring or guidance with capital. Many leading firms, including Google, Yahoo, and Alibaba, were helped by Angel investors. Generally, this alternate type of investment exists in the early stages of the growth of a business, where investors expect up to 30% equities. Investment risks are more preferred for higher returns.


4.Venture Capital

In this form of investment, significant bets are placed. Venture capital funds are actively run funds investment in high-potential companies. They usually invest in a company in exchange for equity and leave when there is an initial public offering or an acquisition. Venture capital offers experience, mentorship, and serving as a litmus test on where the organization is heading, evaluating the company based on its sustainability and scalability.

A venture capital fund could be suitable for small companies that have progressed beyond the start-up stage and are now generating revenue. Fast-growing businesses with an exit plan in place, such as Flipkart or Uber with an exit strategy already in place, may gain up to tens of millions of dollars, which they can utilize to invest, network, and rapidly grow their company. However, there are certain limitations of using Venture Capitalists as a financing source. In terms of company loyalty, Venture capitalists also seek to regain their investment over three or five years. If the idea takes longer than that to reach the market, venture capitalists will be less involved. They generally pursue bigger, m