Startup Decoded
Everything about startups in India, explained simply: how they raise money, who funds them, how they make money, the rules, the sectors and the words in between.
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Startup basics
What a startup is and how India's startup world works
- What is a startup? The Indian definition and the real one A startup is a young company built to find a new way of doing something and to grow fast, usually by serving many customers at low extra cost. India's government also has a narrower legal definition that decides who gets scheme benefits.
- How India's startup ecosystem works India's startup ecosystem is the web of founders, investors, mentors, government bodies, big companies and workers that helps new companies get built, funded and sold. Each group needs the others.
- A short history of Indian startups, from Infosys to AI Indian startups grew in waves: software services in the 1980s and 1990s, internet companies in the 2000s, e-commerce and apps in the 2010s, and now AI, climate and deep technology.
- Unicorns, soonicorns and decacorns: what the labels mean A unicorn is a privately held startup whose investors value it at $1 billion (about ₹8,000 to ₹9,000 crore at recent exchange rates) or more. A soonicorn is one expected to get there soon, and a decacorn is valued at $10 billion or more.
- How to start a startup in India, step by step To start a startup in India, test an idea with real customers, pick a co-founder and a legal structure, register the company, open a bank account, and then take the optional steps such as DPIIT recognition and trademarks.
- Private limited, LLP or OPC: which structure suits a startup Most Indian startups that want investor money choose a private limited company, because it can issue shares and ESOPs. An LLP or OPC can suit small or solo businesses that do not plan to raise venture funding.
- Co-founders and how to split equity Split equity by what each founder will contribute from now on, not by who had the idea, and attach vesting so that anyone who leaves early does not keep a large share for doing little.
- MVP and product-market fit, explained An MVP is the simplest version of a product that real customers can use. Product-market fit is the point where a good number of those customers keep using it, pay for it and tell others, so the product pulls the market in.
- Bootstrapping vs raising money Bootstrapping means growing a startup from your own savings and customer revenue, while raising means selling shares to investors. Bootstrapping keeps control but grows slower; raising buys speed in exchange for ownership and pressure.
- India's startup hubs: Bengaluru, Delhi NCR, Mumbai and beyond Bengaluru, Delhi NCR and Mumbai are India's biggest startup hubs, with Hyderabad, Chennai, Pune and several other cities growing fast. Each is known for different strengths, from software talent to finance.
- Startups beyond the metros: the tier-2 and tier-3 story A growing share of Indian startups now come from tier-2 and tier-3 cities and towns, helped by cheap data, lower costs and local problems that big-city founders do not see. Raising money and hiring senior talent remain the main hurdles.
Raising money
Every round, every term sheet word, in plain English
- Startup funding stages explained, from pre-seed to IPO Startups raise money in steps called funding stages: pre-seed, seed, Series A, B, C and later, ending in a stock-market listing or a sale. Each step is larger than the last and asks for more proof.
- Pre-seed vs seed funding: what is the difference? Pre-seed and seed are the first money a startup raises from outside investors. The difference is mostly how much has been built when the cheque arrives: pre-seed backs an idea, seed backs an early product.
- What is a pre-Series A round? A pre-Series A round is money raised after a seed round and before a full Series A, to help a startup show the growth that a Series A investor will want to see.
- What is Series A funding? A guide for Indian startups Series A is usually the first large round a startup raises from venture capital funds, after it has shown that people want what it sells.
- Series B, C, D and beyond: growth rounds explained Series B, C, D and later rounds are growth rounds: large cheques that help a startup with a proven model expand faster, enter new markets or move toward profit and a listing.
- Bridge rounds and extensions A bridge round is a smaller raise that gives a startup enough cash to reach its next major round. An extension is more money added to a round that has already closed.
- How startup valuation works A startup's valuation is the price investors agree the whole company is worth. For young companies it is set by negotiation and comparison, not by a formula.
- Pre-money vs post-money valuation Pre-money valuation is what a company is worth before new money comes in. Post-money valuation is that figure plus the new investment.
- Dilution: why founders own less after every round Dilution is the drop in your percentage ownership when a company issues new shares. Founders own a smaller slice after every round, but the slice is meant to be of a bigger and more valuable company.
- What is a cap table? A cap table, short for capitalisation table, is a record of who owns shares in a company, how many, of what type, and what percentage each holder has.
- The term sheet, clause by clause A term sheet is a short document that lists the main terms of an investment before the final legal agreements are written. Most of it is not legally binding, but it sets the deal.
- Liquidation preference, explained with numbers A liquidation preference is a term in an investment deal that lets investors take their money back before other shareholders when the company is sold or closed. It matters most when the sale price is low.
- Anti-dilution protection: full ratchet vs weighted average Anti-dilution protection is a clause that gives an investor extra shares, or a better conversion price, if the company later sells shares at a lower price. The two main types are full ratchet and weighted average.
- Pro-rata rights and follow-on investing A pro-rata right lets an existing investor buy enough shares in a later round to keep the same percentage ownership. It is how early backers keep investing in the companies that are working.
- Board seats, voting rights and who controls a startup Control of a startup rests on three things: how many board seats each side holds, how shares vote, and a list of decisions that need an investor's approval. Owning less than half the shares does not always mean losing control.
- Convertible notes in India A convertible note is a short-term loan that a startup does not repay in cash. It converts into shares when the company raises its next priced round, usually at a discount to that round's price.
- SAFE and iSAFE notes explained A SAFE, short for Simple Agreement for Future Equity, is a contract in which an investor pays money now and receives shares later, at the next priced round. It is not a loan and has no interest or repayment date.
- CCPS and CCDs: the instruments behind most Indian rounds CCPS (compulsorily convertible preference shares) and CCDs (compulsorily convertible debentures) are instruments that must turn into ordinary shares at a set time or event. Most venture rounds in India use them instead of plain equity.
- What is a down round? A down round is a funding round in which a startup is valued below its previous round. It lowers the price per share, and it usually costs founders, employees and earlier investors some ownership or value.
- What is venture debt? How Indian startups borrow Venture debt is a loan made to a startup that already has venture capital backing, usually alongside or between equity rounds. It lets founders raise money without selling as many shares.
- Revenue-based financing Revenue-based financing is money a startup receives upfront and repays as a fixed percentage of its monthly revenue, until it has paid back a set total. No shares are sold and no valuation is needed.
- How to pitch investors: the deck and the meeting A good pitch tells one clear story: a real problem, a product that solves it, proof that people want it, and a plan for how the investor's money turns into growth. The deck opens the door and the meeting decides the next step.
- What happens in due diligence Due diligence is the investigation an investor carries out on a startup after agreeing a term sheet and before sending money. It checks that what the founders said is true and finds risks that change the price or the terms.
Investors
Who funds Indian startups and how they decide
- Types of startup investors in India Startups in India raise money from about eight kinds of investors: angels, angel networks, venture capital funds, family offices, corporate investors, private equity and growth funds, accelerators, and government-backed funds. They differ in cheque size, stage and what they want in return.
- How a venture capital fund works: LPs, GPs, fees and carry A venture capital fund is a pool of money from outside investors, run by a team that invests it in startups for about ten years. The team earns a yearly management fee plus a share of the profit, called carry.
- SEBI AIF categories: how Indian funds are registered In India, venture capital, private equity and similar funds register with SEBI as Alternative Investment Funds (AIFs), in one of three categories. Category I covers funds with social or economic benefits such as startups, Category II covers most private equity and debt funds, and Category III covers funds that use complex trading strategies.
- Angel investors in India: who they are and how they invest An angel investor is a wealthy individual who puts their own money into a very young company, usually before it has steady revenue, in return for shares. In India, angels are often founders, executives or professionals who have built wealth and want to back the next generation.
- Angel networks and syndicates in India An angel network is a group of individual investors who find, screen and fund startups together. A syndicate is a smaller version: one lead angel brings a deal and others follow, usually through a single investment vehicle.
- Family offices: the quiet money behind Indian startups A family office is a private company that manages the wealth of one wealthy family, or a few families together. In startups, family offices invest directly in companies and also back venture funds as limited partners.
- Corporate venture capital: when big companies invest Corporate venture capital (CVC) is when an established company invests in startups, either through a separate venture arm or straight from its own balance sheet. The company wants a financial return, and usually also something strategic such as new technology, customers or talent.
- Private equity vs venture capital Venture capital backs young companies that could grow very fast, taking small stakes and accepting that many will fail. Private equity backs more mature companies, often buying large or controlling stakes, and aims for steadier gains.
- Accelerators and incubators in India An accelerator is a short, intense programme that gives a startup a small investment, mentors and a network in exchange for equity. An incubator offers space, mentoring and services over a longer period, often at a university, and may or may not invest.
- How VCs pick startups Venture capitalists pick startups by judging the team first, then the size of the market, the strength of the product, early proof that customers want it, and whether the price makes sense. Most startups they meet get a no, and the reasons are usually simple.
- Fund vintage, dry powder and why VC money comes in waves A fund's vintage is the year it started investing, and dry powder is money that investors have promised but the fund has not yet used. Together they explain why venture funding swings between busy and quiet years.
- Government funding for startups: Fund of Funds, Seed Fund and more The Indian government supports startups mainly in three ways: by putting money into venture funds through the Fund of Funds for Startups, by giving seed grants and loans through incubators, and by offering credit guarantees and state-level schemes. Most of it is routed through other bodies rather than paid straight to founders.
IPOs and exits
How startups list, sell or buy back shares
- What is a DRHP? The first step to an IPO in India A DRHP, or draft red herring prospectus, is the document a company files with SEBI, India's markets regulator, when it plans to list its shares through an IPO.