Startup funding: the basic questions

The answers

What is startup funding?

Startup funding is money a young company raises to grow, usually from investors who get shares in return. It can also come from loans, grants or the founders themselves. The money pays for people, product and marketing until the business earns enough.

What are the stages of startup funding?

Common stages are pre-seed, seed, Series A, Series B and later rounds, followed by an IPO or sale. Each round usually comes when the company reaches a new milestone. The names are guides and not strict rules.

What is the difference between equity and debt funding?

In equity funding, investors get shares and share in the risk and reward. In debt funding, you borrow money and must pay it back with interest. Startups often prefer equity because they do not have to repay it if the business fails. Venture debt is a type of loan used by some startups.

How much equity should I give up to investors?

There is no fixed amount. Early rounds often give up roughly 10 to 25 per cent, but it depends on the valuation and the cheque. Think about how much dilution you can accept over several rounds, since you will want to keep meaningful ownership.

What is dilution?

Dilution is the fall in your ownership percentage when new shares are issued. If you own 100 per cent of a company and sell 20 per cent to investors, you own 80 per cent. Your stake is smaller, but the company is worth more if the funding helps it grow.

What is a valuation?

A valuation is the price put on the company. If an investor puts ₹2 crore in at a ₹10 crore post-money valuation, they own 20 per cent. Early valuations are based on judgement about the team and potential, since there is little data.

What is bootstrapping?

Bootstrapping means building a business using your own savings and revenue instead of outside investors. It keeps you in control but can limit speed. Some businesses suit it, and others need outside capital to compete.

Who gives money to startups?

Sources include founders, friends and family, angel investors, venture capital funds, accelerators, banks and government schemes. Larger companies and foreign funds also invest. Each source suits a different stage.

What do investors want in return?

Investors want shares that rise in value, so they can sell them later for a profit. They may also ask for rights, such as information, a board seat or protection if the company is sold cheaply. These rights are in the term sheet.

Do I need to repay investors if the startup fails?

Generally no. Equity investors share the risk and lose their money if the company fails. Loans are different, since a lender expects repayment, and personal guarantees can make founders liable. Read loan terms carefully.

What is a pitch deck?

A pitch deck is a short slide presentation that explains your business to investors. It covers the problem, solution, market, traction, team and the money you want to raise. Keep it clear and short.

What is a cap table?

A cap table lists who owns what in a company, including founders, investors and employee share options. It is updated at every round. Investors review it closely, so keep it accurate.

Is startup funding taxable in India?

Money raised by a company for shares is not income, but rules on share issue pricing and tax filings apply. The old angel tax has been removed from April 2025. Tax rules change, so check with a chartered accountant.

Do I need to register the company before raising money?

Yes, in practice. Investors usually invest in a registered company, often a private limited company. Registration also helps with banking and contracts. Get the incorporation and founder agreements right before you raise.

How do I raise money for a startup with no revenue?

Early investors back the team and idea, so show progress such as a prototype, user interest or pilots. Angels, accelerators and seed funds are the usual first sources. Some founders also use grants or small loans.