Investment Banking

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Ashish Anand
User ID: FE-00620
Marquee Fellowship Assignment
Due Date: February 28, 2023
Different Types of Capital that Startups Raise.
Introduction
The Indian startup ecosystem has come a long way with many tech startups going public and
many achieving unicorn status. As the business grows, startups need funds for operations,
expansion, marketing, production. Depending on which stage the business is in and its ability
to generate returns, startups take seed funding from angel investors, then move to venture
capitalists, and later launch an Initial Public Offer ( IPO ). There are three types of startup
funding: equity funding, debt funding and government grants.
Following are some common type of capital that startups raise:
Seed Capital
Seed capital is the initial funding a startup receives to get off the ground. This type of capital
typically comes from early-stage investors, including angel investors, venture capitalists, and
sometimes even friends and family members. Seed capital is used to fund the earliest stages
of a startup’s development, such as conducting market research, building a prototype, and
testing the business concept. Seed funding is crucial for startups as it helps them turn their
ideas into a tangible business. It allows entrepreneurs to focus on building a product or
service that can attract future investors, clients, or customers.
i. Pre Seed Funding : It occurs when founders are just starting to get their company off
the ground, and helps them prepare for the seed stage.
ii. Seed Funding : It is often the first official funding a founder acquires. It helps launch
a young startup and positions it for future growth.

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iii. Series A funding : This funding expands startups market or product base after a
successful launch.
iv. Series B Funding : It helps a successful startup to scale and meet consumer demand.
v. Series C Funding : It allows a startup to grow Horizontally.
vi. Series D+ Funding : This funding goes on until a startup is either acquired or goes
public.
Venture Capital
Venture capital (VC) is a type of private equity financing that is typically provided by
institutional investors, such as venture capital firms or corporate venture capitalists. Venture
capitalists invest in startups and early-stage companies that have a high potential for growth
and a promising business model.
VCs provide funding in exchange for equity in the company, often taking a seat on the board
of directors to help guide the company’s strategic decisions. They typically invest in startups
that have a clear path to profitability and can demonstrate a strong competitive advantage in
their industry.
Angel Investment
Angel investors are wealthy individuals who invest in startups in exchange for ownership
equity or convertible debt. Angels typically invest in companies at an earlier stage than VCs,
providing seed capital and early-stage funding.
Crowdfunding
Crowdfunding involves raising small amounts of money from a large number of individuals,
often through online platforms. It’s a popular option for startups to raise capital while
engaging with potential customers and building a community.
Debt financing
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Debt financing is a type of funding that allows a company to borrow money from lenders,
such as banks or other financial institutions, in exchange for the promise to repay the
borrowed amount with interest.
Unlike equity financing, where the company sells ownership shares in exchange for capital,
debt financing allows the company to retain full ownership and control. However, the
company must make regular interest payments and repay the borrowed principal on a set
schedule.
There are several types of debt financing, including:
i. Bank Loans: A traditional bank loan is a common type of debt financing for startups.
The loan can be secured or unsecured, and the interest rate and repayment terms are
usually based on the startup’s creditworthiness and collateral.
ii. Lines of Credit: A line of credit is a flexible form of debt financing that allows a
startup to borrow money as needed up to a predetermined limit. Interest is only
charged on the amount borrowed, and the repayment terms are flexible.
iii. Convertible Debt: Convertible debt is a type of debt that can be converted into equity
at a later date. This can be an attractive option for startups that are not yet ready for
equity financing but want to secure funding.
Initial Coin Offering ( ICO)
An ICO is a way for blockchain startups to raise capital by issuing their own cryptocurrency
or token in exchange for funding. ICOs have become a popular way for startups to raise large
amounts of capital quickly.

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Works Cited
“The 5 Types of Startup Funding.” Startups.com, www.startups.com/library/expert-advice/5-
types-startup-funding.
“8 Sources of Start-up Financing.” BDC.ca, 7 Feb. 2023, www.bdc.ca/en/articles-tools/start-
buy-business/start-business/start-up-financing-sources.
10 Types of Startup Capital. www.hubspot.com/startups/types-of-startup-capital.
Funding Guide. www.startupindia.gov.in/content/sih/en/funding.html.
Inc, Team. “12 Options for Startup Funding in India.” Inc42 Media, 15 Feb. 2022,
inc42.com/resources/12-options-for-startup-funding-in-india.

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Anand 1

User ID: FE-00620

Marquee Fellowship Assignment

Due Date: February 28, 2023

Different Types of Capital that Startups Raise.

funding: equity funding, debt funding and government grants.

Following are some common type of capital that startups raise:

of a startup’s development, such as conducting market research, building a prototype, and

ideas into a tangible business. It allows entrepreneurs to focus on building a product or

service that can attract future investors, clients, or customers.

a young startup and positions it for future growth.

v. Series C Funding : It allows a startup to grow Horizontally.

and a promising business model.

providing seed capital and early-stage funding.

engaging with potential customers and building a community.

borrowed amount with interest.

There are several types of debt financing, including:

usually based on the startup’s creditworthiness and collateral.

startup to borrow money as needed up to a predetermined limit. Interest is only

equity financing but want to secure funding.

Initial Coin Offering ( ICO)

amounts of capital quickly.

“The 5 Types of Startup Funding.” Startups.com, www.startups.com/library/expert-advice/5-

“8 Sources of Start-up Financing.” BDC.ca, 7 Feb. 2023, www.bdc.ca/en/articles-tools/start-

10 Types of Startup Capital. www.hubspot.com/startups/types-of-startup-capital.

Funding Guide. www.startupindia.gov.in/content/sih/en/funding.html.

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