When it comes to funding, nothing is more conventional than venture capital. In 2024 and early 2025, the venture capital scene in India saw an upward trend (43% YOY surge) after a significant drop in 2022-23 (source). As it is on the rise again, up and coming entrepreneurs and business owners need to understand the importance of venture capital for startups.
This blog is your guide to learn everything about VC firms, from their features to the process of VC funding. Read till the end to know how you can find venture capitalist firms to secure funds for your startup.
What is Venture Capital in India?
Venture capital funding is a type of private investment where VC firms connect promising startups with institutional investors who offer their capital in exchange for equity. They generally focus on high-growth companies with strong revenue potential.
But it is not just about the capital, VC firms also provide strategic guidance, industry expertise as well as networking opportunities. A partnership with a VC firm can help a startup scale rapidly while giving the investors significant returns on their investment.
Features of Venture Capital Funding
- VC investors primarily invest in small to medium-sized companies.
- Venture capital funding is a long-term, risky investment decision with high returns.
- Venture capital investment requires active participation from the investors and provides support, access to resources, and guidance to expand for growth.
- Venture capital firms hold equity shares and positions on the board of directors.
What are the Different Types of Venture Capital Available in India?
VC firms only invest in large-scale startups. Well, that is a misconception. Different types of venture capital firms invest in startups and companies at diverse growth stages. The three significant venture capital funding in India are:
1. Early-stage venture capital
Early-stage venture capital is offered to early-stage startups with growth potential. Early-stage startups focus on creating an MVP and entering the market as newbies. While these startups have done the initial research and validation, they might need funding to develop the product to its full capacity and market it. The early-stage VC funding is a high-risk, high-return type of
investment.
Startups with strong market traction, data-backed financial projections, and a scalable business model can look for early-stage VC funding. This funding is comparatively smaller than regular venture funding.
2. Expansion stage venture capital
Expansion stage funding is the classic type of venture capital in India. This stage is when startups have established themselves in a particular market and want to expand by developing a new product or entering a new market. Here, the investors provide resources and guidance to help the startups expand to get better returns.
3. Bridge financing
Bridge financing is a purely financial investment made just for the returns. Startups and companies raise bridge funds when planning to go public through IPOs. Venture financing helps them cover the cost of going public.
The Venture Capital Process
We have talked about what venture capital is and what types there are. Now, let’s delve into how venture capital firms invest.
1. Find a promising startup
Venture capitalist companies are always looking for promising startups. They can find a startup through their network, pitching events and social media, or, more often, startups and companies reach out to them.
2. Analysis of startup progress
The firm conducts an initial screening to shortlist a few startups and companies. They focus on startups with innovative products/services and growth potential. Strong traction and references can help startups increase their chances of getting shortlisted.
3. Due diligence of a startup
The most promising startups are shortlisted for possible investment which then undergo due diligence to check their legal compliance, market value, market demand, growth potential, business model scalability, team skills, and financial projections.
4. Negotiation term sheet
The next step of the venture capital process is to negotiate the term sheet provided by the investors. The VC term sheet outlines the investment details, such as funding, startup valuation, equity dilution, contractual rights, etc. The startup and investors can negotiate the funding deal and finalize the investment.
5. Monitoring performance
Once the funds have been disbursed, the firm tracks the progress of the startup or company to ensure that its funds are optimally utilized and operations are running smoothly. The VC members on the board may intervene when they see anything that might affect their reputation and result in loss.
6. Supporting the startup
Venture capital firms offer guidance and access to resources to support startups and companies in boosting their performance and revenue.
How to Find Venture Capital in India?
Networking is a crucial piece in the venture capital game, even when finding venture capital for startups. Networking events are essential to presenting your startup in the market and building strategic relationships to find reliable VCs.
For example, at 21BY72 startup summit, startups and companies can exhibit their startups or participate in the pitching event to gain exposure and attract investors. Investors can find promising startups and connect with fellow investors to find promising startups for investment. We have successfully hosted 4 seasons of our startup summit; check our website and instagram account to know more!
Conclusion
Venture capital in India plays a vital role in supporting and boosting startup growth. Venture funding is when startups and companies receive funding for expansion and growth in return for equity. The VC firm provides funds, guidance, and access to resources to help startups grow. Three types of VC funding include early-stage, expansion, and bridge financing. The VC decides to fund startups with promising traction and the ones that pass due diligence. After negotiation, you can secure funds and get support to grow your business or startup. Networking events, like our startup summit, help startups and investors connect, share insightful information, and find investment opportunities.
FAQs
1. What is the process of securing VC funding for a startup?
To secure venture capital funding, you need to create an engaging pitch and pitch deck. Send the proposal to the funding institute or attend events where you can showcase your startups. Deliver an engaging pitch highlighting your innovation, traction, market research, scalable business model, and revenue projects. Negotiate the offer, answer the investors’ queries, and secure the funds.
2. What are the advantages of venture capital for startups?
A few benefits of VC funding are large-scale investment for smooth operation flow, getting strategic guidance and mentorship, and tapping into the investor’s network to build your startup.
3. What are the disadvantages of venture capital for startups?
Some disadvantages of VC financing are equity dilution, less control in decision-making, and the immense pressure to perform and secure profits in revenue.
4. What are the emerging trends for VC in India?
Tech startups like AI, AR/VR, health tech, fintech, agric tech, cleantech, and Greentech are securing significant VCs from local and global investors. SaaS startups are performing well in the market.
