Fundraising

Priya needs money

It's a Wednesday evening in Haldwani. Priya is sitting in Pushpa didi's chai shop, staring at a spreadsheet on her laptop. The numbers don't lie. Her agri-tech app — PahadiDirect — has been running for eight months. She has 340 farmers onboarded across three districts, 1,200 active buyers, and a monthly GMV of ₹12 lakh. The product works. Farmers are getting better prices. Buyers are getting fresher produce.

But she's running out of money.

The ₹8 lakh she saved from her Bangalore job is almost gone. She's been paying her two developers from her own pocket. The server costs keep climbing. She needs a proper team — a designer, a field operations person, someone to handle logistics. She needs to build version 2 of the app with payment integration and a better recommendation engine.

She's done the math. She needs ₹75 lakh to survive the next 18 months and build what she needs to build.

"Pushpa didi," she says, "I need to raise money. Real money. From investors."

Pushpa didi puts down a fresh cup of chai. "Beta, I don't understand all this investor-shvestor. But I know one thing. When I needed money to renovate this shop, I went to the bank, and they made me run around for three months. People with money make you dance. Be careful."

Priya smiles. She knows Pushpa didi is right — but also that there's no other way.

This chapter is about raising external capital for a startup. It's specifically for founders like Priya who are building technology businesses that need money to grow faster than revenue alone can support.

Important note: Most businesses in this book — Pushpa didi's chai shop, Bhandari uncle's hardware store, Neema and Jyoti's homestay — don't need venture capital. They need bank loans, government schemes, or reinvested profits. We covered that in Part 2. This chapter is about equity fundraising for startups.

If you're building a small business, you can skip this chapter. But read it anyway — it'll help you understand the game your tech-founder friends are playing.

When to raise money (and when NOT to)

Raising money is not a milestone. It's not a badge of honour. Every rupee you raise from an investor is a rupee you owe them in future returns. It comes with strings — expectations, timelines, board seats, pressure to grow.

Raise money when:

• You've built something that works (even at small scale)
• You have evidence that customers want it (traction, revenue, engagement)
• You need capital to grow faster than your revenue allows
• The market opportunity is time-sensitive — if you don't move fast, someone else will
• You've identified specific things to spend the money on (hiring, tech, expansion)

Do NOT raise money when:

• You just have an idea and a pitch deck — no product, no customers
• You want "validation" — investors are not validators, customers are
• You can grow profitably on your own (bootstrapping is a superpower)
• You're raising because everyone else in your batch is raising
• You don't know what you'll do with the money

Priya waited eight months before even thinking about fundraising. She had a working product, real farmers, real buyers, and real revenue. That's why investors would eventually listen to her. If she had tried to raise money with just an idea? Different story entirely.

The right order is: Build something → Get people to use it → Prove it works → Then raise money to do more of it.

Not: Get money → Then figure out what to build.

Types of funding rounds

Startup fundraising happens in stages. Each stage has a name, a typical amount, and a purpose.

Pre-seed

Amount: ₹10 lakh to ₹50 lakh From: Friends, family, angel investors, your own savings Purpose: Build the first version of the product (MVP), get initial users

This is the "I have an idea and a prototype, I need money to build it properly and see if it works" stage. Many founders fund this stage themselves — that's called bootstrapping.

Priya's ₹8 lakh from savings was her pre-seed funding. She just didn't call it that.

Seed

Amount: ₹50 lakh to ₹5 crore From: Angel investors, seed-stage VC funds, accelerators Purpose: Prove product-market fit, hire a small team, grow users/revenue

This is Priya's current stage. She has a working product and needs money to make it better and bigger.

Series A

Amount: ₹5 crore to ₹50 crore From: Venture capital firms Purpose: Scale what's already working — expand to new markets, build a larger team, invest in technology

By Series A, you need to show clear product-market fit, strong growth metrics, and a path to a large business.

Series B, C, and beyond

Amount: ₹50 crore to hundreds of crores From: Larger VC firms, growth-stage investors, sometimes private equity Purpose: Aggressive scaling, market domination, international expansion, path to IPO or acquisition

Each round involves selling a percentage of your company (equity) to investors in exchange for capital. The further you go, the more your company must be worth to justify the investment.

Pre-seed → Seed → Series A → Series B → Series C → ... → IPO or Exit

Not every startup needs to go through all these stages. Many successful companies raise only a seed round and then become profitable.

Angel investors

Angel investors are wealthy individuals who invest their personal money in early-stage startups. They typically invest ₹5 lakh to ₹50 lakh.

Who are they?

• Successful entrepreneurs who sold their companies
• Senior corporate executives with savings to invest
• Professionals (doctors, lawyers, CAs) with high income
• NRIs looking to invest in Indian startups

Why do they invest?

• Financial returns (they hope your company becomes very valuable)
• Excitement of being part of something new
• Giving back to the ecosystem
• Access to new industries and ideas

Where to find them in India:

• Indian Angel Network (IAN) — India's oldest and largest angel network
• LetsVenture — online platform connecting startups with angels
• Mumbai Angels — active network of investors in Mumbai
• Hyderabad Angels, Calcutta Angels, Chennai Angels — regional networks
• AngelList India — global platform with Indian investors
• Local networks — every major city has informal angel groups

How angels are different from VCs:

• They invest their own money (VCs invest other people's money)
• They make faster decisions (no investment committee)
• They invest smaller amounts
• They're often more patient about returns
• They sometimes offer mentorship and connections beyond money

Priya's first investor was an angel — a retired IAS officer from Dehradun who had built a small farm in Ranikhet and understood the farmer's problem firsthand. He invested ₹15 lakh. Not because the spreadsheet convinced him, but because the problem was real to him. That's how angel investing often works — it's personal.

Venture Capital: how VCs think

Venture Capital (VC) firms are professional investment companies that raise money from large institutions (pension funds, endowments, wealthy families) and invest it in startups.

How a VC fund works:

A VC firm raises a "fund" — say ₹500 crore — from investors called Limited Partners (LPs). The VC firm (the General Partners, or GPs) then invests this money into 20-30 startups over 3-4 years. They charge a management fee (typically 2% per year) and take a share of profits (typically 20%, called "carry").

Why does this matter to you?

Because it shapes how VCs behave. They need to return 3-5x the fund to their LPs. If a fund is ₹500 crore, they need to generate ₹1,500-2,500 crore in returns across their portfolio. Since most startups fail, the ones that succeed need to succeed big to cover the losses.

What VCs look for:

1. Large market — the opportunity must be worth thousands of crores
2. Strong team — founders who can execute, adapt, and lead
3. Product-market fit — evidence that people want what you're building
4. Growth rate — month-over-month or quarter-over-quarter growth
5. Defensibility — what stops someone from copying you?
6. Unit economics — each sale should eventually be profitable
7. Scalability — can this become a ₹100 crore or ₹1,000 crore business?

VCs pass on more than 99% of startups they see. A typical VC sees 1,000+ pitches a year and invests in 5-8. Don't take rejection personally.

Think of it this way: A VC is like a farmer who plants 25 apple trees. They know most won't bear great fruit. They're looking for the one or two trees that will produce an extraordinary harvest — enough to make the entire orchard worth it. That's why they only plant trees they believe could be extraordinary.

The fundraising process

Fundraising follows a fairly predictable process. Here's how it typically works:

Step 1: Preparation (2-4 weeks)

Before you talk to any investor, you need:

• A pitch deck (10-12 slides — we'll cover this in the next chapter)
• A financial model (revenue projections, costs, burn rate, runway)
• Key metrics ready (users, revenue, growth rate, retention)
• Your "ask" clearly defined (how much, at what valuation, what you'll do with it)
• A data room (a shared folder with detailed documents for due diligence)

Step 2: Building a list (1-2 weeks)

Research investors who invest in your stage and sector. Don't email 200 random VCs. Find 30-40 investors who:

• Invest at your stage (seed, Series A, etc.)
• Invest in your sector (agri-tech, fintech, SaaS, etc.)
• Invest the amount you need
• Have a track record of being helpful to founders

Step 3: Getting introductions

Cold emails to investors have a very low success rate. The best way in is through a warm introduction — from a founder they've backed, a mutual connection, or someone in the ecosystem they trust.

This is where your network matters. Attend startup events. Be active in founder communities. Build relationships before you need them.

Step 4: First meeting (30-60 minutes)

The investor wants to understand: What's the problem? What's your solution? Why is the market big? Why is this team the one to win? What's the traction?

This is your pitch. Make it compelling.

Step 5: Follow-up meetings (2-4 meetings)

If they're interested, there will be deeper dives — product demos, team meetings, customer references, market analysis. The investor is evaluating whether this is one of the 5-8 bets they'll make this year.

Step 6: Due diligence (2-4 weeks)

The investor's team examines everything — your financials, your cap table, your legal structure, your tech stack, your contracts, your team background. They'll talk to your customers, partners, and sometimes your competitors.

Step 7: Term sheet

If they want to invest, they issue a term sheet — a document outlining the key terms of the investment. This is the offer. You can negotiate.

Step 8: Legal documentation (2-4 weeks)

Lawyers on both sides draft the investment agreement. This includes the Shareholders Agreement (SHA), Share Subscription Agreement (SSA), and other documents.

Step 9: Money in the bank

The investment is "closed." Money hits your company's bank account. Now the real work begins.

Total timeline: 3-6 months. Sometimes longer. Fundraising is a full-time job.

Term sheets: the key terms

When an investor gives you a term sheet, these are the terms that matter most:

Valuation

• Pre-money valuation: what your company is worth before the investment
• Post-money valuation: pre-money + the investment amount

Example: If your pre-money valuation is ₹3 crore and an investor puts in ₹75 lakh, the post-money valuation is ₹3.75 crore. The investor owns ₹75 lakh / ₹3.75 crore = 20%.

Liquidation preference

This determines who gets paid first when the company is sold. A "1x liquidation preference" means the investor gets their money back before anyone else gets anything.

If an investor put in ₹75 lakh and the company sells for ₹50 lakh, the investor gets all ₹50 lakh. The founders get nothing.

If the company sells for ₹5 crore, the investor gets their ₹75 lakh first, then the remaining ₹4.25 crore is split according to ownership percentages.

Board seats

Investors often want a seat on your board of directors. The board makes major decisions — approving budgets, hiring senior executives, deciding on funding rounds, approving exits.

A typical early-stage board: 2 founder seats, 1 investor seat, and maybe 1 independent director.

Anti-dilution protection

If your company raises money at a lower valuation in the future (a "down round"), anti-dilution clauses protect the investor by giving them more shares to compensate.

Vesting

Your own shares might have a vesting schedule — typically 4 years with a 1-year cliff. This means if you leave the company after one year, you keep 25% of your shares. The rest goes back. This protects the company (and investors) if a founder leaves early.

ESOP pool

Investors usually require you to set aside 10-15% of equity for an Employee Stock Option Pool. This is for hiring — you'll need stock options to attract good talent.

Priya's lesson: She nearly signed a term sheet with a 2x liquidation preference before her mentor — a seasoned entrepreneur from Delhi — caught it. "This means the investor gets twice their money back before you see a paisa," he told her. She negotiated it down to 1x. Always get a mentor or lawyer to review your term sheet.

How long fundraising takes

Here's the reality most founders don't tell you:

• Optimistic timeline: 2-3 months
• Realistic timeline: 3-6 months
• If things go wrong: 6-12 months

During this time, you'll:

• Send 50-100 emails
• Get 30-40 meetings
• Receive 25-35 rejections (or worse, silence)
• Go through 3-5 deep-dive processes
• Negotiate 1-2 term sheets
• Close 1 deal (if you're lucky)

The danger: While you're fundraising, your business still needs to run. Many founders make the mistake of spending all their time talking to investors and neglecting their product and customers.

Pro tip: One founder should focus on fundraising while the other runs the business. If you're a solo founder, set aside specific days for investor meetings and protect the rest.

Bootstrapping + small raise vs large VC round

Not every startup needs to raise ₹10 crore from a VC fund. Let's compare the paths:

Path 1: Bootstrap + small angel raise

• Raise ₹20-50 lakh from angels
• Grow using revenue
• Keep 80-90% ownership
• Move at your own pace
• Build a profitable company
• Risk: slower growth, might lose market to better-funded competitors

Path 2: Large VC round

• Raise ₹3-10 crore from VCs
• Grow aggressively
• Give up 20-30% ownership per round
• VC expectations for rapid growth
• Build for a big exit (IPO or acquisition)
• Risk: pressure to grow at all costs, might never be profitable

Priya chose a middle path. She raised ₹75 lakh — enough to build her team and product, but not so much that investors would push her to expand recklessly. She raised from two angels and a small seed fund that understood agriculture. They gave her 18 months of runway and reasonable expectations. Not every startup needs to be the next Flipkart.

Fundraising for non-metro founders

Let's address the elephant in the room. Priya is based in Haldwani, not Bangalore.

The disadvantages:

1. No investor density. Most angels and VCs are in Bangalore, Mumbai, Delhi, and Pune. There's no Sand Hill Road in Kumaon.

2. No founder network. In Bangalore, you can find 10 founders at any coffee shop. In Haldwani, Priya is probably the only agri-tech startup founder in the district.

3. Fewer events and meetups. Demo days, pitch competitions, and startup events happen in metros.

4. Perception bias. Some investors subconsciously associate "serious startup" with "Bangalore office."

5. Logistics. Every investor meeting requires a flight or a 6-hour bus ride to Delhi.

How to overcome this:

1. Video calls have levelled the playing field. Post-COVID, most first meetings happen on Zoom. Use this.

2. Your location can be a strength. Priya building agri-tech from Uttarakhand is more credible than building it from a WeWork in Koramangala. She understands the farmers. She's in the field.

3. Go where investors are — temporarily. Spend 2-3 weeks in Bangalore or Delhi during active fundraising. Do 3-4 meetings a day. Then go home.

4. Apply to accelerators. Programs like Y Combinator, Techstars, and Indian accelerators can give you instant credibility and access.

5. Build in public. Share your journey on LinkedIn and Twitter. Investors notice founders who are doing interesting work in underserved markets.

6. Leverage government programs that specifically support non-metro startups.

Priya's pitch actually got stronger because of her location. "I'm not building this from a co-working space in Bangalore. I'm building it from the orchards of Uttarakhand, sitting with the farmers every day." One investor told her that was the most convincing thing she said.

Government grants and startup programs

India's government has multiple programs that support startups — especially those in agriculture, rural areas, and small towns.

Startup India

The Government of India's flagship program for startups. Benefits include:

• Tax exemption — eligible startups get income tax exemption for 3 years
• Self-certification for compliance — simplified labour and environment laws
• Fast-track patent applications — 80% rebate on patent filing fees
• Easy winding up — if your startup fails, you can close it within 90 days

How to register: Apply on startupindia.gov.in with your DPIIT number.

Atal Innovation Mission (AIM)

Run by NITI Aayog, AIM supports:

• Atal Incubation Centres — physical incubation spaces across India
• Atal Tinkering Labs — for school students (not directly relevant, but shows the ecosystem)
• Mentorship and grants for early-stage startups

BioNest and Agri-Tech Programs

For agri-tech startups like Priya's:

• RKVY-RAFTAAR — grants up to ₹25 lakh for agri-tech startups
• NABARD programs for agricultural innovation
• BioNest incubators at agricultural universities
• State government schemes — Uttarakhand has its own startup policy with incentives

Other schemes

• MUDRA loans — up to ₹10 lakh for micro enterprises (not equity, but useful)
• Stand Up India — loans for SC/ST and women entrepreneurs
• SIDBI Fund of Funds — invests in VC/angel funds, indirectly supporting startups

Warning: Government programs involve paperwork and delays. Apply early, follow up persistently, and don't depend on them as your only funding source. Think of them as a bonus, not the plan.

Common fundraising mistakes

After talking to dozens of founders and investors, here are the mistakes that come up again and again:

1. Raising too early

You have an idea and a pitch deck but no product. Investors will ask, "What have you built? Who's using it?" If the answer is "nothing yet," most investors will pass.

2. Raising too much

Raising ₹10 crore when you need ₹1 crore means giving away way more equity than necessary. Raise what you need for 18-24 months of runway, with some buffer.

3. Raising too little

Raising ₹20 lakh when you need ₹75 lakh means you'll be fundraising again in 6 months instead of building your product.

4. Chasing famous investors instead of the right investors

A famous VC fund might not understand agriculture in Uttarakhand. A smaller fund focused on agri-tech or rural markets will be a much better partner.

5. Negotiating too aggressively on valuation

Getting a sky-high valuation in your seed round feels good but creates problems. If your next round isn't at a higher valuation, it's a "down round," which hurts everyone.

6. Not having a lead investor

If you're raising from multiple angels, one of them needs to "lead" — set the terms, do the diligence, and bring others in. Without a lead, the round never closes because everyone's waiting for someone else to go first.

7. Ignoring the business while fundraising

Your metrics need to keep growing while you fundraise. Nothing kills a deal faster than sending updated numbers that show a decline.

8. Treating fundraising as the goal

Raising money is not success. It's permission to spend someone else's money on an uncertain outcome. The goal is to build a valuable company. Fundraising is just fuel.

9. Not knowing your numbers

If an investor asks your CAC, LTV, burn rate, or unit economics and you fumble, it's over. Know your numbers cold.

10. Giving up too soon

Most successful founders were rejected by 20+ investors before they got a yes. Reid Hoffman was rejected by almost every VC in Silicon Valley before LinkedIn worked. In India, the founders of Flipkart, Ola, and dozens of other companies heard "no" many times.

Priya's fundraise: how it went

It took Priya four and a half months.

She emailed 47 investors. Got 22 meetings. Received 18 rejections. Two investors ghosted her after three meetings each (maddening). Five showed real interest. Three went to due diligence. One dropped out because they had concerns about agriculture being a "tough market."

In the end, she raised ₹80 lakh — slightly more than planned — from two angels and a small seed fund called HillTech Ventures. The valuation was ₹4 crore pre-money. She gave up 16.7% of her company.

Was it worth it? She now has 18 months of runway, a team of six, and the resources to build what she couldn't build alone. But she also has people she needs to report to, expectations she needs to meet, and the clock is ticking.

"Raising money was the hardest thing I've ever done," she told Pushpa didi over chai. "But now the really hard part starts — using it well."

Pushpa didi smiled. "That's what I said about my bank loan too."

Key takeaways

1. Raise money when you have traction, not just an idea. Build first, then fundraise.
2. Understand the different stages — pre-seed, seed, Series A — and know which one you're at.
3. Angels invest personal money and move fast. VCs invest fund money and have higher bars.
4. The process takes 3-6 months. Plan ahead and keep running your business during fundraising.
5. Read every term sheet carefully. Valuation, liquidation preference, board seats, anti-dilution — these terms shape your company's future.
6. Bootstrapping is valid. Not every company needs VC money.
7. Being outside a metro is a disadvantage — but not a dealbreaker. Use your location as a strength.
8. Government programs can help. Startup India, RKVY-RAFTAAR, and state schemes are real resources.
9. Don't treat fundraising as success. It's the beginning of a new chapter, not the end.

Priya has money in the bank now. But before she got there, she had to stand in front of investors and convince them — in 15 minutes — that her idea was worth betting on. That didn't go well the first time. In the next chapter, we'll learn how she fixed her pitch.