Understanding Seed Funding

While founders of Startups have great ideas that may be enormously helpful to the society at large, raising funds in the initial period to accomplish and materialize the idea becomes a very tough task. As such, Seed Funding is done to help Startups to start their business.

During the initial period, Startup Founders may raise funds via various incubators or even raise funds from Angel Investors. This differs from the process of Seed Funding.Angel Investors are mostly individual investors who invest in the Startups and also provide operational expertise sometimes. On the other hand, in the process of Seed Funding, investors only invest in the Startup for a financial return. In case of Angel Investors, the investors are given a share in the equity share capital of the company or other convertible debt instruments. This may not be the case with Seed Funding.

Stages of Seed Funding

Pre-Seed Funding Stage

In this stage, the Startup is required to attract funds from the founder directly or from his family and relatives.

Seed Funding

In this stage, the actual seed funding takes place. This stage typically represents the first official money that a business venture or enterprise raises. Angel Investors, Venture Capitalists, Incubators, etc. invest in Startups at this stage primarily. Angel Investors are more common investors at this stage.

Series A Funding

Once a business has developed a track record (an established user base, consistent revenue figures, or some other key performance indicator), thebusiness may opt for Series A funding in order to further optimize its user base and product offerings. Opportunities may be taken to scale the product across different markets.

In Series A funding, investors are not just looking for great ideas. Rather, they are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business.

Series B Funding

Series B rounds are all about taking businesses past the development stage. Investors help startups get there by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale. Series B funding is used to grow the company so that it can meet these levels of demand.

Series C Funding

Businesses that make it to Series C funding sessions are already quite successful. These companies look for additional funding in order to help them develop new products, expand into new markets, or even to acquire other companies. In Series C rounds, investors inject capital into the meat of successful businesses, in an effort to receive more than double that amount back. Series C funding is focused on scaling the company, growing as quickly and as successfully as possible.

Specific Issues that might be faced by Startups

Vulnerability of Brand Name

In the world of business, there are innumerous brands having various trademarks to differentiate their products. Also, trademark serves an important purpose of preventing a business from losing out on customers who rely too much on brand value. As such, in the initial days of a Startup, the Startup ordinarily does not possess enough knowledge or resources to secure its brand name. As such, sometimes, a trademark used by one startup may be passed off by another business in the same industry.

These problems may be resolved by registering a trademark with the Trademarks Registry.

Vulnerability of Business Ideas

While a Startup may have an excellent idea and may even be able to commercialize the idea upon getting required resources, the process of Seed Funding is such, that it requires the founders to disclose their business idea. As such, the Startup becomes vulnerable to certain losses that it might incur in the event that a competitor uses its idea. This happens because the business idea of the Startup is exposed.

To protect Business Ideas and safeguarding the interest of the Startups, a Non-Disclosure Agreement is required to be entered into which in turn will help to accomplish this task.

Compliance with Government Regulations

Often Startups may have issues complying with the regulations of the government. Issues such as faulty drafting of agreements statutorily mandated by the Government as well as incomplete compliance with tax regulations and the like, invite liability of the business itself.

To better comply with various laws and regulations existing in the country, a Startup must ensure proper drafting of agreements and complete as well as proper compliance with other laws.

Types of Seed Funding³

The following are the various types of sources for Seed Funding:

Crowdfunding: In recent times, crowdfunding platforms have become a trendy destination for seed funding. These platforms are generally open, and anyone can back the idea, concept, or product.

Corporate Seed Funding: This is a very good source of seed funding as start-ups gain more visibility because of the big corporate investors. Large companies like Google, Intel, and Apple support start-ups regularly with seed funding. Such investments can prove to be very useful for new firms to build their brand.

Angel Investors: These are the investors who invest seed funds in a start-up in return for equity ownership or convertible debt.

Incubators: These investors, along with providing small seed funds, focus on helping the new ventures through training and often also provide office space. Many leading educational institutes, like IITs and IIMs, also provide such services. Generally, Incubators do not ask for equity holdings from start-ups.

Accelerators: These investors mainly focus on helping the new firms in scaling-up rather than supporting them in early-stage innovation. They also provide help through various training, mentoring, and giving networking opportunities. Unlike most incubators, accelerators usually take equity.

VC funding:Venture Capitalists are the high-end investors that invest in a new venture after looking into various parameters such as market conditions, founder vision, growth potential, etc.

Start-Up India Seed Fund Scheme

Any Startup which is duly recognized by the Department for Promotion of Industry and Internal Trade, Government of India and has not been incorporated before 2 years from the date of application, shall be eligible for the Seed Fund Scheme. Under this Scheme, the Government of India provides the platform for Startups to connect with Incubators. Incubators provide necessary monetary and non-monetary support to Startups thereafter. Also, angel investors and venture capital firms are made available to Startups at this stage. Also, it becomes easier for Startups to get loans from banks since banks give loans to only ‘asset backed’ businesses.

What should Start-ups be careful about

Start-Ups registered with Start-Up India Seed Fund Scheme should be careful about the fact that they are statutorily prohibited from using the money they receive as seed fund, for any purpose other than the ones for which the said money was given. This means that for every purpose which may not be covered for seed funding, however important may be, the funds for the same shall have to procured by the Start-Up by itself or by way of loans from banks.²

In case, the Start-Up is not registered with the Scheme, the Start-Up must be very cautious of the legal issues that might arise. Also, proper drafting of agreements are required since the same will ensure safety of the Start-Up.

Conclusion

It can be concluded that the Government of India has provided various avenues to Start-Ups to help themselves, however, a lot depends on how things are actually done by a Start-Up. Also, proper compliance with laws and regulations play a very important role in this sphere. As such, drafting of agreements, timely filing of returns and the like must be done properly. This is very essential for a Start-Up even though it might be in the Seed Funding Stage since the Start-Ups must have a proven track record and good health due to which investors may invest in the Start-Up.

References

1. https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp.
2. Point 8, Gazette of India, https://www.startupindia.gov.in/content/dam/invest-india/Templates/seedfund-gazette.pdf.
3. https://tavaga.com/tavagapedia/seed-funding/.

Introduction

Venture capital was introduced in 1988, it was after the economic liberalisation in India. IFC, ICICI, and IDBI were the few organisations that established venture capital funds and targeted corporations. The formalisation of the Indian VC market started only after 1993.

As of 2019, the total value of venture capital deployed throughout India was worth $10 billion. This is an increase of 55% compared to the previous year and is currently the highest.

VC is a long-term risk capital generally invested in order to finance high risk projects in the form of shareholding. These projects have a potential of growth in future. In order to assist new entrepreneurs in their initial phase of the project, venture capitalists invest their fund, resources and managerial abilities in the start-up. When the project reaches the stage of a boom, they sell their shares at a high premium to others and earn a profit from it.

A venture capital is “a financing institution which joins an entrepreneur as a co-promoter in a project and shares the risks and rewards of the enterprise”.

Financial venture capital can be offered by:

.     Venture capital firms;

• Investment banks and other financial institutions;
• HNIs (Angel investors), etc.

In venture capital firms we see that a pool of money is collected from other investors or companies which form the venture capital funds. The firms also invest from their own funds to show commitment to their clients.

Based on the stage at which funds are invested, VC can be categorised under:

• Seed funding: Capital invested to aid start ups at the initial stage.
• Start-up capital: Capital invested to create product prototype or hire crucial management etc.
• First stage, or series A: Capital invested for the business to start marketing, promotion, or commercial manufacturing of a product.
• Expansion funding: Capital invested to expand the operations of the company to create new products, tap into new markets, invest in new equipment and technology, or even acquire a new company etc.
• Late-stage funding: Capital invested in businesses that have achieved great success in commercial manufacturing and sales. Companies at this stage may have tremendous growth in revenue but not show profit.
• Bridge funding: Capital invested to help short term investments which is necessary for IPO (initial public offering) when the business is approaching the boom stage.

Significance/need of the same

The process of VC funding starts with gathering funds (from investors, financial institutions, and individuals), then they are invested in selected companies carrying out due diligence, evaluation, and investment contacts. Then the investee company is nurtured and supported by monitoring business management and improving their value. Next the capital gains are evaluated, and the invested funds are distributed to the investors.

The motive of the process is to build businesses that not only deliver outstanding financial value but also emerge as category leaders.

It provides some advantages as venture capital helps new entrepreneurs inculcate business expertise. The individuals supplying VC have significant experience to help the owners in decision making, especially human resource and financial management to help the business grow and gain more revenue.  Moreover, the entrepreneurs or business owners are not obligated to repay the invested sum. Even if the company fails, they will not be liable for repayment to the original investors.

It should also be noted that the VC investors are sometimes HNIs who can help the business build more connections and improve the market. This can be of immense help in terms of sales and promotion.

VC investors seek to infuse more capital into a company for increasing its valuation. To do that, they can bring in other investors at later stages. In some cases, the additional rounds of funding in the future are reserved by the investing entity itself.

VC can supply the necessary funding for small businesses to upgrade or integrate new technology, which can assist them to remain competitive.

Although VC funds invest in risky ventures, they do have some criteria to decide in which entities they are going to make the investment and to what extent. They may be generally investing into start-ups, but they can also be investing in established businesses where these are a new area.

Regulations

Venture capital funds are now regulated by the Securities and Exchange Board of India (AIF) Regulations, 2012 (Alternative Investment Funds Regulations). The former regulations applicable to venture capital funds were the SEBI (VCF)Regulations, 1996 which were repealed, and the funds were then required to be registered under the AIF Regulations. The AIF regulations define VC funds as AIFs which invest primarily in unlisted activities or a new model.

Process of acquisition through VC

1. Deal origination: This is the first step of VC investment. A stream of deals is necessary; however, such deals may have various sources. One such source is the referral system where deals are referred by business partners, parent organizations etc.
2. Screening: In this stage all the projects of the undertaking are scrutinised and categorised as market scope, technology or product, size of investment, geographical location, stage of financing etc. Entrepreneurs may also be invited for face-to-face discussion.
3. Evaluation: Important documents to evaluate the project capacity and ability to meet such claims are thoroughly evaluated. Various factors like the profile of the company, the efficiency of the business model is evaluated. After putting into consideration all the factors, thorough risk management is done which is then followed by deal negotiation.
4. Deal Negotiation: Deal negotiation is a process by which the terms and conditions of the deal are so formulated so as to make it mutually beneficial. Both the parties put forward their demands and a way in between are sought to settle the demands.
5. Post Investment Activity: After the finalization of the deal, rights and duties are granted to the VC. The VCs have representations in the board of directors to ensure the company is following up the plans.
6. Exit Plan: The last stage of VC investment is to draw up an exit plan keeping in mind the nature of investment, extent of financial stake etc. VC may exit through IPOs, acquisition by another company, purchase of the venture capitalists shares by the promoter or an outsider depending on which provides minimal losses and maximum profits.

Exit strategies for VC funding

Since we know that VC investors invest capital with the motive to exit after a few years, deciding exit strategies becomes crucial. VC investors usually fund at seeding, pre-production or expansion stage and start determining exit strategies before the boom stage. Exit strategies can be formed through liquidation or disinvestment by IPO (initial public offering), mergers and acquisitions, sale to other investors or shares buy back etc. Some of the exit strategies are explained below:

IPO: If the company produces good results, the VC investors issue shares registered for public offering. The original investors here make a profit as the new stock is worth much more than the original investments.

Share buyback: In this case the entrepreneur buys back the shares from the VC investor at predetermined price and thus the company becomes private. Such exit option is opted for when the entrepreneurs have funds to buy back equity help by the VC investors.

Sales in OTC market or stock exchange: The shares of the company may be registered on a national market such as NASDAQ or the NYSE. The client may buy the shares.

Sales to strategic investors: VC sells their shares to strategic buyers who may already own a business or have plans to enter the industry. In this case the VC would be able to sell most of the stock of the company and the acquirer may or may not retain the management team but substantial changes in the company’s operations would not take place.

Mergers and Acquisitions: The company may be acquired by a larger company through merger.

In acquisitions, the acquiring company makes a tender offer to all shareholders to purchase their shares, often in cash at a premium over what investors paid.

Management Buyouts: In this scenario the company’s management team purchases the assets and operations of the business they manage. a company can go private in an effort to streamline operations and improve profitability. The transition of managers from being employees to owners, comes with significantly more responsibility and a greater potential for loss. However, it is appealing to professional managers to reap greater potential rewards from being employees to the owner of the business. Since they are the existing managers, there is a much better understanding and moreover, the company’s debt load would be lower providing financial flexibility.

Conclusion

There are some cons that entrepreneurs have to give up an ownership stake in their business during VC. Sometimes it turns out that the company requires more funding than initially estimated. In such cases there is a huge probability of the original owners losing the majority stake of the company along with the decision-making powers too.

These venture capital investors have representation in the business as a chair among the board of members as a way of having control over the stake of the start-up. This can often give rise to conflict of interests between the owners and investors, which can hinder decision making. Moreover, the funding of the start-up may be delayed due the in-depth analysis of its profile by the venture capital investors by conducting due diligence and assessing the feasibility of a start-up before going ahead with the investment. This process can be time-consuming as it requires excessive market analysis and financial forecasting, which can delay the funding.

References

1. https://financetrain.com/exit-strategies-for-venture-capital-funds/
2. https://www.cuttingedgecapital.com/exit-opportunities-for-dpo-investors/
3. https://blog.ipleaders.in/process-venture-capital-financing-india/
4. https://financetrain.com/stages-of-venture-capital-funding/

Food industry has been through enormous changes, but all acknowledgements to the internet intelligence and growth of technologies. The changes in the food delivery system and distant dining practises have created a direct relationship between the restaurants and their customers. Many enterprises have redirected to non-public technology permitted mediums, like WhatsApp and other social media handles to interact with their customers.
Food industry is among those sectors in the market which will never be outdated or will go out of demand. Eating is a necessity for human beings so it’s important for them to eat and increase their disposable income which helps them to look for ways to overcome the food business mechanism to quench their starvation.Hence, this food industry is among one of the fastest-growing sectors in our country.

Essentials of a food tech-

The historic changes were seen in the food industry when the food ordering/booking apps conditions were really poor in India. But services like these have suddenly become an important part of people’s lives, especially in urban cities. There are various startups in the food industry and delivery services which began to expand in different parts of India during the year of 2018. Such enterprises got a lot of awareness and financing from the venture capitalists due to their high earning capability. Cloud services, delivery apps, etc gave this sector a required rise.

Scope of a food tech-
Tech startups in the food industry are a growing industry that contributes nearly 14% of mass production GDP and 13 % of total food exports in India. There is a very high demand for trained food professionals in both the Government and the Private sector.

Legal compliance-
Legal compliance is basically the process or the procedure which ensures that an organization is following all the relevant laws, rules and regulations. The basic requirements for an enterprise to be amenable with the law is only that its policies need to be compatible with the law.

Startups-
Startups are newly formed organizations/businesses or entities, by which an individual or a group of people who have a common goal can be called as Startups. List of some of the companies in food industry of India-

1. Amul (Year of Establishment: 1946)
2. Nestle India (Year of Establishment: 1866)
3. Cadbury India Limited (Year of Establishment: 1824)

Government schemes for tech startups in food industry-

1. Pradhan Mantri Kisan Sampada Yojana (PMKSY)- Cabinet Committee on Economic Affairs gave consideration for PMKSY in 2017 in August. It is a plan for amalgamating various progressing plans such as Mega Food Parks, Integrated Cold Chain, Value Addition Infrastructure, Food Safety, etc.

2. Mega Food Parks Scheme- This scheme aims at providing a mechanism which links agricultural production with markets by bringing together farmers, processors and retailers which ensures maximized value addition, minimized wastage, increased farmers income and creates employment opportunities particularly in the rural sector.

3. Make In India- Small portion of this campaign, the food sector was recognized as one of the 25 intensive areas. Hence, the ecosystem has been renewed to pull out financial, technological and human resources.

4. Food Processing Fund- A special fund in the NABARD worth rs. 2,000 crore was set up in the Financial year, 2014-15 for offering reasonable credit to food processing units.

FSSAI (Food safety and standard authority of India)-

FSSAI is a self-governing body which is established under the welfare of the Ministry of Health & Family, Government of our country. This was formed in the year of 2011. This was established under the Food Safety and Standards Act of 2006 which is an integrating enactment related to food safety and regulations in the country. FSSAI is also responsible for protecting and promoting the health of the general public through the regulations of food safety.
There are several licenses which are important for Tech Startups in the Food Industry in India which need to be followed if the business wants to run in the long-term smoothly.

Prevention of Food Adulteration Act, 1954-

This is basically applicable to all the parts of India except Jammu and Kashmir. This was established in the year of 1954. According to this act it is prohibited to even manufacture and sell the following-

1. Adulterated food– This means any substance which could be used for the motive of adulteration. A commodity of food shall be considered to be adulterated if,

1. If it is injurious to health.
2. If any cheaper or bad substance has been switched.

2. Misbranded food– A commodity of food shall be considered to be illegal.

1. If it is wrongly stated to be the product of any country.
2. If it is sold by a name which already belongs to a different commodity of food.

3. Food license–
If someone wants to establish a Tech startup in the Food Industry in India, they have to apply for a food license which is only provided by FSSAI. Anyone can apply for this license online as well from the official site of FSSAI, which was founded in the year of 2011. Documents which are required for the registration of food license are as follows-

• PAN & Aadhar card

• Passport size photo & an addresses proof

• NOC agreement

FSSAI license for the state is given to a Tech startup/company in the Food Industry, hotels etc. and FSSAI license for the centre is given to Slaughtering Units and proprietary Foods etc. The kind of documents that are required for FSSAI License for the state consists of a list of food items that should be made by the company, NOC, all the contact details of the important members as well as business owners, place where company should be located, certificate of food safety, Partnership affidavit of Proprietorship. etc. Validity of the license provided can stay for 1-5 years and it can also be easily renewed. If the presence of any serious matter is suspected with respect to the quality of food like food poisoning, getting stone present in the food etc. then the license can be suspended or can be taken away from the owner. Other than this, if any infringement happens from the rules of FSSAI, in that case also the license can be taken away.

4. NOC

The Non Objection Certificate is required from the fire department, so that in case of any kind of accident because of the fire then industries must have all kinds of equipment related to must be used in such situations. That is the reason why there must be a fire exit present in all the industries.

It also holds the responsibility for food research as well as quality assurance of food that should be served or manufactured. It was also formed by Union Health Minister Dr. Anbumani Ramadoss. It basically has five branches. It is necessary to hire a lawyer and get all essential legal certifications which are required to run the Tech Company in the Food Industry.

FoodTech Industry In India-
Our food tech sector has completely changed the way we Indians eat. It was almost a sector that was non-existent in the past, the Indian food tech sector had observed exponential growth in the past few years.

The Indian foodtech industry is currently handling an annual Gross merchandise value of worth approx $2.5-3 billion in 2021, and it possesses an opportunity to even cross $16 billion in annual GMV by 2025, it was observed by a February 2021 HSBC report based on the consumer internet market of India.

When it comes to terms of investments, this sector is currently experiencing a huge participation from VC firms, it has increased from $288 Million in 2016 to $4.8 Billion in 2017.

With an enormous investment of approx $2.3 Billion that is made in the food-tech industry in 2018, India is currently holding the position of second-largest country all over the globe just after China, which possesses a big share of investment of 16%. Bengaluru arose as the hotspot for a number of food tech startups.

According to the reports, the Indian food tech sector has received $898 Million coming from funding in 2020.

Legal Compliances in the Food Industry-
Major laws include, The Food Safety and Standards Act, 2006, The Food Safety and Standards Rules, 2011, and several Regulations, namely,

• Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations, 2011
• Food Safety and Standards (Packaging and Labelling) Regulations, 2011
• Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011
• Food Safety and Standards (Prohibition and Restrictions on Sales) Regulations, 2011
• Food Safety and Standards (Contaminants, Toxins and Residues) Regulations, 2011
• Food Safety and Standards (Laboratory and Sample Analysis) Regulations, 2011 Legal

Compliance as to Registration/ Licensing-

Who requires Licensing/Registration ?
• It is required by any person that is carrying out a business related to manufacture, packing, storage, sale, transport related to food and is called Food Business Operator (FBO).
• All the FBOs require either Registration or a License under the said Act to carry out their business of manufacture, packing, storage, sale, transport of food.

Registration-
• All the food Manufacturers are expected to get themselves registered with the Registration Authority after submitting an application for getting registered in Form A under Schedule 2 with the fees that are provided in Schedule 3.

Compliance as to regulations vis-à-vis Label Declaration-
• Every FBO needs to ensure that labelling of foods should be according to the regulations that are made and must not mislead the consumers.

Conclusion-

Food tech came up in India especially as the most proper and possible technology enabled businesses. Food sector is largely driven by technology and is heading into a more modern, sustainable and an efficient sector through all its stages, be it food preparation, food preparation and its delivery or its consumption.

However, with such big advancements a number of legal complexities are involved in this sector. If you have any legal doubt, just consult an experienced lawyer in a Food Tech start-up instantly to get quick as well as reliable legal advice with respect to all your queries.

References-

1. https://vakilsearch.com/blog/7-food-tech-trends-shaping-a-fascinating-future-for-the-food-biz/
2. https://www.lawyered.in/legal-disrupt/articles/legal-compliances-food-tech-startups/
3. https://www.icsi.edu/media/portals/70/food.pdf
4. https://thestartuplab.in/foodtech-india-growth-trends-and-future-of-foodtech-industry-in-india/

Introduction

Startup capital is the money which is needed to launch a new business. It can arise from various sources and can be also used for any purpose that helps the startups to have an actual business out of an idea. Startup capital is also known as Startup funding.

Startup funding is one of the most difficult tasks which the founders face. Without having any authentic source of finance in hand, ventures brawl to achieve significant resistance, grow the succeeding generation products and services, hire top level talent as well. And, if you’re also like most of the other startup founders, it is laborious to find out which type of funding capital you should certainly categorize.

Funding from angel investment in your startup-

Angel investors are individuals with excess cash and an eager interest to invest in the expected startups. Such investors also work in categories of networks to cumulatively safeguard the schemes before investing. They also provide counselling or advice alongside the capital. These angel investors have also helped various well known companies to get started like Google and Yahoo. This substitute of investing generally happens in a company’s primary stages of growth. They favour taking more risks in the investment with higher returns.

Angel Investment if used as a funding option has its own drawbacks. These investors invest less than the venture capitalists. They are basically the individuals with high net worth, who look forward to putting a comparatively small amount of money into the startups. Angel investors are one of the most easily attainable forms of primary stage capital for a businessman and therefore are an important part of the capital fundraising environment.

The biggest benefit of having an angel investor is that they generally make an investment decision by themselves. There’s no need to manage a partnership or a corporate ranking of making and taking decisions, which allows these investors to make wagers that they feel agreeable with. Frequently, this is all that an entrepreneur needs for the development of their startup.

Raising funds with the help of an angel investor always takes prolong than expected- what you need to do is find the right investor, prepare an investor presentation, negotiate the investment terms, etc.

Moreover, ownership requirements may also discourage you from an angel funding:

If you give away near about 10 to 50 percent (or higher than that) of your business, but there will always be the risk that the investors will figure that this is the business’s biggest hurdle towards success, and even can get fired from the company which you originated.

The Pros-

1. Will invest based on your idea as a founder.
2. Provide connections to the angel investment groups.
3. Most probable to play a tractable role than VC firms.
4. A way to engage advisors & future introductions to other investors.

The Cons-

1. Requires time nurturing their contacts.
2. Dealing with inexperienced investors with little formation.
3. No experienced operators/ qualified advisors.
4. Requires giving up notable value on your venture.

Funding from venture capital for your business-

This is the funding option where you make a considerable wager. Venture capitals are proficiently controlled funds, they invest in those companies which have vast capacity. They generally put funds in a corporation against equity and leave when there is an Initial Public Offering or an acquisition. Venture Capitals provides proficiency, counseling and also acts as an indicator of the organisation that where it is going, estimating the business from the viewpoint of competitiveness and extensibility.

An investment by a venture capital may be suitable for small enterprises which are far from the startup phase and are already initiating revenues. developed businesses like Flipkart, Amazon, etc with an exit strategy/conspiracy already existing, can acquire up to millions of dollars which can be further used to invest and grow their company rapidly.

Venture capital is subsidizing what’s funded in startups and small enterprises that are usually at a high risk, but also got the capability for exponential expansion. The basic goal of a venture capital financing is extremely high return for the VC firm, normally in the form of an acquisition of the startup or an Initial Public Offering.

Venture capital is an amazing option for the startups which are looking to scale bigger and quickly. As the investments are impartially large, your startup should be ready to take that money and expand.

However, there are some drawbacks to Venture Capitalists as a funding capital option. Venture Capitalists have a short restraint when it comes to a company’s devotion and often look forward to recovering their investment within a 3 to 5 years time span. If your product is taking longer than that to get to the market, then the venture capital investors may not have any interest in you and your product.

They basically look for bigger chances which are a little more steady, the companies which have a strong team of people and a good resistance. You need to be much more elastic with your business entity and occasionally give a bit of more authority, hence if you are least or not interested in overly counseling or settlement, this might not be your strongest option.

The Pros-

1. Large funding amounts from every firm.
2. Arranged due diligence & funding processes.
3. Efficient board members.
4. Adds credibility and media attention.

The Cons-

1. Nobody wants to be the first main investor.
2. Exhausting months of directing and investor meetings.
3. Once you take money then you are working according to them.
4. Pressure to make choices that may not be best for business.

Funding from business incubators & accelerators-

Primary stage businesses should consider Incubator and Accelerator programs as one of the most suitable funding options. These are found in almost every utmost city, these programs accommodate hundreds of startups every year.

Although used identically, there are some basic differences between these two terms. Incubators are like Parents to a child, who nourish the business, which provides shelter tools, training and network to an entity. Accelerators are the same thing, but an incubator helps and assists a business to be able to walk, while an accelerator helps to run and take a massive jump. Accelerator programmes are for fixed term programs which includes investment chances, connections with exclusive mentors, and various educational programs.

Such projects normally run for 4 to 8 months and require a time commitment from the owners of the business. This way you also get a chance to make good networks with investors and other startups via this platform.

The Pros-

1. Focus on your startup and make progress.
2. Surrounded by other renowned founders.
3. Chance to present yourself to a room full of qualified investors.
4. Credibility if you have joined a well-known accelerator like Y Combinator.

The Cons-

1. May not get into your chosen accelerator on the first application.
2. Have to travel and stay there for various months.
3. Fast-paced with big expectations.
4. Funding amounts are small & equity taken can be significant in comparison.

Funding from Crowdfunding-

One of the recent ways towards funding in a startup is Crowdfunding. It is becoming more and more popular, day by day. It is similar to taking a loan, contribution or investments made from more than one person at the same time.

Let us have a short description on how crowdfunding works. In this, an entrepreneur will place a detailed description of his/her business on any crowdfunding platform. Then the goals of the entrepreneur’s business, plans for making the profit, details on how much funding is needed and what are the reasons behind, etc. should be mentioned and then consumers can read about their business as well as giving money if they are influenced with their idea. Those money donations will act as an online pledge along with a promise of pre-buying that product. Anyone can contribute money, if they aim to help a business that they really believe in.

Why Crowdfunding is considered as a funding option for your business:

One of the great things about crowdfunding is that it has the ability to generate interest and hence can help in marketing the product along with financing. It is also considered as an advantage if you are not sure if the product will be in demand or not. This process of crowdfunding can cut off professional investors and brokers by placing funding on the hands of common people. It can even attract venture capital investments down the line for a company having successful campaigns.

It should also be kept in mind that crowdfunding is quite a competitive place to gain funding, so until and unless your business is extremely strong and it can gain the attention of all average consumers just through a little description and some images, then you may not find crowdfunding a difficult job task.

It is a method for raising the capital through a number of communities including customers and investors. Crowdfunding campaigns are started through some renowned crowdfunding sites including Kickstarter, GoFundMe, Indiegogo, and others. According to experts, the crowdfunding industry will grow to over $300 billion by the year 2025.

There are a total of three types of crowdfunding including:

1.  Donation-Based Crowdfunding: In this type of crowdfunding, there is no financial return to investors. It is basically, disaster relief efforts and other nonprofits draw donation-based crowdfunding activities.
2. Rewards-Based Crowdfunding: In this type of crowdfunding, there is a “reward” which is given in exchange of financial contribution. This approach is very popular among startups that are at an early-stage and are eager to develop.
3. Equity-Based Crowdfunding: In this type of crowdfunding, there is a company ownership which is given in exchange for financial contribution. As equity owners, those who contribute receive a financial return on their investment as well as share of the company’s profits.

It is simply a method of raising capitals through collective effort of customers, friends, and investors. This way brings in the collective efforts of a large number of individuals — basically online via social media and other crowdfunding platforms.

Traditionally, all entrepreneurs spend months roaming through their personal networks, trying to get potential investors, and spend time and money to get their product in front of them. With the process of crowdfunding, it is much easier for entrepreneurs to gain opportunity in front of a number of interested parties and provide them a number of ways to help grow the business.

The Pros-

1. No need to add the pressure of monthly repayments.
2. Recruitment of more stakeholders who are invested in your success.
3. Raising in public can help create urgency among possible investors.

The Cons-

1. Strong marketing strategy and a sizable marketing budget is required.
2. Legal fees and filing with the SEC is necessary.
3. Costly and takes a big bite from your raise.
4. Success can rely on your round, subscribed in advance.

Funding from winning contests-

A surge in the number of contests had helped to maximize a plethora of opportunities available for fundraising. It helps entrepreneurs with some business ideas to start their own businesses. In this sea of competitions, you either have to make a product or to prepare a business plan.

After winning these contests you get some media coverage. You really need to build your project to stand out of the line to improve their success in these competitions. You can get an opportunity to either present your idea in person or present it through a business plan. It must be brief enough to influence anyone that a great investment can be made in your idea.

Here are some names of popular startup contests one can consider to take a part of; NASSCOM’s 10000 startups, NextBigIdea Contest, Microsoft BizSparks,  Virtual VC FinTech & Payments, Hustle Raise,  CatchFood CF, Startup London Club Pitch Night, IMPACT Methodology Cohort 2020, DM Event, Festival of Ideas and Lets Ignite.

The Pros-

1. Opportunities for connecting that may be valuable in future.
2. Get social followers.
3. Opportunity to interact with your customers.

The Cons-

1. Diversion from focusing on product & customer development.
2. Opportunity cost.
3. Focus on investors and not on customers.

Challenges faced by the startups in choosing a funding option and how to overcome them-

1. Scalable model for your business- 

In case you are willing to expand your small business using a loan or by going for a round of venture capital, you will be needing a scalable business model. Investors, particularly, wishes to fund or invest only on scalable or businesses that are ready to scale. Your model of business must display the potential to increase the revenue even with some minimal expenditure in the upcoming months or years.

Your business idea needs to be scalable:

This clearly depicts that it should be able to increase the profits without increasing the costs at the same or higher rate. It needs to unique for sure. But without this quality of scalability, it is less likely to be investable.

2. It needs to be determined that how much money is needed-

Whether you ask any angel investors to invest in your expansion or seek a bank loan, you should know that how much money is needed. Many people will suggest you should raise the money as much as you can. However, in numerous cases, more is not always better.

A business plan needs to be prepared:

It’s possible to plan anything about how you are going to spend your money without even having a plan for business. Factually, mostly all investors will invest in your venture without even knowing a complete business plan. But your business plan needs to have a practical financial forecast. You must forecast the actual expected cost of the investment or loan that it will cover as well as the returns it will give in future. The expected statistics as well as facts and figures must have a justification.

You need to demonstrate that your company has a positive cash flow:

Showcasing that you have a positive cash flow is a key, especially for any budding startups and small businesses finding an opportunity for expansion. There is not a one approach here. Practically, a better and positive cash flow increases the probability of receiving any desired funding.

3. Finding a suitable funding option-

A number of funding options are available today for new startups. These options increase the chances of getting most of the funds, you just need to choose a most suitable alternative for funding. Many a times, you also needs to use more than a option for investment in your startup.

4. Spending money wisely after you receive the funds-

If you are taking any investment, you are liable to your investors to do whatever you promised to be done with their funds, so that it is transparent while thinking of changing course. You must not go on pending spree. You should not spend money on extremely expensive furniture, workspace, infrastructure, equipment, business trips, and lunches.

5. Keep the investors in loop-

There is a probability that you decided to get outside investment, but your contacts requires you to give investors or customers their proper return in due time. Furthermore, displaying them that their money is placed to be used for good and it will help forge a bond of trust.

Countries which provides extraordinary benefits to startups-

1.Chile-

There’s a big seize to Start-Ups Chile. But you must create a startup that has the potential to become a phenomenon worldwide. The benefit of the startup here is that it’s conducted entirely in English, even though the country is Spanish-speaking.

2. Denmark-

Denmark is the most entrepreneur-friendly country. It gives you entry to the single market. Prime part of the European Union’s program will provide you with a 2 year working visa and also a chance to settle in that country.

3. Ireland-

Enterprise Ireland is that scheme, aiming to attract entrepreneurs from worldwide. If you have a startup with high-growth possibilities, you can apply for funding from this program. If you get acceptance, you will get thousands in the funding and a chance to live and work there.

4. Germany-

You will get a highly educated as well as multinational workforce whose second language is English, and also find a first-class infrastructure, combined with the local government incentives for creating startups in the city. The corporation tax in Germany is 15% only.

5. Sweden-

Sweden has generated some very successful startups in the recent years and is the home to some of the great inventions and technologies.The corporate tax is 20.6% in Sweden.

Conclusion-

If you really wish to grow more faster, you will be needing outside sources of capital. If you remain excluded without any external funding for too long, then you will not be able to take full advantage of the market opportunities.

Lending options equal to the size of a size are available and can make it easier than ever to get started. All the responsible business owners or entrepreneurs should ask themselves one question that how much financial assistance they exactly need.

You all can see that there are many potential sources for startup capital- and there is a huge amount of money on the table out there. It is important for each business founder to analyze which type of funding is best for their objectives and the targets for their company. Everyone should have a deeper insight of each type of startup capital before you start with the process of trying to secure it.

References-

1. https://www.profitbooks.net/funding-options-to-raise-startup-capital-for-your-business/
2. https://mailchimp.com/courier/article/different-fundraising-strategies/

Introduction

Trademarking a company’s name and logo is a fundamental part of any startup business’s strategy for making its products and services distinct and obvious from those of competitors, with the aim of preventing competitors from stealing or duplicating their brand. It is very critical for a startup firm to register its trademark as soon as possible. With the use of a trademark, a certain brand is given guarantee.

A business can possess many brands. Similarly, a business might hold several trademarks to protect its brand. It doesn’t matter how many trademarks are anticipated to protect a brand; it all depends on the brand’s components. When a brand interacts with customers, it must be protected, and this is where a trademark is required.

Trademark law prohibits an outsider from using a trademark that is substantially similar to the startup’s trademark. The closeness of the trademark, the items or administrations, and the appropriation channels all play a role in perplexing similarity. Descriptive terms, such as Apple for an Apple-based operating system, are difficult to protect. Indeed, some terms are not protected by trademark law: the general terminology for a type of product cannot be used as a trademark because it is required by all market participants.

 Trademark Prominence

When a brand is used to collaborate with customers, it must be protected and Trademark provides this assurance. The brand requires assurance that no other person or organization may use a similar trademark and that the customer does not become confused between the original and replicated goods as a result of the similar trademark. Nowadays, business trademark of a brand is regarded extremely seriously, since the trademark they employ may be crucial in attracting customers.

For example, if a firm uses a catchy brand name, color, or phrase, it should give more thought to the purchasers, who will most likely want to test the goods. In the future, trademarks will play a significant role in commerce. Customers often assess the nature of a product based on the trademark of the business; therefore it is critical for startups to have an attractive and fascinating trademark of their company.

Global issues related to Trademark

A trademark is not a worldwide mark; rather, it is a state-by-state, nation-by-nation mark. A trademark, on the other hand, is not applicable for universal impact in the same way that copyright is. Even international trademark accords do not function in a clear manner. We can register trademarks worldwide using the Madrid system, but you must first file for a registration in your own country.

Trademarks are protected by a variety of laws. For example, the United States is a ‘First in Use’ state, which means that whomever uses a trademark first in the United States has priority, regardless of whether the trademark is registered or not. In contrast, China is a ‘First to File’ nation, which means that regardless of whether your trademark has been used or not, if it is not registered, it does not have any priority; this differs by country. The trademark is also known in Bangladesh as ‘First to Use’ and ‘First to File,’ depending on the scenario and specific requirements. It must demonstrate specific proof that it was utilized first during trademark infringement in the event of First to Use.

Trademark priority and usage

TM– Trademark, Registered Trademark and Service Mark (SM) are the most common trademarks. Companies that have their trademarks registered will almost always utilize the ® Registered trademark. However, firms that use TM do not necessarily indicate that their trademark is unregistered; it can be registered or unregistered and the sign’s use is entirely dependent on the company’s wishes. In addition, SM is used when a trademark application has been filed but is still pending with the registration; in this case, a firm utilizes SM as their trademark until their trademark is registered.

Priorities for trademarks are generally determined by two factors. They are as follows:

1. First in Use- Whether the trademark is registered or not, the trademark that has been used first has higher priority in some nations. For example, the United States was the first to utilize this country. Even if your trademark is registered in the United States but has not been used, if another business with a similar trademark has been using the product, the company that has been using the product takes precedence over the other company, notwithstanding the company’s registered trademark.
2. First to File- In nations where the first to file rule applies, the firm that files for a trademark first receives priority over the company that uses the trademark first. China, for example, is the first to register this sort of country.

In India, trademarks that are registered initially have a higher priority. However, the Trademark Rules of 1999[i] give precedence to the trademark that has been used first.

Abandonment of trademarks

If a trademark hasn’t been used in a specific amount of time, its deemed abandoned. The time it takes for a trademark to be abandoned varies by country. As an example:–

• If no response or reply to the assessment report is received within one month of the report’s publication, the application will be considered surrendered, according to Indian Trademark Rule 38(5)[ii].
• In the United Kingdom, a trademark is deemed abandoned if it has not been used for five years and there has been no objection.
• In the United States, a trademark is deemed abandoned if it has not been used for three years.

The dangers of losing trademark rights

For copyright and patents, there is a set period of time during which the copyright or patent is valid. For example, a copyright lasts for 70 years plus the life of the owner, whereas a patent lasts for 20 years. However, if a trademark is in use, it might endure indefinitely. A trademark can be lost for three main reasons. The following are the reasons:

• Abandonment and non-use.
• If a trademark gets too generic.
• If a trademark is found to be misleading.

If you do not use a trademark for a specific amount of time, it may be deemed abandoned. This is why it is critical to maintain a trademark in use in order for it to remain forever. Trademarks must be unique, but they must not be misleading; otherwise, the company’s trademark rights may be lost.

Before utilizing a trademark, it is necessary to file a trademark application

You don’t have to delay until you’ve started using your proposed mark to file a trademark application. In the United States, a trademark application can be documented in both of two ways. You can apply for a trademark based on the fact that you are now using it in your business or that you intend to use it in the future.

While you can start the cycle based on Intent to Use, once your mark is approved, you must demonstrate use of the mark in order for it to proceed to registration.

You may, however, be reliant on the Registrar’s request to use the trademark. Three years from the date of registration is the earliest that such a request can be made.

The significance of registering a trademark

Trademarks should be registered as soon as possible once the startup is formed. Trademarks are not like copyright, where you are instantly covered by copyright law in most nations the moment you produce something new. You must pay a registration fee and submit some paperwork to the government in order to register a trademark. In most countries, if you do not apply for a trademark, you do not have any rights to your trademark; the United States is an exception. Non-registered trademarks in India are also given priority under the Trademark Law of 1999[iii]. In most countries, such as China, however, if your trademark is not registered, you have no rights to it. A trademark is registered with retrospective effect from the day on which the trademark application is submitted in Bangladesh, according to Section 20(c)[iv] of the Trademarks Act 2009[v], indicating that trademark registration is important in Bangladesh as well.

As a result, trademark registration is critical for the trademark’s security. Additionally, trademark registration is required for both worldwide and internet businesses. For doing international commerce, there is a Madrid system. However, under the Madrid system, you must first register your trademark in your home country before filing for registration under the Madrid system, which will make your brand internationally useful.

As a result, trademark registration is critical for ensuring the protection of one’s trademark. In most countries, a registered trademark takes precedence even when filing a lawsuit.

Limitations apply to trademark decisions

You may discover that you won’t be able to register a mark that is already being used by someone else for the same or similar items or services. However, when you consider your trademark, you should keep in mind some of the additional barriers to registration. A few words, a combination of words, or images will not be registrable in any circumstance, regardless of their accessibility.

In Canada, for example, you won’t be able to register a trademark that includes a person’s or family’s name, a term used in a different dialect, or a phrase or image that closely resembles a prohibited mark. Another mark you won’t be able to record is one that is clearly demonstrative. A clearly distinguishable mark shows a feature of the goods or services with which it will be used. For example, you are unlikely to be able to register the word “cold” as a brand name for use with Cold Coffee. This restriction was put in place to ensure that various brokers can advertise their products and services without fear of being sued for trademark infringement.

A mark must be non-descriptive, in the sense that it is misleading to the broad public, in order to be registrable. If you’re selling little bottles of coconut water, for example, you probably won’t be able to register “Milk Shots.”

Your trademark application will be examined when you deliver it to ensure that it meets the requirements for a registered trademark in that ward. If it is determined that you do not consent, the analyst will issue a report to that effect, and the registration of your mark will be contingent on your ability to overcome the inspector’s concerns.

Case studies:-

Crocs Inc USA v. Bata India Ltd and Ors.

Crocs USA gathered evidence against shoe companies alleging infringement of their design no. 97685, which is valid until May 28, 2019. In an action for plan encroachment, the plaintiff was unsuccessful because the plans on which the claim was registered were determined to be neither fresh nor unique, and as a result, the Plaintiff pressed for an injunction on the grounds of passing off, which is a precedent-based activity. It was decided by an earlier decision of five adjudicator seats that a passing off claim may be sustained as long as the components of design are not used as an exchange mark, however a greater trade dress get up, presentation of the product through its packaging, and so on. A passing off has been ruled to be valid for components of trade dress and in a general outfit, other than registered plan and without regard to the registered design.

The Defendant contended that if the passing off of components of the design as a trademark is asserted, no passing off action exists. The passing off suit is not maintainable since the aggrieved party relied on the use of its registered plans as a shape exchange mark and no other features qualifying as trade dress that are not part of the registered design have been pleaded or pointed out. The court agreed with the Defendant that the offended party did not have the opportunity to exhibit any other features other than the design that is used as a trademark. As a result, the court provided an input that not only the enlisted configuration can’t be a trademark at the time of plan enrollment, but also from that moment forward. Likewise, the court ruled that an enlisted configuration cannot contain an exchange mark; regardless of whether there are features other than those enrolled as a plan that are alleged to be used as trademarks and for which goodwill has been obtained, it is only those additional highlights that can be secured as a trademark. When a copy of a registered design is made, an action for infringement under the Designs Act is the sole option.

Big-tree Entertainment Pvt Ltd v. D Sharma and Anr.

The Plaintiff filed a trademark infringement complaint in order to restrict the Defendant’s use of the trademark “BOOKMYEVENT” or the prefix “BOOKMY.” The court would not grant an order since the prefix “BOOKMY” is fairly common in the English language, and the improved visuals are also completely distinct, making it unlikely that buyers would be confused by the aforementioned trade names or marks. The court further stated that the plaintiff’s mark ‘BOOKMYSHOW’ had not achieved exclusivity.

Conclusion

Trademarks are unquestionably important in business. When doing business or thinking about launching a startup business, the first thing you should do is register the brand’s trademark for the sake of the trademark’s security and to preserve the product’s quality in the eyes of the consumers. If you intend to sell your products internationally in the future, you must first register your trademark in all of the countries where you intend to expand your business before any other firm may register the same trademark in those countries. Even if you expand your business later, you may have your trademark registered in the countries where you want to do business so that no one else can register the same trademark before you. Furthermore, a trademark is a vital component of every new firm in order to protect the brand and other components associated with it.

[i] Trade Marks Act 1999, Act no. 47 of dated 30th. December, 1999.

[ii] The Trade Marks Rules, 2002, Central Government Act,

[iii] Id at 1.

[iv] Trademark act, Section 20(c), 2009: Subject to the provisions of section 15, if the application has been opposed and the decision in opposition has been taken in favour of the applicant.

[v] The Trade Marks Act, 2009, Act No. 19 of 2009.

References

1. Chris Heer, 5 Things Startups Need To Know About Trademarks, https://startup.unitelvoice.com/trademarks
2. Vijay Pal Dalmia, Trademarks Law In India – Everything You Must Know, (Dec. 18, 2017), https://www.mondaq.com/india/trademark/656418/trademarks-law-in-india–everything-you-must-know.
3. Prachi Darji, Importance of trademark for start-ups, (Jul. 25, 2018), https://www.myadvo.in/blog/importance-of-trademark-for-start-ups.
4. Yash Khurmi, Importance of Trademark Registration in India, (Jul. 10, 2021), https://www.e-startupindia.com/learn/importance-of-trademark-registration-in-india/.
5. Kahini Jhaveri, Know How Trademark Registration Can Impact Your Business, (Mar. 18, 2019), https://www.legalwiz.in/blog/reasons-why-trademark-registration-online-is-best-for-your-business.