Banks or VCs; Where Should Startups Seek Funds? Essay
Startups have always yearned for VC funding and have been slightly unaware of the advantages of seeking the same money from government bodies. Dr. Som Singh, founder and trustee of Center for Entrepreneurial Excellence (CEE), spoke to Entrepreneur India about the galore of advantages that startups can avail by partnering with government funds and organizations. Through CEE, Som helps startups avail uncollateralized loans from Startup India policy, SIDBI Growth Capital and Equity Assistance, Lean Manufacturing Scheme for MSMEs, Credit Linked Capital Subsidy Scheme and SIDBI Revolving Fund for Technology Innovation.
“There are resources that are available from the government which the startups or SMEs don’t even know about. Why don’t they know about it? Because, they information is too complex and secondly they feel that the process is too stringent. CEE’s job is to untangle both these things,” she said.
Dr. Som has been associated with Nasscom 10K since its inception 3 years ago. As a mentor, investor and advisor, she has invested in Tooki Taki and Bookpad both of which were 10K accelerated companies. She has been the business strategy and marketing advisor for most 10k warehouse startups.
According to Som, CEE indentifies the loans that are available with the government and identifies the opportunities that are there for the startups. If a startup manages to secure a loan from CEE, the entrepreneur is then responsible to at least educate six other people and help expand the community like an evangelist .
Why are government funds a better option than VC money?
Speaking about the benefit of getting funded by government organizations over VC money, Dr. Som said that VCs were dependant on people to come as individuals and make funds and in some cases on international banks to pool in.
“Government has allocated Rs.10,000 Crore through different public sector banks who have been given a certain mandate. These banks have a target of disbursements and startups need to get the funding,” she said.
“Government related funds is a better alternative because VCs mostly fund tech companies. Is tech the only way of making business? Not really! A woman, who is making jewellery at home has the potential of making millions! Why should she not fly because some VC is not funding it!” she adds.
Banks – a much better alternative
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Dr. Som emphasized that banks are a far better alternative for three main reasons. “Banks are less intrusive than VCs. Banks are backed by the government and therefore your chances of getting your loan are dependent on your credit history and not on the technology or the education background. You may not even be a graduate, the bank doesn’t mind as long as you have a credit history and the ability to pay back,”
“Thirdly in the case of VC funding , when you want to raise a bridge round you have to go back and forth again. Banks don’t ask you for any stake, your stake is all your own. They only expect you to pay the principal money back along with the interest. Hence the bank is always a better option and should be the first option to raise money,” she adds.