Financing options available to MSMEs (Equity Funding)

MSME Sector in India

Part 18

Equity Funding

Venture capital provides financial assistance primarily by way of equity or equity-linked capital investment carefully scrutinizing projects. Typically, MSMEs which are involved in commercializing innovations and high-end technologies need access to the VC fund.

These firms need finance during the initial stages of conceptualizing their product offerings (seed phase) and during development and marketing phase.

2 Equity Funding–

Equity Funding

Besides infusing capital, VCs also bring expertise, superior advice and other skills that help the MSME to develop marketable products. They also seek to provide overall guidance and mentoring support to IT SMEs so as to enable them to realize their growth potential and gain competitive edge in both domestic and global markets.

Typically, the VC provides assistance to the entrepreneur in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, etc.

Equity Funding

Their main aim is to earn higher returns on their investments. In addition to that, they also take active part in the management of the company and provide expertise / involve in the board decisions of the firm. Furthermore, VC funding improves the credibility of the MSME and increases the chances of receiving Bank finance.

Angel Investors

Angel Investors

An angel Investor is typically a HNI or network of affluent individuals who/which provides capital to a start-up in exchange for equity. Angel investors normally invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally-managed fund.

Typical investment made by the Angel investor ranges between INR 25 lakhs to 5 crores.

Angel Investors

Indian Angel Network is one of the largest angel networks in the country with almost 90 individual members and institutional members like SIDBI, IBM, etc. Angel investors are also attuned to the start- up or venture they invest in, thus benefiting the venture not only financially but also by providing the intellectual capital.

Accelerators

Accelerators

Though at a nascent stage, the accelerator model in India has witnessed a significant surge in the number of accelerators in recent years. Typically, accelerators provide assistance around 4 core areas – Strategic, Financial, Operational and Collaboration.

With the aim to create a conducive eco-system for the venture capital in the MSME sector, the government proposes to establish an INR 10,000 crore fund to act as a catalyst to attract private capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies.

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