A Quick Breakdown On Different Ways Entrepreneurs Can Raise Capital

“Capital isn’t a pile of money sitting somewhere; it is an accounting construct.” - Bethany McLean 

As entrepreneurs, one of the most critical phases in our journey is raising capital to fund our vision. The right type of capital can significantly shape how our businesses evolve, the partnerships we forge, and the control we maintain over our ventures. 

When we started Suburban Diagnostics, our aim was to address the gaps in the diagnostic testing market - these services were largely confined to hospitals. There were very few organised players in the market, which made my resolve stronger to bridge this gap. 

I began my journey as a self-funded entrepreneur and over the years explored different ways to raise capital to grow my venture. With over 30 years of running my venture, I realised that only a few people really understood the meaning and impact of raising capital.

I have gone through my own learnings, many in retrospect. I would like everyone to be privy to this information, to make better decisions, proactively. 

When thinking about capital, it’s essential to understand the various options available—each comes with its advantages and considerations. 

Today, I would like to walk you through the finer nuances of raising capital, the different types available and when you can raise it in your entrepreneurial journey. 

1. Bootstrapping (Self-Funding) 

Bootstrapping is often the first form of capital. Using personal savings, reinvesting profits, or tapping into revenue to grow the business helps maintain complete ownership and control. 

Today, the term ‘bootstrapped’ is used pretty frequently. The amount of capital committed by the founder also displays the level of conviction in the idea. 

While this route encourages financial discipline, it often requires sacrifices in speed and scaling opportunities. A few pros and cons of being bootstrapped - 

The upside:  

• Full ownership and control
• No debt or interest payments
• Encourages financial discipline and lean growth

The downside: 

• Limited by personal resources
• Growth can be slower
• Higher personal financial risk

When to raise:

• Early stages, especially during the idea validation or proof of concept phase.
• When you want to retain 100% control and avoid external involvement.
• If your business has low capital requirements in the beginning.

I think we were ‘Chappal strapped’ because we didn’t have a sizable amount to start our business. We literally did it with whatever little savings we had. 

2. Debt Capital (Loans & Credit Lines) 

Borrowing through loans, credit lines, or other debt instruments is a common path for entrepreneurs. Banks, financial institutions, or alternative lenders offer debt capital. 

In 1994, our first round of institutional capital came from MSFC (Maharashtra State Financial Corp). My father was the wind beneath my wings. He helped me secure seed capital of INR 23 Lacs from MSFC. For this we had to invest 20 to 25% and they gave 75 to 80% of the total money and that’s how we really started our operations. As we grew, we raised capital by taking bank loans to help us scale our network and acquire new equipment.

One piece of learning I would like to share with entrepreneurs - whatever money you raise, invest it strategically into the business. Put it to grow your operations, build scalability and invest in the people you hire. A few pros and cons of raising debt - 

The upside: 

• You retain ownership of the company. 
• Predictable payment schedule. 
• Interest may be tax-deductible. 

The downside: 

• You are on the hook for repayment with interest, regardless of your business's performance. 
• Requires strong credit or collateral
• Can put pressure on cash flow

When to raise:

• When you have predictable revenue streams or assets to use as collateral.
• For businesses with a clear path to profitability and the ability to service debt.
• When you want to avoid giving up equity.

Entrepreneurs should consider this option if they have predictable revenue streams or assets to use as collateral.

3. Mezzanine Financing 

When the founder is unable to raise capital/debt from a bank and also wants to postpone an equity raise, these options should be considered. The returns expected by the lender are between that of a debt instrument and equity, hence the name “mezzanine.” 

Venture Debt 

Venture debt refers to loans tailored specifically for the needs of venture-backed startups in the innovation-driven economy. It offers an appealing financing solution for founders looking to extend their runway, reduce capital costs, and sustain their focus on innovation.

It can provide the companies three to nine months of additional capital without the same level of dilution as an equity raise. It can help founders accelerate their growth, cover costs and achieve milestones until the next funding round. 

The key point here is - Venture debt requires underwriting. It considers the equity raised by the business and lays emphasis on the founders ability to raise further capital over cash flow. 

Typical Use: Usually used by startups in early stages to extend their runway without diluting equity.

Key Features:

• Mostly used in conjunction with equity rounds.
• Less dilutive than equity financing.
• Interest payments and potential equity kickers (warrants) as part of the structure.

Risk/Return: Lenders are betting on the startups growth; hence, interest rates are higher, but it’s less dilutive than equity.

Private Credit 

This is another form of private borrowing that mainly leverages the stake of the founder as collateral, with the hope that a larger event like an M&A or a strategic sale is likely in the near future. Mostly structured debt/private credit is used by slightly more mature companies (generally profitable and with good cash flows).  

4. Equity Capital (Angel Investors, Venture Capital & Private Equity)  

Equity financing involves raising funds by selling shares of your company. This route is often taken by businesses with high-growth potential. Venture capitalists typically provide significant amounts of capital that can be instrumental in scaling a business. 

Angel investors, seed investors, VCs and private equity (PE) investors - the four layers of equity investment - have the financial capacity to fund businesses through multiple stages of growth, often providing millions of dollars at each round (Seed, Series A, Series B, etc.).

Consider this your Shark Tank moment - You have to put forth the value your organisation brings to the world, how is it different, what are the numbers saying, and does it have a scalability model. 

Angel investors, Venture Capitalists (VCs), Private Equity investors bring more than just money; they often offer mentorship, networking, and strategic advice. However, giving up equity means you’ll share control and decision-making. 

Over multiple rounds of capital raises, I gave up nearly 40% equity to a sole investor. When it came time to offer them an exit, prospective financial or strategic investors demanded over 50% ownership and control of operations. This left me with no choice but to accept a full sale, as I wasn't willing to operate in a minority, non-controlling position.

Every investor will always look at the true cost of the company. That means you must have a clear P&L account that lays down the inflow and outflow of cash, including the salary you pay yourself. In short - 

The upside: 

• Access to large sums of money
• Investors often provide mentorship, networks, and strategic advice
• No repayment required (investors share the risk)

The downside: 

• Dilution of ownership and control
• May create pressure for high growth or exit strategies
• Investors may influence business direction and decision-making

When to raise:

• High-growth startups looking to scale quickly and require substantial funding.
• When seeking not just money, but strategic partners and advice.
• When you are willing to share ownership and decision-making.

Entrepreneurs should weigh this trade-off between capital and control.

A key lesson I learnt from a dear friend - dilute as little as late and explore all forms of capital raise before considering equity. Equity is the most expensive form of capital. 

5. Grants & Government Funding 

Many governments offer grants and funding programs to encourage entrepreneurship, especially in specific sectors like technology, healthcare, or sustainability. 

Grants and government funding in India provide financial support to businesses, startups, and entrepreneurs, especially in sectors like technology, innovation, healthcare, and social development. The Indian government has introduced several schemes and initiatives to encourage entrepreneurship and innovation.

Key programs include:

1. Startup India: Offers financial assistance, tax exemptions, and funding through funds of funds to startups with innovative ideas.
2. Pradhan Mantri Mudra Yojana (PMMY): Provides loans to micro and small enterprises through Micro Units Development & Refinance Agency (MUDRA).
3. Atal Innovation Mission (AIM): Promotes a culture of innovation and entrepreneurship through grants for incubators and startups.
4. Stand-Up India: Supports women and SC/ST entrepreneurs by providing loans for starting new ventures.
5. MSME Support Schemes: The Ministry of Micro, Small & Medium Enterprises offers grants and subsidies to MSMEs for technology development, marketing, and capacity building.
6. Biotechnology Industry Research Assistance Council (BIRAC): Supports biotech startups through grants and seed funding.

These initiatives aim to reduce financial barriers and promote business growth, innovation, and social impact. Entrepreneurs need to meet eligibility criteria and apply through relevant government portals or partnering institutions. 

The upside: 

• Non-dilutive (you keep full ownership)
• No repayment required
• Often sector-specific, favouring innovation and impact-driven businesses

The downside:

• Highly competitive and complex application processes
• Limited availability based on industry or geographic location
• Time-consuming reporting requirements

When to raise:

• When your business aligns with specific government programs or initiatives.
• If you are operating in sectors like technology, healthcare, or sustainability.
• For early-stage funding when you're not ready to give up equity or take on debt.

These funds don’t require repayment and don’t dilute your equity, making them highly attractive. The challenge? Grants are competitive, and the application process can be time-consuming.

6. Unsecured Loans 

Loans that do not require collateral, meaning the lender relies on the borrower’s creditworthiness. It is suitable for businesses with strong financials but without collateral to pledge.

Key Features:

• Easier and quicker to obtain compared to secured loans.
• Short-term, with higher interest rates due to higher lender risk.
• Based on the borrower’s credit score and financial history.

Risk/Return:

• Higher interest rates than secured loans, but no collateral needed.

Each option offers different levels of risk, flexibility, and cost, depending on the company’s size, stage, and capital requirements. 

7. Revenue-Based Financing

A newer model, revenue-based financing (RBF), offers capital in exchange for a percentage of your future revenue. 

The upside:

• No equity dilution
• Payments fluctuate with your revenue, offering flexibility
• Easier to qualify for than traditional loans

The downside:

• Can be more expensive than traditional loans in the long term
• Less control over cash flow due to fluctuating payments
• Not suitable for early-stage companies without stable revenue

When to raise:

• For businesses with stable and predictable cash flows, such as SaaS companies or eCommerce businesses.
• If you want to avoid giving up equity or are not interested in traditional debt.
• When you need capital for growth but don’t want the pressure of fixed repayments.

Example of Revenue-Based Funding Providers:

• GetVantage (India): A platform that helps Indian businesses access non-dilutive growth capital based on future revenues.
• RevUp Capital: Specialises in providing RBF to SaaS companies.
• Clearco: A global RBF provider that supports eCommerce and SaaS businesses.

Who Can Benefit?

• High-Growth Startups: Businesses that anticipate rapid growth but want to avoid equity dilution.
• SaaS and Subscription Models: Companies with predictable recurring revenue streams, ideal for revenue-based repayment.
• E-commerce: Businesses with scalable, predictable sales that require capital to grow.

It’s ideal for businesses with consistent cash flow but who want to avoid equity dilution or traditional debt. Payments scale with your revenue, so during slower months, you pay less. 

It offers flexibility, but this capital can be more expensive over time than traditional loans.

8. Strategic Partnerships

Another capital option entrepreneurs often overlook is forming strategic partnerships. Large corporations or established businesses may invest in startups that complement their operations. In exchange, they gain access to your innovation, and you get the capital, resources, or market access you need. 

Examples of Strategic Partnerships:

• Tech and Product Development: A larger tech firm may invest capital in a smaller, innovative startup in exchange for co-development rights or early access to new technologies.
• Market Expansion: A global company might partner with a local startup to gain easier access to regional markets, while the startup benefits from funding and increased market visibility.

The upside:

• Access to capital, resources, and networks
• Can accelerate market entry and growth
• Partners may provide operational support or expertise

The downside:

• Loss of some control and autonomy
• Potential conflicts of interest if goals aren’t aligned
• Partners may influence product development or strategy

When to raise:

• When you’re looking for more than just money—partnerships can provide market access, distribution, or technology.
• If your business complements a larger corporation’s products or services.
• When you're ready to scale and need a strategic boost.

Be mindful of alignment in vision, as such partnerships can influence business direction.

9. Public Market Funding 

Public market funding is a way for companies to raise capital by selling shares of themselves to the public. Public markets are financial markets where investors can buy and sell securities, such as stocks, bonds, mutual funds, and ETFs, on exchanges. 

A typical example of a public market funding would be an IPO (Initial Public Offering). It is a process of making the company public and issuing new shares for the first time. A few key recent examples are - Orient Technologies, P.N.Gadgil Jewellers, Bajaj Housing Finance, FirstCry, etc. 

While companies get access to a wider pool of capital, it can be done when the company has shown considerable capital for growth, expansion, etc. There are several regulatory bodies involved to assess the health of the company before approving an IPO process. 

The biggest aspect of an IPO is continuous shareholder results. This type of funding is most preferred after reaching a sizable revenue turnaround and steady YoY growth. 

Consider all factors before raising capital  

Selecting the right type of capital can set the tone for your company’s growth trajectory. There is no one-size-fits-all answer—what’s most important is aligning your capital strategy with your business goals, growth stage, and appetite for control. 

As entrepreneurs, raising capital isn’t just about money—it’s about the future partnerships, expertise, and strategic guidance that come with it. Be intentional about the kind of capital you seek and choose partners who are as committed to your vision as you are.