The typical funding life cycle of an Indian startup varies with its age. So a company that’s been in existence for a year is likely to be bootstrapped, and over the years would explore funding options such as angel/seed funds/venture capital/private equity and banks. Those who have been in business for eight years and more will find funding through public market and/or private equity.
So far, the funding appetite of startups has been fulfilled by traditional investors. However, in the recent past, lack of funding in the bridge stage has led to many of these startups being acqui-hired (acquired primarily for their talent) or been through a merger at the initial stage itself.
In recent years, banks have become a valuable partner for startups looking for short-term capital requirements as well as advisory services.
Startups, especially early stage ones, have different business models than traditional businesses. For instance, some work on the concept of freemiums to create an audience before monetising it. Some don’t generate revenues until after one or more years of operation. Therefore, their working capital requirements are different and need to be financed accordingly. In the initial years, they also need investment credit for other aspects, such as financing tangible or intangible resources, for example R&D which is essential for innovation.
This is where early-stage startups have a choice of the different paths they can take: approach angel investors, take out an unsecured, interest-free “loan on trust”, or apply for loans specifically for innovation projects and startups, or opt for crowdfunding. Once they have taken off and are in the flight stage, startups look to build a risk-capital fund to finance their working capital requirements or to expand their geographical footprint. Once they have reached maturity, they may need more traditional financing to consolidate their business.
And this is where banks have begun to play a key role in the startup ecosystem. These days, banks have a finger on the pulse of the needs of startups to finance them appropriately. This is a far cry from the old days. Today, banks have evolved to cater to startups’ needs that go beyond just funding.
Depending on the stage of the startup, banks modify the role that they play in a startup’s journey. From being an enabler at the early stage, offering ease of banking and an efficient way to manage working capital with new age plug-n-play solutions, providing end-to-end advisory services, especially on regulatory matters, and helping with financial discipline, to acting as a supporter and validator in the growth stage, or a ‘Coach’ when the companies go global– where managing global liquidity, control, visibility of funds is key.
With the presence of many alternative lending platforms for startups, banks are also doing away with rigid procedures for loan approvals and disbursals, and most banks these days offer working capital specifically for startups. Keeping in mind that startups often have to deal with other cumbersome documentation, financial and management issues, banks try to ease the account opening process, with zero to negligible balance maintenance requirements, and waivers on initial processing fees.
Banks are great advisory platforms for startups and entrepreneurs and the right banking partner plays a key role in ensuring that startups have everything -- from smart tools to the right alliances in technology and banking, as well as digital and cash management facilities – at their disposal.
Today, even growth-stage startups are keen to explore the market overseas, and having a global bank as a partner can help realise this dream for them.
The banking needs of B2B and B2C startups are different. B2C businesses need to examine if a bank can support multi-channel collections, and evaluate how effective their reconciliation tools are and whether automation, agility and scalability are key. B2B companies may want to prioritise reconciliation and payable efficiencies. What’s common for both, however, is that their banking partner should have a strong balance sheet and credit rating, especially when they are opting for the next round of funding and if there are international investors.
It is crucial that startups choose the right banking partner who understands their business and believes in their growth. In fact, choosing the right banking partner is as important as selecting the company’s core team and can go a long way in helping the founders realise their vision. What they need to look at is:
(a) a bank’s commitment to startups
(b) a bank’s vision and the work it is doing in the space
(c) be clear about the facilities they are likely to enjoy. For instance, will they be treated as a retail client holding a zero balance account or will they enjoy a corporate relationship with dedicated attention?
(d) they must also look at their overall vision. For instance, if their vision is to go global, then they much choose a banking partner who can help them get there.
Detailing why HSBC India is a preferred bank for startups and all their banking needs, Prakash Jaiswal, Country Head ofBusiness Banking, HSBC India, says, “We offer simple and agile banking. When it comes to playing to your strengths, we do what we do best – banking. So, as a startup, you can focus on what truly matters. We ensure that banking for you is hassle free, so that you don’t just keep up with the changing times but also surge ahead. Our market-led and future-ready solutions start working out of the box, and are simply plug and play. Each of our solutions comes backed by years of experience and is reinforced with advanced and state-of-the-art technology.”
Some benefits that that HSBC India offers startups include:
To know more about HSBC India’s dedicated solutions for startups, click here to show interest.