Taking a 7 Lakh MSME loan for rapid prototyping -- good or bad idea?

[zimrath]

a) I'm from a good college.

b) I have 1.5 years left in college -- if it fails within 1 year I can quickly change track, sit for placements and then get out of debt within a year.

c) If I use the funding judiciously, I can return a part of the original loan once other funding avenues pan out.

d) I can run simulations and shtick regarding the prototype.

Time is REALLY of the essence in this particular domain in my opinion -- I could be wrong.

((And no, this is a HARDWARE startup. Can't use AWS or Azure credits and code up an MvP here))

PS: How important is it to quickly incorporate and get DPIIT status (as well as GSTIN and the current account)? Also, if, for the first year at least, it is a single-person startup, then should I incorporate as OPC or as LLP ?

 

[queenos]

@zimrath I am from IIT and I dropped out when I had 1.5 years left to start a hardware startup. So I maybe able to answer you.

You haven't mentioned anything about the market so I have a couple questions. Have you found a demand in the market? Do you have potential customers? If its a hardware startup, generally you can ask them for a partial advance payment before delivery, but you'll need to be a registered company. It helps if these are people in your extended network (that's how I started). If people don't want to pay in advance, you can also sign up a contract with them to guarantee payment after delivery, this will make it easier to get a loan, and you won't have to worry about paying it off.

If you're still in RnD phase, I'd suggest you to find a base of potential customers first. 3-4 won't do, at least 10 if this is B2B, at least 50 if its B2C. The number of people who say "yes" to you only to back out in the end because it doesn't cost them anything to say yes right now is more than you imagine. If its b2b you should write up a agreement, mention the date of delivery and the date of payment in the agreement.

You should not be thinking about taking a loan unless you have done adequate market research. After that's done, think about whether you can build something to demo your potential customers and take orders. When starting out, always sell first, build later.

You can take out a loan under msme scheme in Startup india. I own two startups with DPIIT certificates so it should not be a big deal to get certified. I haven't taken a loan so I don't know much about the process and requirements, but I get enough calls everyday from Startup India agents asking me if I require a loan. So I know that there's enough people to guide you with that just a call away.

If you think you simply can't get potential customers without a fully functional product (this is quite rare), then see if you can convince an Angel to finance you in exchange for equity. 10L is a small amount for any angel. This will minimize your risk. They can even help with network needed to get to potential customers.

Remember the most important thing you should be worried about right now is market demand, product/prototype comes later. Talk to your potential customers.

Edit: About your last question, opc or llp hardly matters, the cost of compliances have gone down a lot, it cost me around 15-20k annually for an LLC (pvt Ltd). I'd suggest you to get a private limited because its more trustworthy (some companies require you to be pvt ltd to do business with you). No need to worry about GST till your ARR exceeds 20L (this rule may have changed, consult your CA). On that note, find yourself a good CA (not necessarily expensive), this will save you a lot of headache and money in the long run, learnt the hard way.

 

[zimrath]

@queenos It is a hardware startup in a domain where there is no credibility whatsoever without at least a prototype.

And there is a DEFINITE need. One product line will have at least 20 customers (intl) in the initial MK 1 level design -- and another product line is one which will have very wide adoption (hint: any engineering college or R&D institute worldwide wanting to have affordable yet high-quality actuation will like our product) in the MK 1 design itself.

And the second product line... would be an input to the first one.

But I can't do the second one alone. I need 3 high-quality engineers from different domains* and I can only get them if I pay high-quality salaries. So for the time being, focus on the first product line (which, though the user base is small, would have wide enough margins for me to either fund the second product line myself or to show the viability of this to raise some basic capital later on).

Also, there is only one domestic competitor (who are probably only around 6 months ahead of me) in the first product line and NO domestic competitor in the second product line.

*and no, there is a limit to how far I can stretch and go beyond. I have reached the limits of my generalist approach to picking up skills from different domains -- after a point, experts, will be needed.

EDIT: The MK III design of the first product line (after 2-3 years of R&D) would have solid worldwide adoption -- B2B.

EDIT2: I think I can share more details over DMs.

 

[queenos]

@zimrath This is great. But I'm sorry I may be missing something. It still feels like speculation, an idea in your head. That's not a problem that's a good start. Have you gone and talked to people and found out if your speculations are correct? You mentioned any engineering college will like your product. Did you try to reach out to your college's HoDs? Maybe they can put you in touch with the Director or the committee members that make the decisions on buying equipments? Then perhaps you can reach an agreement. Good colleges usually have HoDs or committees that support you in ventures including financial support. For e.g. my first startup I had an HoD from ECE department guide and support me. He personally invested his money into the idea for the RnD, although the CoE could've funded us too, I guess he wanted a piece of the startup for himself. You can try reaching out to other colleges' authorities via your friends.

My point is, when I said find a market need, I may have understated "talking to potential customers". Please talk to people about your idea (people who you think would want the product), regardless of whether you have credibility or not. There is no other way to find a need. If you can't do that, then maybe you can work for the competitor startup that you mentioned, and build a network that way. Once you have experience in the market, you'll be in a better position to find and solve the need.

You should be able to find potential customers before building the product. I don't see any reason that you can't.

 

[hiding110268]

@zimrath no hardware still 7L funding needed for building a prototype??????????

also do LLP (less compliance), where to bring the partner? jisko nominee rakhne vale the OPC me.

 

[hiding110268]

@zimrath OP, startup india fund 20L funding for prototyping building n testing if its innovative product.

If it's IOT then also there's scheme 50L-1cr funding (not limited to prototyping)

 

[zimrath]

@hiding110268 I've heard mixed things regarding SISF depending on the incubator. Also, it takes time to materialize. Like, 3-4 months, right?

EDIT: It's robotics.

 

[hiding110268]

@zimrath why the rush but? @zimrath

 

[hiding110268]

hi @zimrath if you DM'd me, sry but my chat isn't working.

My reddit mobile app is also half working, no notifs no chat.

its not limited to my isp, even thru mobile internet not connecting, only feed working.

we can chat here or you can share some links.

 

[zimrath]

@hiding110268 Please ping me some contact detail at ceo@daredynamics.com or you can find me on LinkedIn through daredynamics.com . I'll chat with you there