Factors Affecting Funding Choices of Entrepreneurs in India: An Analytical Study

Funding Choices of Entrepreneurs in India encompass a multitude of variables that shape the decisions made by entrepreneurs in securing financial resources for their ventures. These factors include the availability and accessibility of formal financing options, such as loans and investment capital, as well as the challenges related to collateral requirements and the stringent criteria imposed by financial institutions. Limited awareness and understanding of financing alternatives among entrepreneurs also contribute to their funding choices. Moreover, the competitive landscape and market conditions exert a profound influence on funding decisions, with the presence of unanticipated competition, market volatility, and the need for rapid growth and innovation leading entrepreneurs to seek funding from unconventional sources or adopt bootstrapping strategies. Understanding these factors is crucial for entrepreneurs, policymakers, and financial institutions to develop initiatives that enhance the accessibility of formal financing, promote financial literacy and entrepreneurial education, and foster a supportive ecosystem for entrepreneurs to thrive. Financial institutions can tailor their offerings to meet the unique needs of entrepreneurs, while policymakers can implement measures to create an enabling environment for entrepreneurial finance. By comprehending these factors, stakeholders can effectively address the funding challenges faced by entrepreneurs in India and facilitate their entrepreneurial endeavors for sustainable economic growth and innovation.


Introduction
The funding choices made by entrepreneurs in India are influenced by a wide range of factors that have a significant impact on their ability to secure financial resources for their ventures.
These factors encompass various aspects, such as the availability and accessibility of formal PSYCHOLOGY AND EDUCATION (2018) 55(1): 444-451 ISSN: 1553-6939 445 www.psychologyandeducation.net financing options, the requirements related to collateral, and the stringent criteria imposed by financial institutions. Entrepreneurs often face challenges stemming from limited awareness and understanding of alternative financing sources, which further shape their funding decisions.
Moreover, the competitive landscape and market conditions play a crucial role, as the presence of unanticipated competition, market volatility, and the demand for rapid growth and innovation drive entrepreneurs to explore unconventional funding sources or adopt bootstrapping strategies. Figure 1 shows the factors that affect the funding choice of startups:

Figure 1 Factors Affecting the Funding Decision
In addition to external factors, the characteristics, and attributes of entrepreneurs themselves heavily influence their funding choices. Factors like their level of experience, the strength of their networks, their industry knowledge, and their perception of the market potential play a pivotal role in shaping their decisions regarding financing options. Understanding these internal and external factors is vital for all stakeholders involved in supporting entrepreneurship in India. Entrepreneurs can benefit from comprehensive knowledge of these factors to make informed decisions about funding, enabling them to navigate the funding landscape effectively. Policymakers can leverage this understanding to develop and implement targeted initiatives that enhance the accessibility of formal financing, foster financial literacy and entrepreneurial education, and create a supportive ecosystem that nurtures entrepreneurial growth. Startups go through many challenges with respect to marketing and making their place in the business and to economise the expenses they take help of social media (Kudeshia & Mittal, 2015).
Financial institutions also have a significant role to play in addressing the factors affecting funding choices of entrepreneurs in India. By tailoring their financial products and services to meet the unique needs of entrepreneurs, they can provide flexible loan structures, investment options, and advisory services. This tailored approach can bridge the gaps between entrepreneurs' funding requirements and the offerings available in the market. By collaborating with entrepreneurs, policymakers, and financial institutions, it becomes possible to create an environment that fosters entrepreneurial success, fuels economic growth, and encourages innovation. By addressing the challenges and leveraging the opportunities associated with funding choices, stakeholders can collectively contribute to the sustainable development of entrepreneurship in India, unlocking its full potential.

Literature Review
An article aims to identify and explore the problems faced by rural entrepreneurs, with a focus on product marketing, financial constraints, and essential amenities such as electricity, water supply, transportation, and energy availability. By reviewing this paper, a comprehensive understanding of the challenges encountered by rural entrepreneurs in India can be gained, providing valuable insights into the factors influencing funding choices in the rural entrepreneurial landscape. (Patel et. al., 2013). Another research examines challenges faced by rural women entrepreneurs in Rajasthan, India. It involves 60 rural women engaged in entrepreneurial activities and uses interviews for data collection. Findings reveal significant problems including lack of supportive networks, financial constraints, and marketing difficulties. These challenges impact existing women entrepreneurs and discourage potential entrepreneurs. Reviewing this paper provides insights into specific obstacles faced by rural women entrepreneurs in Rajasthan, enhancing understanding of factors affecting funding choices. It emphasizes the need for supportive networks, improved access to finance, and targeted marketing strategies to empower rural women entrepreneurs in Rajasthan and similar contexts. (Kumari et. al., 2010). Another paper focuses on the initial stages of venture PSYCHOLOGY AND EDUCATION (2018) 55(1) Data from interviews with 85 MSMEs in Bangalore reveals underutilization of formal sources like banks, with informal sources prevailing. Challenges include collateral assets and financial awareness. Tailored financial solutions and recommendations are proposed. This study contributes to understanding MSME financing and offers insights for stakeholders. (Singh et. al., 2016). Another paper on venture capital and private equity investing in India presents an exploratory study that sheds light on the remarkable growth of the Indian VC and PE industry.
With 850 funds supporting 3,699 enterprises across various industries and regions in the country, the industry has witnessed substantial capital commitments and a significant number of funding rounds. Despite these impressive figures, the industry remains under-researched. This paper fills this gap by providing an in-depth analysis that highlights the industry's role as a source of growth financing for innovative and technology-led businesses. Furthermore, the study uncovers the highly competitive nature of the market for managing VC funds, characterized by frequent entry and exit of fund management entities. Overall, this research contributes to a better understanding of the dynamics and evolution of the VC and PE industry in India, offering valuable insights for investors, entrepreneurs, and policymakers. (Sabarinathan et. al., 2017). Figure 2 discusses about the challenges in startup financing: Research highlights the significant challenges faced by MSME entrepreneurs in India, ranging from financial constraints to competition and regulatory factors. Entrepreneurs play a vital role in the economic development of the country, utilizing their passion, skills, and determination to establish and grow ventures. They act as catalysts for change, working towards the betterment of their communities and driving progress. Entrepreneurs demonstrate their ability to ideate, execute plans, and collaborate with teams to bring their ideas to fruition. However, they encounter various obstacles, including capital acquisition, reliable suppliers, loyal customers, competent employees, unexpected competition, and the need to navigate everchanging industrial trends and government regulations. Understanding these challenges is crucial in developing effective policies and support mechanisms to foster the growth and success of MSME entrepreneurs in India. (Raj and S., 2016). Another paper emphasizes the presence of substantial returns on capital for small entrepreneurs in developing-country contexts, reinforcing the notion that limited access to liquidity constrains these entrepreneurs from harnessing these potential gains. While previous research has predominantly focused on credit access (Karlan and Zinman, 2011), this study stands out as the first experimental documentation of the interplay between the nature of high-return investments available to the poor and the flexibility of microfinance contracts. This contribution sheds light on the importance of considering both the investment opportunities and the design of microfinance mechanisms in addressing the challenges faced by entrepreneurs in low-income settings. (Field et. al., 2013). Finally, this paper investigates the implementation of green banking practices in Indian companies and their impact on organizational performance. This study provides insights into the role of sustainable banking practices in promoting environmental responsibility and improving the performance of organizations. Understanding the models and implications of green banking can inform entrepreneurs about the potential benefits and opportunities associated with incorporating sustainability practices into their funding choices. (Bhardwaj et. al., 2013)

Conclusion
This study examines the factors that influence funding choices of entrepreneurs in India, highlighting challenges such as limited access to formal financing, inadequate collateral assets, lack of financial awareness, and unanticipated competition. Entrepreneurial characteristics, including experience, networks, industry knowledge, and market potential, significantly shape funding decisions. Policymakers can enhance the funding ecosystem by improving access to PSYCHOLOGY AND EDUCATION (2018)  While acknowledging the study's limitations in terms of its context-specific findings, future research can provide a more comprehensive understanding of funding choices across regions, sectors, and venture stages. Nonetheless, this study provides practical implications for entrepreneurs, policymakers, and financial institutions, empowering entrepreneurs to make informed decisions and supporting the development of an enabling environment for entrepreneurial finance in India.