September 1, 2018
Undoubtedly, raising funds for business ventures is a herculean task given the fact that the entire process requires adaptation of lateral, unconventional approaches, to connect rightly with investors to get them to believe in the entrepreneurial models of startups. Startup owners rightfully agree that it is no cakewalk when it comes to finding the right connect with investors who today are more focussed compared to their predecessors a decade ago.
In this regard, Entrepreneur India interacted with a multitude of startup owners, possessing lateral models to solve problems along with a fledgling business scalability plan, to understand the issues faced by businesses and the mitigation techniques employed by them to establish the right connect with investors to sell entrepreneurial ideas:
Varun Kumar, Co-Founder of IMAX Program:
IMAX Program is a school-based individualized curriculum program adopted by more than 800 schools and 300,000 students across India. The offering includes teacher manual, textbooks, workbooks, school exams, feedback reports and individualized remedial worksheets. Its USP is using regular school exam data to provide printed remedial worksheets individualised for every student.
The venture has so far raised venture capital in excess of USD 13 Million and is backed by investors such as Aspada, Michael Dell, and Susan Dell.
Problems during fund raising
According to Varun, the top problem faced while raising funds is the doubts in the minds of entrepreneurs about his/her startup thesis fitting in with the investor’s ideas.
“Investors will be optimistic about some biz models and sceptical of others. This may have nothing to do with the entrepreneur per se,” states Varun to Entrepreneur India.
He also adds that factors such as the past experience of portfolio companies, sectoral outlook, and life-cycle of the investment fund, proof points for investment committee, and more play a role in influencing investment decisions.
Mitigation of fund raising issues:
With respect to mitigation of issues, Varun states that a big factor was the identification of key investors who possessed clarity about the B2B EdTech space. He states that these were the investors with “patient capital”.
“From thereon it was understanding their key concerns about the model and answering them,” informs Kumar.
Dealing with investors during fundraising
Kumar was generous to offer insights on dealing with investors during the actual fundraising. He states that investors would initially ask questions about the amount required and the deployment roadmap. This would be based on the thesis and stage of the startup.
“Beyond that, their questions will be along three areas which are customer traction, scale readiness through systems and processes, and financials including customer acquisition costs,” advises Kumar.
He also advises entrepreneurs to be spend significant time, with investors, to communicate the business and sectoral opportunities.
“Preparation can involve meeting portfolio companies before the investors and knowing about the theses. It is okay to be upfront about asking the investor’s thesis so that time is saved,” signs-off Kumar.
Thiagarajan Rajagopalan, Founder & CEO, Tripeur.
Bengaluru-based Tripeur offers solutions to corporate travel, this venture recently raised capital amounting to $600,000. Investors include Rajul Garg and Japan-based Incubate Fund.
Problems during fund raising
According to Rajagopalan, getting the right advice on legal and financial matters relating to funds is a key issue faced during the process of raising funds. He also throws light on other issues such as the mismatch in the timeline of the investor and entrepreneur; and the mismatch in the vision of both sides.
“Getting incompatible investors onboard will lead to a lot of problems in the future,” cautions Rajagopalan.
Mitigation of fundraising issues:
Rajagopalan has a list of pointers following which entrepreneurs (existing as well as newbies) can get into the good books of investors:
Spending a lot of time with the investors over several meetings, and going over details of strategy to ensure that there is alignment. This should take care of finding the right investors
Talking to multiple investors concurrently will give the entrepreneur the freedom to put together the right syndicate at the right time
Reading a lot and talking to lawyers and chartered accountants who are experienced in venture financing, to obtain clarity about the nitty gritty’s of raising funds.
Dealing with investors during fundraising
To decode investor queries, Rajagopalan advises entrepreneurs to have clarity on the markets that they look at addressing. Other key points to keep in mind are the innovation (Business USPs), and scalability.
CS Murali, Chairman- STEM, SID
The Society of Innovation and Development (SID), IISC. its STEM wing incubates start-ups that have deep science and societal impact at the core.
Problems faced by startups during fund-raising
“Unlike startups in mobile apps and e-commerce, most of the startups incubated by STEM Cell, SID, IISc build brick and mortar products in medical devices, space and biotech. Hence they require a large amount of funds to build prototypes (typically Rs. 3-5 crores),” states Murali.
He also adds that most venture capitalists (VCs) would not consider investment till startups clearly show customers and revenues. He cautions that even angel investors today are shy of pumping in large sums at the seed stage.
“This creates fund shortage and delays product development,” states Murali.
As far as mitigation of fund-raising issues is concerned, Murali candidly states that this is taken care of when startups receive grants from central and state governments.
“STEM Cell has signed an agreement with Deep Science India Fund which is a new venture capital that was established recently. This fund will invest in startups incubated by STEM Cell at the seed stage itself; it will also provide a second round of capital. This will eliminate the need for each startup to do its own fund raising,” states Murali.
Dealing with investors
Murali advises startups (entrepreneurs) to properly communicate the large market opportunity, and to clearly establish the proof of concept of the venture, with the investors.
“Investors tend to check if the innovation by entrepreneurs has completed the research stage,” advises Murali.