By Mohamad Faraz
Every start-up requires funding to fuel a revolutionary idea that can leave behind visible impact on society. Currently, there are a wave of start-ups, unicorns and soonicorns that are proof of India’s ability to be at the front of technological and commercial advances happening across the globe.
Simultaneously, India is also witnessing an aggressive revolution with more venture capitalists entering the market who are willing to support early stage start-ups. In order to nurture the growth of a start-up, resources such as physical and non-physical assets, raw materials for products, operational costs, research and development, market research, acquisitions or expansions, etc. would most certainly be required, which requires backing from the right fund.
There are a host of options for start-ups to consider: Accelerators, Angels, Syndicate Networks, micro-VCs at the Tier 2 level with funds around $ 100 million. The Tier 1 VCs with higher funds include Global Funds, Family Offices, etc. For most start-ups a Tier 2 VC – micro-VC – should be able to give them the boost that is required to get them going.
At the early stage, a founder is more likely to see success if they approach accelerators, angel investors and micro-VCs at the Tier 2 level with funds less than 100 million, or syndicated networks – these should be able to offer them the much-needed propulsion. As the start-up grows in size, they can approach Tier 1 VCs with higher funds such as Global Funds, Family Offices, large-scale investors, etc. While there are no restrictions on the kind of funding that a start-up aims to approach, it is important that base research on the portfolio and background of the investor is undertaken.
The fundamentals of seeking funding
- What should one do to get the right kind of funding and more, important, the right kind of investors who are privy to your concept, idea and vision?
- Fundamentally, start-ups should have a solution to a business problem which is clearly defined and has been validated by the stakeholders. The stakeholder group of potential users could be consumers or businesses.
- The minimum viable product (MVP) should have core features to effectively deploy the product. Early adopters/users’ feedback from an early prototype is essential. The main cause of start-up failure is the lack of market need. An MVP can be part of a strategy and process directed toward making and selling a product to customers successfully. Hence clarity on MVP is of supreme importance.
- It is important to derive the right hypothesis with all relevant data to start the journey in the right direction. Data is all important, especially data on market/s, size and other pertinent areas.
- Investors have to do a lot of processing before they decide to invest. Some are very quick based on their convictions. This is also a factor which you should consider before approaching them. Make sure you give timelines and the phase you are in to give a clear picture.
- Make a neat and simple pitch deck (as short as possible).
- Problem statement and solution ideas (Part of MVP)
- Demo video or visuals of the solution if you are in the pre-product stage
- Phase-wise planning on achieving milestones
- About the team and experience
- Funding requirement and deployment plan, etc
- The founder/s or the founding team should have consensus on each of their roles which will turn out to be the foundation of the company’s future charts.
- The first investor/s is the most important partner in your start-up journey who is going play a vital role in defining your future.
- Some of key parameters to look at are: what investor offers other than capital? Could it be domain expertise and operational experience?
- Network within the start-up ecosystem, prior experience and background of the investors should be of pertinent value which can come in handy for the founders,
- Portfolio (How successful the Investor Portfolio has been if there are prior investment track records.) falls under experience.
- Founders should reach out to people in their own network who have previously gone through fundraisers. This can be the best approach to understand who could be an ideal investor to reach out to.
- In case of a first-time founder, one should understand the investor thoroughly: background, cheque size, stage/phase, sector, etc. This can help them filter and reach out to the right investor.
In conclusion, the investment needs to be significant and from an authentic investor interested in scaling up the start-up manifold. A result-oriented and productive partnership imparts great credibility to both the start-up as well as the investor. The journey towards turning into a unicorn then will be a lot easier.
Author is founding partner at Upsparks, a micro VC firm