5 Strategies to Strike the Right Balance Between Fundraising and Running Your Startup!

“2021 has been a defining milestone for the startup ecosystem in India. On average, three startups are turning unicorns every single month. Twenty-six startups have entered the unicorn club this year and we are witnessing a record number of IPOs. This is unprecedented.” Amitabh Kant, CEO, Niti Aayog said while speaking at Schneider Electric Innovation Summit India in October 2021. Overall we saw 44 new unicorns in India in the past year.

The year 2020 threw a curveball that no government, corporate, enterprise, or startup could ever have anticipated. The rapid spread of the COVID-19 pandemic brought countries to a standstill and upended businesses almost overnight. According to a McKinsey & Company report, no event since World War II caused an economic downturn of “quite such scale or scope”, leaving most leaders deeply uncertain about what would work and what wouldn’t.

Almost a year later, as we look back, it’s clear that leaders, founders, and entrepreneurs could keep business ecosystems afloat only due to their will, tenacity, and resilience. But being a startup founder is no easy job. It's about navigating new challenges every day across various business functions while making sure it all stays afloat with a steady flow of capital. Raising capital is a CEO or Startup Founder’s most important and time-consuming responsibility. It requires exceptional leadership, people, time, and resource management skills.

The most pressing question for every startup founder remains: How much to get involved in the day-to-day while raising funds for your startup? How to delegate, how much to delegate, what to delegate, while holding on to the responsibilities that only you can do and/or are best at? The answer lies in strategizing from the get-go and getting a few fundamentals right that will set you up for success in the long term. Here are 5 tips for every startup founder to strike the right balance between fundraising and running the startup.

Hire the Right Team
One of the top 3 reasons why startups fail, according to CBInsights, is hiring the wrong people. The people you choose to work with can either make or break your business. As a result, having “the right” team beside you is as important as having enough funds to run your business. If cash is your fuel, your team is the engine that gets the whole business going. To hire the right team, you need to first take a step back and evaluate which business functions need to be set up and hired for. Usually, for a tech startup, a team structure should cover the following areas.

  • Project Management and Operations
  • Business Development (Sales/Marketing)
  • Technology (Product/Development/Design/QA)
  • Finances
  • Legal
  • Admin
  • Customer Support

Create a Fundraising Strategy
According to Fadl Al Tarzi, CEO of Nexford University, Entrepreneurs have a variety of options when it comes to securing funding for a new project. In many ways, this is a good thing. The catch, though, is that each funding option is drastically different from the next, bearing its own cadre of advantages and disadvantages. Moreover, deciding which funding route makes the most sense for you and your startup will vary depending on your circumstances. Setting up a clear funding strategy will help you plan more intricately and optimise your time and effort by laying out everything you need from the very beginning. You can start by answering the following questions by yourself or with the help of your core team:

  • Why - Why are you raising capital?
  • Who - Who are you raising the capital from?
  • How much - How much capital will you raise? (Now and in the future)
  • When - When are you raising capital? (Now and in the future)
  • How - How will you go about raising the funds? (Process)

Once you’ve answered these questions, dive deeper into each question and draw out a comprehensive strategy. For example, under “Who are you raising the capital from?” you can evaluate different options depending on your industry, company maturity, and other factors. Most common types of investors for startups include:

  • Angel Investors: Typically a high net worth individual that invests in a new or small business, providing capital in exchange for equity in the company.
  • Venture Capital Investors: Firms that are part of the private sector and have a pool of money to draw from corporations, foundations, pension funds, and organizations.
  • Banks, NBFCs and MFIs: RBI-regulated organisations assess the individual financial situation of each startup and offer loan sizes and interest rates according to the stage of growth (debt financing).
  • Private Wealth Management Firms: Private wealth management advisory firms that serve ultra-high-net-worth investors usually exceeding $100 million to manage their investable assets.
*Source: Crunchbase

Get your Documents in place
Create your fundraising toolkit. Make it as easily accessible and updated as possible so that you’re not scrambling to get everything in place after an interesting conversation with a potential investor. As you may know, such conversations are not always planned on your calendar and if your networking game is strong, you may come across potential investors in events or casual social gatherings. Have these documents in your kitty so you never miss out on what could be your next big funding opportunity:

  • Elevator pitch/teaser
  • Financials/cash flow statement
  • Information memorandum (IM)
  • Data room
  • Term sheet
  • NDA
  • Press releases

Focus on Financial Assessment
In the documents listed above, one of the most tedious and important ones is Financial Statements. A detailed financial business model that showcases cash inflows over the years, investments, required key milestones, break-even points, and growth rates. Assumptions used at this stage should be reasonable and clearly mentioned. Be prepared that some investors will want to see your planning file to understand your assumptions, the monthly details, etc. Make sure that the document is clean and understandable for an outsider. It is strongly recommended to show the spreadsheet to an experienced CFO, CEO or investor. Ask them whether the calculations and assumptions make sense to them, whether you forgot any major cost blocks, and whether they feel that the big picture is right.

Use the Right Platforms
Last but not the least, there are numerous platforms and forums out there to assist you at every stage of your startup. Know that you are not alone and there are various founders like you out there that need help with the exact same things as you. The biggest mistake you can make is trying to do it all on your own.
Harness the power of matching platforms, aggregators, crowdfunding, networking forums, accelerators, and incubators like Arthayan. Arthayan is a startup ecosystem enabler with the aim of fostering entrepreneurship in India by providing funding facilitation through our tech platform- Funding Quest. It uses a proprietary algorithm to match startups to investors, based on the investor’s investment thesis. The interested investors make the first move to reach out directly to the startups on the Arthayan platform or seek a screening report of the startup to get more background information - a service that Arthayan provides.

As a founder, invest the mind space in seeking the solutions that optimise your time and resources so you can focus on what you do best.