“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.
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.