Raising funds is a tough job for any technology startup, is this a Myth or Reality?
During my initial days as an entrepreneur the following were my thoughts::
It’s not only about convincing the investor that your idea is big and can be a game-changer, but also about convincing investor that his risks are minimal. It’s very difficult to read the mind of an investor and understand his/her thought process about your work and, at the same time, being a startup, you should be careful that you are not misled or misguided either.
But as I went on my journey as an entrepreneur, one thing I understood was that whatever I had thought in the initial days was not really the way things work. Raising investments with less experience is not tough if we have done our homework. The reason for this conclusion is complicated and I have tried my best to keep it as simple as possible.
As an inexperienced founder with very little management experience, the only way to survive wrong guidance or deviations is by restraining yourself and sometimes the best way is by having some trustworthy mentors with you. It’s not always advisable to trust your own intuition when it comes to shaping your startup and sometimes the only way out is a disciplined work culture. If still sometimes we fail to go the way we think, then it’s better to consider the golden rule stated by Paul Graham – ‘The rules exist for a reason. You wouldn’t need a rule to keep you going in one direction if there weren’t powerful forces pushing you in another’.
The major factor playing on entrepreneurs and investors is Fear:
1) Of investing time and money in ideas that would flop
2) Of missing out on the next big idea/project.
The major reason for the fear is due to the one thing that makes startups so attractive – successful startups grows very fast, so investors can’t wait around because if they wait, they might miss out. For an investor to get high returns, they have to invest when startups are unclear how to proceed which is sometimes an irony because a small mistake and mismanagement by the startup can make it flop.
The safest way for any investor is to wait and watch, every passing day gives more significant information about the startup. But if the wait is long, other investors join the competition. And this scenario is good for the startup as this ensures the founders lose lesser stakes and the company makes more money.
Raising investments is not very tricky for a startup if the founders understand the dynamics and volatility in the market, but at the same time there is great risk involved for the investors if the circumstances change. But as always, if all goes well then things automatically fall into place.
At the same time, the next or equally important step is approaching an investor. And this is always tricky and becomes worse if you don’t have an introduction. The critical factors for a good investor-investee relationship are understanding, trust and confidence. There are various ways of getting ourselves introduced to an investor – it can be through your auditor or a close acquaintance or even through your relatives, anything is fine. But the ideal way that generally works out without any obligation is by pitching your B-Plan or idea at a pitch session or demo day organized by various facilitators across the eco-system. When we get introduced at an event of this calibre surely we get a mass introduction, however, it’s best if we also get individual introduction which may be immediately after the event.
Again, another golden rule that we should follow here is ‘striking when the iron is hot’, i.e. please approach your potential investor once again before you are out of their memory. Getting connect is important, but more important is maintaining it. So, contact your investor the very next day after pitching by calling them or sending an introductory mail. This refreshes their memories and helps in taking the talks further.
While talking about introduction, it is always better if we get an influencer to introduce us. The influencer may be an auditor or a CA or a top notch lawyer of the investor or some close friend or the relative of the investor. Such closed network of influencers and investors can bring in money very easily. If a start-up is looking for a round 2 investment sooner or later then the best person to introduce you to the round 2 giant is the investor himself. The next best person from whom you could get introduction is from the founder of the company in which the investor has or had earlier invested.
These days there are so many e-clubs and websites, they help in getting us connected but it is always better to treat them as an auxiliary tool to seek an investment. We should all understand one ground reality – getting the first round of funds is the most difficult phase and thereafter it is a simple to bring in additional funds.
Finally, if a start-up really wants to scale, it is best to choose the investor you want rather than investor choosing you. This would not only help in building your own brand, but at the same time you can assure a control over your company rather than being a puppet.