The crunch in startup funding is, nowadays, one of the most talked about topics in the startup world. There is a bit of despair in the air. Many entrepreneurs who have been toiling for months and years with no funding success are getting worried about their ability to sustain themselves.
After any panel discussion, the most asked questions from entrepreneurs in the Q&A round are: “When is the right time to quit? Should I still trust my judgment if multiple investors have rejected my startup idea? How do I show the customer growth traction if I don’t have the money, and I am not getting money till I show the traction ?”
Angel investors, as well as institutional investors, have become more cautious. The funding process cycle time have increased a lot. What should I do to get VC attention in 2017? Well, at NoBroker we have raised $20 Mn in three rounds in the past two years. It doesn’t make us an expert at all. But let me give it a try.
Is The Quality Of Founders = IIT Degree?
Imagine that you are a VC. What are you investing in? Business models can be copied. Competition can raise larger round of funding. External environment can get adverse. Government regulations in this country are unpredictable. So isn’t the passion and ability to hustle what attracts you most. The quality of founders is one of the most important criteria for a firm to raise funds. It is you the founder who the VC is placing his trust in. His job and his career depends on it. But, what does quality of founder mean ? Yes, pedigrees like IIT and IIM help.
They help a lot, but talk to any VC investor who is your friend (yes, it’s possible). They say that what they love about their job most is meeting passionate entrepreneurs. Their passion and drive is infectious and leaves them with a high. If you are an entrepreneur, then show your passion. You may or may not have impressive degrees, but can you communicate your drive and passion with the same intensity to the 21st person when the previous 20 people have rejected you. If yes, then a VC might place his trust and perhaps bet his career on you.
Can I Fudge Unit Economics Projections?
Days of raising funds by just showing a business plan or some quick friendly number of mobile app downloads are limited, if not completely over. VCs are still licking their wounds from companies which burnt millions before questions around unit economics were raised.
It’s a good time to put a lot of genuine thought around unit economics with realistic projections. An investor once told me “When compared with excel projections, real costs always go up and real revenue is always less.” Funding is just a step. Why fool ourselves and play with our own careers? Make realistic unit economics guesstimates. It brings a lot of business clarity, which always helps. This clarity is what any VC would appreciate.
Solving Good Customer Problem Or Large Market Size?
Yes, good businesses are based on solving painful customer problems. Yes, the business has to be differentiated from the competition. But is every problem worth betting your career on? This is one thing where many of us entrepreneurs get it painfully wrong.
A VC needs high return and, for that, the business should become large. It is imperative for us to assess and share an analysis of possible market size, our possible market share and thereby our possible revenue. There might be positive as well as negative surprises here. A large number of funding discussions have died at this junction.
How Do I Get Traction Without Money First?
All of us entrepreneurs are exactly here or have been here. VCs ask for customer traction but the traction needs funds. Well, to make the matter complicated, “Let’s talk again after few months once you have more customer traction” is one of the most used euphemisms by VCs to finish the meeting, without immediately breaking the founder’s heart.
If you are someone who has limited personal bootstrapping funds, please choose a micro-market. Don’t open your business for the entire country just because cities are just cute drop-down values.
Don’t even take one Mumbai city. Focus on Bandra if you can. Even if your plans are grand and your future customers are genuinely spread across geographies, still take a micro-market. Focus on that. Are the results encouraging as a percentage of targeted customer population? Yes, now we are talking.
Investors Don’t “Get” It
Yes, sometimes investors are plainly wrong. Funding is not an exact science. But, lots of time, they have some genuine doubts which either needs to be cleared or which points towards a strategic problem that they can clearly see, but the founders can’t. My suggestion would be to hear the questions carefully and ask for feedback at the end of every VC meeting.
There lies the VC uncleared doubts or genuine-issues missed by founders. Time to do more homework. Come back to investors with exact solutions to their doubts or your pivots. Investors sometimes provide free learning, better not to miss it.
Is There An “Inspiration” In The US Or China?
Yes, this can be irritating. Sadly, this needs to be answered. A similar proven model in US or China or somewhere else gives a lot of comfort to VCs before they take a risk in this uncertain world. So, you better google hard. If you are like NoBroker, where the answer was: “There is nobody like us anywhere in the world, but that’s good, right ?” then find business-model or customer-behaviour – shift parallels in other industries and point towards signals which signify the severity of the customer problem you are trying to solve.
The tough question is that if even after doing all the above, your startup doesn’t get the VC funding, should you continue? Well when everything is getting confusing and depressing, always go to your customer.
Does he still like your product? Will he pay, directly or indirectly? Ask this question genuinely, from different angles. If the answer is yes, then boss, find one more angel investor and keep moving!