Investors are now expected to emphasise sustainable scaling rather than growth-at-all-cost
To start with, identifying the right type and source of funding is a function of what the startup needs at that stage in its lifecycle
With that done, choosing the right investors starts with knowing their background and what they specialise in.
Making it in the startup world isn’t easy. Getting the funding to start or scale a business is a considerable challenge, which has been worsened by the “funding winter.” Even though India has sizeable pools of capital, investors are being cautious.
Startup funding dipped by ~40% in 2023. In these troubled times, how should entrepreneurs who are fundraising move forward? For starters, they should have a deep understanding of the market and a well-thought-out plan for the future.
Crafting The Perfect Pitch
At the heart of the fundraising process is the pitch. Often, entrepreneurs get over-confident and rest their whole case on having a unique value proposition. While being very important, the value proposition is a prelude to the pitch.
What needs to follow is a clear articulation of the market opportunity, best accompanied by data along with the outline of a robust business model that shows the path to growth, scale, and profitability.
With recent experiences, in 2024, investors are expected to emphasise sustainable scaling rather than growth-at-all-cost. Metrics that point to business value, such as low-cost customer acquisition, customer retention and stickiness, an increase in market share, and similar operational KPIs demonstrate that the startup has growth potential. Adding customer testimonials can also make a pitch stand out and be more convincing.
Investors also take special note of the team behind the venture. A team equipped with expertise in the core capabilities is very important, particularly for tech products. While an investor can help with business development for an exceptional tech product, the opposite scenario – where investors help build the product – is infinitely more challenging. Other factors that contribute include prior entrepreneurial experience or familiarity with the sector or product/service under development.
Investing in startups can be risky, so investors like to be doubly sure of the chances of success. Entrepreneurs should be ready to show that they understand the risks and have clear plans to deal with them. For early-stage ventures, it may not be feasible to have ready answers for all risk scenarios, but a balanced presentation of the opportunity and risks can serve to excite investors and also give them the confidence that the founder has a thoughtful understanding of what the startup will be building.
Selecting The Right Investor
There are various options for fundraising, such as venture capital, small business loans, angel investment, and small business grants, each with its own pros and cons. Angel investors, for instance, may invest small amounts but offer valuable experience and mentorship, while institutional investors have more money to invest but are pickier about which startups they support.
Although institutional investors bring expertise and resources, the investment process can be long-winded and time-consuming. Therefore, entrepreneurs need to perform thorough research to find the right fit for them.
Even crowdfunding and corporate partnerships are now seen as good ways to get funding, especially if they match the startup’s goals. With crowdfunding, startups can connect with a wide range of supporters who believe in their mission, creating a sense of community. Corporate partnerships can offer access to resources, markets, and advice from established companies.
To start with, identifying the right type and source of funding is a function of what the startup needs at that stage in its lifecycle. With that done, choosing the right investors starts with knowing their background and what they specialise in.
Some investors prefer big, fast-growing companies with high valuations, while others prefer steady, gradual growth. Checking an investor’s history and past investments helps make sure they’re a good match for the entrepreneur’s plans. Talking to other founders has become an important part of this diligence.
Wrapping Up
Although we expect to see an improvement in funding opportunities soon, startup valuations are still uncertain as investors are cautious about where they invest. Purse strings have tightened, and competition is fierce.
Navigating this investment landscape takes time to understand, with each change bringing new challenges. Entrepreneurs can succeed by focusing on profitability and sustainability, learning from experts, and facing challenges head-on. If they can show their ability to survive and thrive, investors will be excited to support their growth.
