SUMMARY
With the right funding, a startup can disrupt the competition and gain dominance in its market, therefore the stage and type of fundraising dictate the fate of a startup
Keeping a close eye on competitors can help a startup refine its positioning and communicate its unique value proposition to investors more effectively
The importance of storytelling cannot be overemphasised; a typical VC evaluates 3-5 deals every day and the hit rate is usually less than 1%
India’s booming startup landscape comprises over 90,000 startups, with only 10% securing funding. A majority of founders have to approach over 12 VCs resulting in them spending over 33% of their bandwidth on these efforts.
To address this challenge, we have identified common fundraising mistakes and good practices to improve the chances of securing funding and avoiding pitfalls. Ultimately, fundraising is both an art and a science.
When To Raise, What To Raise
Timing is of the essence while fundraising. When you need money, many investors may not be interested in investing. However, when you don’t need money, you can raise funds on your terms, without the pressure of urgency.
Sticking with the timing aspect of fundraising, the process takes time, sometimes even 12-18 months, and it is essential to budget for it and start early. Planning ahead will ensure that you have sufficient time to communicate your vision and business plan to potential investors and secure funding.
With the right funding, a startup can disrupt the competition, change its orbit and gain dominance in its market. Therefore, the stage and type of fundraising often dictate the fate of a startup. For example, raising a Series A/B without any early indication of product-market fit (PMF) can be detrimental to a company’s success. In such cases, opting for a Seed or Angel round would be a more suitable alternative.
Factors To Consider While Fundraising
First and foremost, it is important to understand your customer’s perception of your product in the market, as well as your strengths. Keeping a close eye on competitors can help a startup refine its positioning and communicate its unique value proposition to investors more effectively.
Investors often evaluate numerous startups across multiple sectors, therefore, it is essential to identify your moat or unfair advantage over peers and articulate it clearly in your story and positioning.
Choosing an investor is like choosing a life partner. Maximum success is achieved when the minds of the founder and investor meet for a common vision. Occasionally, the match may not be perfect, however, it does not imply that the founder or the investor is inadequate.
Speaking to other founders for feedback, tracking deals done by a VC and learning about their investing ethos are basic diligences that a founder should do ahead of the fundraising.
Once you have shortlisted a few VCs, wooing them even at the expense of valuation, effort, or time, is worth it. Working on feedback received by investors and sharing periodic updates on your progress are some examples of how you can engage effectively.
Remember, VCs are equally keen on chasing like-minded founders and many times need that comfort which is possible through effective communication.
Sizing the market is critical, and it is essential to have a clear understanding of your TAM, TOM and SOM. Without this understanding, even remarkable products/brands often encounter difficulties when attempting to expand.
The Importance Of Telling A Good Story
The importance of storytelling cannot be overemphasised. A typical VC evaluates 3-5 deals every day and the hit rate is usually less than 1%. A useful exercise is to try explaining your business to your friends or family – if you can convey your message to them effectively, then you likely have your story and logic in order.
Early stage startups have limited resources at disposal. In order to get the most out of these resources, it is important to focus and prioritise excelling in one area rather than being a jack-of-all-trades and master of none.
Pitching shifts the focus from the sheer ‘quantity of revenue’ generated to the ‘quality of revenue’ and unit economics. For example, a company with 10 SKUs selling in a few markets via few distribution channels is far better than growing faster with 100 different SKUs or channels.
These tips can help craft a winning pitch and steer the startup towards securing timely capital and sustainable business growth.
