Fundraising is one of the major concerns plaguing startups. Only a small number of startups end up as successful businesses. The reasons for failure are myriad. It can be a mismatch between the idea and the market need. Inadequate preparation and incubation are common causes. Founders’ falling out is the commonest reason for failure. Rarely have I observed lack of funds or inability to raise funds to be the primary cause of failure. But every startup is worried about how his business will secure funding.
The above description is relevant more for early-stage startups. For those that have gone beyond the early stages, the causes for failure are more diverse. Errors in operations, management, leadership, business processes, marketing, quality control, financial profligacy, governance, etc. are some of the many reasons for the demise of a startup.
Now to funding that is universally uppermost in the mind of most startups, I would like to present a picture of the investment scenario as I see it. Investor’s and startups’ nature and behavior vary from country to country. I found many Indian startups complain that access to investors at the Surge India event was difficult. They found investors playing hard to get. Indifferent attitude was another complaint.
On the other hand, startups approaching investors in other web summits organized events like Rise in Hongkong or Moneyconf in Madrid feedback from startups was positive. Most were happy with their interaction and found investors open and considerate.
Vivek Durai is an India-based investment lawyer. In the course of my conversation with him, I asked him the question of why the same set of startups had differing experiences with investors in different countries. He attributes these to cultural differences.
I attribute this to investment climate and competition. In Singapore, state funding for startups is available. Investors were generally found to be receptive to startups. In India, it is just now that the state has stepped in. The incumbent investors naturally don’t like entry into the state. But a bit of competition wouldn’t do too much harm. Probably it was required to give a boost to Indian startups.
Another question that confronts a startup is to when should we start pitching to investors to secure funding. It is important to understand that investors, be they HNIs or Angel investors are not in the business of philanthropy. When they invest into a venture, they take a risk. It will be natural for them to be cautious. They too expect a reasonable risk adjusted return. Investment happens when there is meeting of minds and business interests of both the investor and the startup.
How long should the bootstrapping stage last? Generally, an entrepreneur in the early stages of idea incubation funds his idea from either his own, friends or family’s funds. A venture in its early stages, goes through a lot of hits and misses. A longer bootstrapping phase helps in teaching the entrepreneur simple but critical principles of prudent financial and business management.
I was particularly impressed by the business thinking of a serial entrepreneur whom I met and interviewed in early 2016. I met Mathew Kordolia during the Surge Bangalore India startup event. He had not yet approached an investor even though his venture #injectedegc appeared to be ripe for an infusion of funds.
Mathew wanted to give it a bit more time. He wanted to iron out the creases in his startup before approaching an investor. He had very financial and prudent thinking, and I found him an ideal candidate for an investor.
But these were some of my ideas. I needed to get another view and a second opinion. Early-stage funding is an important event for a startup, and I wanted to present a reasoned view before readers.
I, therefore, got around to chatting with Vivek Durai, whom I mentioned earlier in this article. Vivek, by pedigree, is a lawyer, a programmer by hobby, and an investment broker by profession. As an entrepreneur, he has floated a new startup that helps early-stage startups secure funds from Angel investors.
Vivek has secured early-stage funds for a host of startups. Ather Energy, Cupick, Aisle, and LiveBraille are listed on his website. His website www.termsheet.io offers facilitation services for both investors and startups. He focuses on the Indian market.
In addition to getting his take on the investment scenario in India, I was also curious to understand how he looked to use technology to facilitate fundraising by early-stage startups.
Vivek curates both investors and startups. He helps prepare both parties and introduces them to each other only when prima facie they are convinced in their mind that a deal is likely to happen. Startups signing with termsheet.io also get access to simple legal documents acceptable to investors and startups.
Vivek explained to me that early-stage investing requires simple, standardized legal documents. Investing in early-stage ventures should not be an elaborate time-consuming exercise. If both the investor and startup like what was on offer and it made sense to both parties, funds should flow quickly.
The need for elaborate due diligence, preparing a term sheet, and drafting a cumbersome definitive agreement is required only in late-stage funding, mergers, or acquisition cases. In these cases, an initial understanding is captured in the form of a term sheet. Startups’ early-stage funding does not require agreeing to a term sheet first. You can go straight to a legal agreement.
Termsheet.io is not a match-making engine, Vivek explained. It is a simple platform on which a few documents are available, and there is an information-sharing blog. For the purposes of early-stage funding, I found the model adequate and pertinent.
Vivek looks well on his way to helping Indian startups secure Angel funds. His venture should do well. But he and his ilk will face competition from Narendra Modi’s Startup India funding organization. I know he does not like government, but he has no option but to compete with them. This model could be replicated in other parts of the world too. Stagnating Europe, resurgent Philippines, and Asia, please note!