According to the latest Google trends, the country that has the maximum interest in angel investing after US, is none other than India. This should come as no surprise as the investment made in early stage companies at US$ 7 billion is almost 60% higher than in 2014 in the wake of unprecedented growth of entrepreneurial activity across India. This steep growth has of course created its own set of problems. While the availability of funds for startups has increased, there is also some confusion among first time entrepreneurs, many of them in their early twenties, about what the goal post really is for startups.
Raising Funds - What it means
Fuelled by media hype about huge fund raises by India’s unicorns, raising funding has become the end point rather than the means to build a sustainable and successful startup. This is really a dangerous trend and can lead to increasing number of failed startups. Not to mention, lost time and opportunities for entrepreneurs. Entrepreneurs who are currently in the midst of building their businesses need to take a hard look at their value proposition to their customers and validate this thoroughly before they plunge into the rat race to get funded.
Validate your Idea
One of the first questions that needs to be asked - is their business solving a big problem? Does the startup have some unique edge over competition that would create, over time, a sustainable competitive advantage? The company then needs to validate this idea from potential customers. Getting advice on the on-ground reality from people with experience in the field to check - if there really is a market for their products or services and customers are willing to pay a reasonable price for it is also not a bad idea. Some market survey or study, however small, is well worth the effort to get sufficient validation.One of the key questions that needs to be answered with confidence is if the team has what it takes to execute the plan? Do they have adequate domain knowledge and expertise? Capability to withstand a roller coaster ride that any startup usually faces. And finally, will they be able to evolve over time to meet new challenges that every business faces? Many startup teams lack all the skill-sets to execute the plan and often are even unaware of them until they take the leap. Most successful startups have a team that complements each other and able to develop new skills as the organization goes through its life cycle.
The project itself also needs to be well analyzed. You need to examine the cost to deliver the service or product, and if the price at it will be sold covers this and other overheads. The company needs to examine the chances of the business to be funded for its future requirements and eventually be attractive enough for potential acquirers or reach a size that is large enough to be able to list in capital markets. Most startups fail due to inadequate cash. The ability to manage cash flows is essential for the survival and success of startups.
While the year 2015 has been a great year for funding startups, the current year is likely to see a more cautious approach to funding due to some of the excesses committed in the last year and also turbulence in the global economy. Expect far fewer companies to be funded this year and therefore if you have a startup looking to raise money the need to do adequate homework before proceeding can hardly be overstated. This preparation will also arm you with the confidence and market understanding that investors are looking for from successful entrepreneur. As some of the hype disappears from the startup ecosystem a lot of things such as recruiting, getting office space and even coverage in media will also become easier for entrepreneurs. Given the myriad of opportunities that are there for startups in the India today the current funding situation should actually be seen as a signal for entrepreneurs to be better prepared to tomorrow.