Sustaining A Startup: Tackling initial fund raising challenges
Every business idea needs vital resources to help it grow and become a sustainable business. One such resource is funding. For an early stage business, funding can come from four primary sources—yourself (bootstrapping), friends and family, external investors (angels, crowdfunding), or cash generated within the business (early revenue or sales).
However, our startup ecosystem including the media has been obsessively focused on fundraising via external investors and take it as an indicator of success. This is often misleading and can cause quite a stress on entrepreneurs and startups who feel‘pressurized’ to raise funds rather than focusing on developing a product or service that actually serves a purpose.
Raising funds from external investors is not only the costliest form of fundraising, it is also one of the most time consuming. Yet it is still the most preferred one given the shortcomings in our banking sector who are still not keen on funding/supporting startups unless backed by collaterals which limits funding for all. There are however a few challenges that entrepreneurs are likely to face while trying to raise funds:
Business Idea Validation – your idea might be the best but unless it has seen some traction or early adoption, it might not excite anyone to put down money in your company. The idea needs to be both validated as well as scalable. If it’sa very niche idea then again it’s unlikely to appeal to someone unless the market size is huge and you can get a major market share in it.
Funds Deploymentclarity– every investor would be wanting to understand how efficiently you plan to use the funds that you raise.What would be the priority are as and monitoring mechanisms to ensure funds are being used intelligently. Even within priority areas there is likely to be focus on ROI.
Gone are the days when one can simply spend millions of dollars on a branding campaign without any revenue generation.Therefore having a complete clarity around your business plan is needed to show that you know how to handle funds.
Culture Creation – a lot of investors don’t focus on this and this remains to be one of the top, if not the top reason why startups (and even large companies) soon become dysfunctional if it gets broken.
Culture is what you do and how you do it. A high-performance culture needs mutual respect, honesty, and a big over-arching common goal. The entrepreneur needs to define and create the culture and let the team start building and living it out daily.
Process Orientation - A company is a living breathing organism that needs structure sand processes to function. While it’s great to have operational fluidity and openness, a company needs to be process driven rather than person driven.
The former is the key to long term success and to move to an autopilot stage later on while the latter is going to be successful as long as that key person drives it. It’s ok not to have it from day1. But a sensitivity and roadmap to developing it from day1 is critical to long term success and any startup that has that is likely to have a much higher chance of succeeding.
Raising Funds Is Hard- An entrepreneur or a startup should take the time to develop their product and service and should try to start off by bootstrapping. Bootstrapping is a mindset. It teaches you discipline and forces you to constantly sharpen and hone your business model and product offering.
That leads to the creation of very strong foundations that in the long term would help you meet your financial metrics and actually give you more negotiating power while raising funds. A financially stable company would always be more powerful infront of theVC’s then one which has nothing to show by way of achievements.
You would have all the control and leverage to take your company in the direction that you want to. And remember, the minute your balance sheet gets strong, you might not even need external funding as your company revenues themselves would open access to capital from your banking partners.
That’s why a little patience in the beginning and financial discipline would allow you to focus on something very important–creating your successful business.
Divyan Gupta a serial entreprenuer has set a mark in e-commerce industry. in 2013, Art and Decors was recognized as being amongst the top 8% of all start-ups in India by NASSCOM under its grand 10,000 Startups Program.