"Show real numbers and get funded"
Funding has turned dry, but that does not mean that companies aren’t getting funded! Companies of various sizes and domains have managed to secure investors’ faith even during these troubled times. BigBasket, BHIVE Workspace, Byju and ClearTax are some names that have secured funding this year, amidst the noise of markdowns and funding winter.
Fazal Ahad, Director at Merisis Advisors, said that startups should set their expectations based keeping in mind the current scenario.
Set realistic expectations
“Companies have to be more realistic in terms of expectations – expectations in terms of growth as well as valuations. If the money is scarce, you have to find innovative ways of doing the same things with lesser money. I have seen companies take very innovative steps to cut down on the burn, because when your survival is at risk you do anything and everything to cut down on costs. You cannot showcase unit economics on day one, but as long as you can showcase that unit economics is going to make sense in a reasonable period of time, then an investor will be right.
The problem occurs for an investor when the unit economics are not met and all the assumptions that the people put behind those numbers in a stable scenario even though they look too far-fetched. Situations like these an entrepreneur should learn to strike a balance because they tend to become too optimistic at times. “
What should companies do to get funded today?
“Firstly, deliver the numbers. I have seen companies struggle to raise money because the numbers that they had predicted earlier, they were far from delivering the same. The optimism in projection of these numbers has to be cut down.
Also, companies that already have a fund backing them; they have a better chance of getting funded in the current environment. It gives a new investor an assurance that there is an existing investor, who has faith in the company and is on the board of directors then the company should be doing things with all the checks and balances in place.”
Reason behind a string of acquisitions
Merisis has advised startups like Housing.com , Ola on several funding deals and acquisitions.
“Some of the acquisitions have happened after some of the target companies tried to raise funds and failed. They realized that if they are not in the position to raise funds, they will be at a serious disadvantage with their existing competition. That leads to a possibility of a diminishing growth and setting-in of negativity within the company. In scenarios like this, it makes sense for them to shake hands with somebody who is as big as or slightly bigger than the company and have an aligned vision and target common growth.
An entrepreneur would love to go solo, getting acquired is not the first and foremost thing that occurs to him. If the funding is delayed, entrepreneurs are obligated to cut down on the burn. If that does not help too much and the funding is still not happening then they go ahead and cut down on some of the people who aren't functional. They try to survive in whichever way they can.”