Raising funds through VCs and PEs may have become an integral cycle plan for startups, but most entrepreneurs are unable to assess if their product/service is checking the core boxes when trying to woo investors.
Ben Mathias, Managing Partner and Head of Vertex Ventures, India who has spearheaded some of the firm’s current undertakings like FirstCry and HouseJoy, tells us what entrepreneurs need to keep in mind before they go out seeking funding:
Are you Solving a Tough Problem?
“You need to ask yourself if your product or service is solving a tough problem. As VCs it is important for us to asses if the solution being proposed by the entreprenur is solving a problem that no one else is," says Mathias.
His caution resonates with the certain overcrowded startup sectors in India, that have not seen much innovation since the first few companies started operations. Sectors like e-commerce, foodtech and hyperlocal services are some examples, as these were amongst the hardest hit in 2016, when over 1000 startups shut down in the country.
The Size of the Targeted Market
Your idea or innovation may be class apart, but practical assertions also need to be made. One has to be aware of the market they will operate in or are operate in and what its potential is.
Citing the importance of the market, Ben advises, “A size assessment if the market helps you understand the scalability potential of yo ur service. A large market is in most cases preferable as it will help you project the potential consumers/clients as opposed to a limited one."
Does the Entrepreneur have the Capability to Carry Forward the Business
It’s a subjective assessment and comes only after lot of interactions. So we try and spend a lot of time with them to understand what drives him or her, what the motivation is, what the conviction is, what the commitment is etc,” said Mathias. “Its not necessary that this will turn out to be correct but, that’s still a crucial aspect which cannot be ignored,” he added.
Need for profitability
The latest round of exits and sell offs in the Indian startup ecosystem point towards a doom for high cash burn and discount oriented models. There stress needs to be on getting the model right before businesses can truly think of raising more capital.
“If you don’t see the light at the end of the tunnel you will not survive, as there is no pool of infinite funding. Every transaction, every deal has to make money. You have to think of being profitable from the very beginning. ” says Mathias.