How Should Early-stage Start-ups Manage their Finances
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When you are starting up, money is almost never your honey. Most start-ups are either bootstrapped or funded by who are properly known as the three Fs – friends, family and fools. But before they raise funding, they have to prove their worth in the industry. And it’s during those days of struggle that they also have to keep a check (pun intended) on their finances.
Controlling your finances while you build a revenue stream for your company is the task in hand for most early stage startups. Here are quick tips from entrepreneurs who have raised successful rounds of funding, on how to manage your money.
As you begin to establish your business idea, the trick lies in accommodating your expenses within your earlier expenses. Building an office within available infrastructure or working from home, is what startups opt for. For Harshil Mathur at Razorpay, it involved moving back to his hometown Jaipur, where a smaller city helped them reduce the company burn and keep costs at a minimum. “The city provided us a startup ecosystem which understood the importance of co-existing and developing. Till when we raised our first round of funds, we handled our existing finances cautiously and did not hire any new employees other than the core team and managed most of the operations between me and my co-founder,” Mathur said.
Bootstrap first, then Turn to Friends
When you first think of an idea, the second thought shouldn’t be about raising funds but instead, building the business. But before going to an external party that will fund your idea, investment first comes from your own pocket. Bootstrapping is the way to go for most startups. PeeBuddy, founded by Deep Bajaj, was bootstrapped for the first year of its operations, then went on to raise money from friends and family. After two and a half years of their business, they raised Pre-Series A from external investors. “I guess this is the best way to start a business. Your own money brings dedication, unless you are willing to sell your family silver for your own baby (business), expecting others to do so is not fair – you are double cautious when you see your money burn,” said Bajaj.
Indore-based Wittyfeed, which is one of the best content platforms now, was also bootstrapped for its initial years. Only recently in September, they raised funding of $3.1 Mn while being valued at $100 Mn. “We are a profitable company. Everyone needs funds to expand their business. After a journey of 7 years, now to grow our business we raised funds to go global,” said Parveen Singhal, co-founder of Wittyfeed.
It’s only when you have bootstrapped and validated your idea, you should move to the next trusted resource – your loved ones. According to Bajaj, this money brings in additional responsibility and accountability. “You are not only all in, but now have your immediate social circle watching you & helping you. By then a lot of lessons are learnt, and one is relatively more ready for external funds. You would still make mistakes, but at least won’t be repeating basic ones,” he said.
Don’t Raise Funds Because It is Available
From a time when there were fewer funds in the ecosystem to today when many funds have mushroomed across the city and successful entrepreneurs are also turning investors to even the government encouraging startups, there’s no dearth of funds in the Indian ecosystem. But a responsible entrepreneur shouldn’t turn to raising funds because it’s readily available.
“Don’t raise funds if you really don't need it as funding will be the most expensive cash you ever buy. If you let investor funding become the driver for your business early on, it’s very difficult to wean yourself off of it as you grow,” said Mathur.