Fundraising lessons for newbie ventures
Fundraising never looked so easy, at least for the established unicorns and start-up bigwigs. A host of ventures have been raking in funds in recent weeks to fuel ahead their growth and expansion. Food delivery unicorn Swiggy is reportedly closing a $750 million funding round with participation from its existing investor Naspers and others. Ed-tech unicorn BYJU’s raised $150 million in a round led by Qatar Investment Authority. Logistics start-up Rivigo raised $65 million in a round led by Warburg Pincus and SAIF Partners, while UrbanClap raised $75 million in a round led by Tiger Global; and co-working start-ups GoWork and Awfis raised $53 million and $30 million, respectively. All in just the last few days.
Even though funds have been coming easy for the big names, fundraising seems a highly challenging affair for newbie ventures. So how do upcoming ventures jump onto the fundraising bandwagon? “By networking,” say experts.
According to Apoorv Ranjan Sharma, co-founder of Venture Catalyst, the first thing start-ups should do is to get in touch with the right circle and network that will help them connect with the investors. “Start-ups should research on the investor networks and the kind of funds they want to raise before approaching any investor. This will ensure less time is spent on reaching out to those who might not perceive them as the right fit for their portfolio,” says Sharma, adding that one of the strongest methods to get introduced to potential investors is through the founders of start-ups in an investor’s portfolio. “Portfolio founders have already earned the trust of investors and will help in building this trust for potential entrepreneurs.”
Saurya Prakash Sinha, CEO and co-founder of Recko, a start-up that enables artificial intelligence powdered reconciliation of digital transactions, says one of the investor portfolio founders made initial introductions for them. “Very early, we were able to get marquee customers onboard who loved our product. Then Prime Venture Partners spoke to them and came back convinced on the potential of the venture.” Recko recently raised $1 million from Prime Venture Partners. Sinha says that once an entrepreneur has built something that customers truly seek and has taken the product to the first set of customers, then it is time to seek out investors in the sector. “If it is business-to-business, find a company from the investor portfolio who could potentially benefit from your solutions. Get them on board and then ask the founder to make a warm introduction to the investor. If it is a business-to-customer, the discovery generally happens through chats on social media/LinkedIn/twitter or from friends or colleagues,” said Sinha.
According to Bhavin Patel, co-founder of fintech start-up LenDenClub, start-ups need initial money to get the first thousands of customers and to convert the product prototype to an actual product. “At this stage, the start-up can network through available start-up groups, registering with incubator funds to reach out to relevant angel and venture capital investors. If the start-up has differentiating ideas or products or customer base, it grabs investor attention early on.”
Experts say there are certain traits in a start-up that investors keenly eye before taking a call of whether to invest or not. According to Sanjay Swamy, managing partner, Prime Venture Partners, the core requirements evolve with time. “At the early/seed stage, it’s about taking on a problem and establishing the right product-market fit. As time goes by business moats, enhancing the management team and winning in the market becomes important. Start-ups should focus on the fundamentals based on the principles of common sense, fairness and creating real sustainable value.”
Sinha believes that investors look for the potential to make it big, “which would mean you need to go after a large market, build an amazing team, product and then execute with full force.”
However, not all business models fit the venture capital/private equity scale, feels Ashok Kadsur, co-founder of LegalDesk.com. Kadsur says many ventures have been built without raising external funds. “If entrepreneurs want the freedom and creativity to build the product and the company’s culture in their own way, I would be cautious about raising funds.”