Some Early Early Fundas On Funding
Funding takes a long time. Even when you think that a deal is almost closed it will be a long time before a cheque hits your bank.
There’s a lot of silly advice going around on getting funding. I’ve been on this painful and difficult journey for some time now, but decided to hold off on giving any advice till I raised my first million dollars. Now here is some advice to people with startups looking to get their first round of funding.
So you’ve got (what you think is) a kickass idea and have managed to put your site up by using your savings and taking some money from your aunts and uncles and that rich college friend of yours. What happens next? These are some tips:
There are no expert fundraisers: There are hundreds of companies big and small who claim to be experts in getting you funds. Ninety-nine per cent of them are incompetent. Think about it, if you were going to fund someone would you prefer to talk to them directly or to some middleman in between? Be very careful of paying any money out, and be even more careful of giving an exclusive mandate — this almost killed my company!
What about that millionaire friend? Ok, so you know someone well who is very very rich and has kind of promised you a couple of crores. It’s not that simple. You have to create a ‘professional interface’ to deal with him and his company. A plan. Some logic. Some proof. A friend of mine was very close to someone worth Rs 500 crore — he took the funding as ‘done’ — it never happened.
Get the numbers right: A funding presentation has to be all about numbers. The size of the market. The potential. Valuations of similar businesses. Quantitative proof of behaviour patterns (come to me for this), idea validation (this too)!
Valuations are like Sarojini Nagar negotiations: For those who don’t know Sarojini Nagar is the ‘fashion street’ of Delhi. You go there and spot a jacket for 2,000 bucks. You offer 500. The deal finally goes down at 900 bucks. That’s what happens in fancy boardrooms also.
…But you still need sound logic: However, you still need strong logic to advance your primary case. You could use DCF or multiplier — but all figures need to be thought through in detail. The Sarojini Nagar guy will start by telling you why the jacket is 2,000 bucks — real leather/steel buttons — and a similar Hidesign jacket costs 6,000!
It takes a long long long time: Funding takes a long time. Even when you think that a deal is almost closed it will be a long time before a cheque hits your bank. There are due diligences, compliances and, of course, a 50-page shareholder agreement. If you think that it will take three months then add another two, and another one and another 15 days after that…oh and then another 48 hours. When your money is burning out this is big big tension!
Ninety per cent of startups don’t get funded: This is a sad fact. While everyone has dreams in their eyes the sad fact is that 9 out of ten businesses don’t get funded. What’s more, even after some angel funding another 8 out of ten don’t make it to the next phase!
Make a list of everyone you know and make presentations every day: When I was starting up a friend of mine gave me this advice and I thought it was strange. But that’s what I did. I must have talked to or emailed or met at least 75 people before I found my first five. And that’s what kept us going.
Take care and best of luck!