Who owns the asset?

Businesses have been very irresolute with regards to being ‘asset heavy or light’ — so should it even matter, for early stage funding?

In any business, it is one of the stakeholders in the ecosystem that needs to fund the fixed assets and the working capital; it can be the supplier, the customer or the company. However, the answer to, who does it can be interplay of several factors. But more often than not, it comes down to who has the bargaining leverage.

A start-up can start with an asset heavy model and transcend to being asset light or vice versa.

This is why, I believe, it’s not just the current model of the startup that is important; understanding the team’s thought process on how they intend to grow this business, and asking pertinent ‘at scale’ questions become critical.

For instance, in the self-storage space in South-east Asia, on-demand self-storage (B2C) start-ups commenced business with their own warehouses, then moved on to being a marketplace for existing warehouses and have now reached a stage where logistic companies are setting up warehouses exclusively for these businesses. This happened because these start-ups opened up a completely new market (B2C) for the traditional warehouse/logistics companies.

Take a look at the proverbial E-commerce platforms in India. They started with an inventory heavy model and once the platforms got enough traction from customers; they leveraged this and transitioned to a marketplace model. Now most of the inventory rests with the seller or with these e-commerce companies, on a sale or return basis.

Dependence on capital (for scaling up) can be inversely proportional to the dependence of other stakeholders in the ecosystem, on your business.

I am currently engaging with a company, in the B2B logistics marketplace for inter-city movement of goods. They connect the customers (think FMCG, E-commerce), the truck owner and the truck driver on a single platform. Some of the problems plaguing this segment include multiple layers of brokerages, inefficiencies leading to gross under utilization of capacity and lack of accountability.

Although they’ve got great traction and marquee customers, they require working capital for funding the debtors; currently being funded through a mix of equity and bill discounting.

They are planning to do couple of things to improve their stance in the ecosystem -

• Increase orders provided per trucker and thereby increasing their stickiness and overall dependence to the platform
• Get deeply entrenched with the supply chain of the bigger FMCG companies, and add further value in terms of route optimization, thereby leading to overall cost reduction

Sure, this might take time to execute, but the path towards mitigating, the sole dependence on external capital has been enough to evince investor interest.

Entrepreneurs, don’t let an ‘asset heavy model’ label, on your business effect the possibilities of funding; just envision your business in a longer term and take investors through the thought process on how you intend to scale your company.

Heart it, if you think this makes sense :)