Headstart Network Foundation hosted the eighth episode of “Headstart Live – A Webinar Series” on 18th March 2020.
Mr Venugopal had formerly worked for Infosys as a strategy and planning head and later entered the startup ecosystem to help the young entrepreneurs on their dream ventures.
Fundraising is one of the biggest barriers why most young entrepreneurs drop their idea and go back to their 9-5 desk jobs. Mr Venugopal has delivered a few valuable and affirmative thoughts on fundraising at ideation for startups. Here are some key takeaways from the Webinar session.
1. Trends in the Seed-Funding Space
The trend in the setting up of startups has shifted from People with no prior experience introducing startups to people with past experience setting up one. This makes the whole ideation process more efficient and investors can be easily convinced because of the fact that the founders have prior experience.
This also implies that the competition has increased among the founders. Every founder with or without experience should have a solid plan before they pitch to the investors.
Mr Venugopal points out that there is almost 5x Number of investors in the industry today than a few years earlier. He also mentions that the presence of investors has spread from startup hubs like Bangalore and Mumbai to smaller towns as well, increasing the opportunity for small-town entrepreneurs. A lot of Angel investors and Venture capitalists are also signing seed-cheques if they find the idea pitched, solid and sought. So, if the venture requires higher capital, the founder must consider pitching to multiple investors as there are higher odds of raising bigger funds.
The startup ecosystem is also seeing success in various sectors other than the fin-tech sector, which was and still is in demand since 2015. The investors are now appreciating unique ideas and are now open to invest in various fields, not just Fin-Tech. This opens a lot of opportunities in a lot of the fields. No matter whatever field your idea falls under, there will be at least 2 to 3 interested investors.
2. Knowing Your Investors
According to him, there are two types of investors. One, who is thesis-driven and the other, entrepreneur- driven.
The thesis-driven investors are well versed on a particular space or opportunity and are waiting for the right group of people to execute and build the space.
If you come across such investors, impress them by convincing them that you are the right person to carry out the idea.
On the other side, we have entrepreneur-driven investors who are particularly interested in shares or profit. They are open to any opportunity and believe that it is an entrepreneur’s job to build & prove a thesis, and then decide if the entrepreneur is best fit to seize that opportunity.
“Before pitching to the investor, do your homework”, says Mr Venugopal.
He asks the founders to take a ‘human approach’ to find out about the investor’s interests and what ideas they thrive on. Do some research about the investors to get to know whether they are thesis-driven or otherwise, what kind of projects they have invested in before. Even founders can speak to the founders the investors have invested in before.
On reaching out to the investors, treat them like your target customers.
Create a list of investors who you think will be interested in your business plan, instead of spraying your idea to each and every investor. To make this process more efficient, let one of the founders solely for fundraising purposes like designing a pitch, facing the investors and taking feedback from them.
3. Before you Pitch to the Investors
The founders must ask themselves why will the investors be interested in their plan. Moreover, why will they invest in their plans? Look at seed fund objectives.
They want every investment to get to at least half their fund (full fund for larger sized funds).
The founder must pitch their idea using a storytelling technique and convince them how the company will return half of the funds. Also, more importantly, show them how your business will help them make money multiple folds.
Basically, according to the pitch, the investors put the founders in 3 different baskets.
They are trying to figure out why you are the best given most investors would have already seen 4-5 players in your space
- Scenario 1: You are unique
- You should focus on how you are creating a new category; why the category will work
- Scenario 2: Clear category but no category leader
- You have to demonstrate how you will be category leader – you have a better team or better product, etc
- Scenario 3: There is a category leader
- Tougher scenario. But you can try to demonstrate how you will take on the category leader – maybe you are more capital-efficient, have a better product.
- Scenario 1: You are unique
Mr Venugopal was open to a Question-Answer Session from the participants of the webinar and was able to give insightful feedback. And participants had some interesting questions, some of them are mentioned below.
One of the participants asked- What is a typical time to close a seed round?
Answering that, he said, considering the scenario nowadays, a good 2 to 3 months is enough from initial talks to signing the term sheets. He adds that in India, it takes as much time to close a seed round as it takes to close a series A.
Further questions revolved around the chances of the solo-founder not being able to convince an investor. Mr Venugopal told that for a seed-funding venture like Axilor, it’s strictly not a no-go. There are a number of solo-founder ventures in the vicinity. The fact about why investors neglect solo-founders is because, by time, it will be difficult to run a company single-handedly.
Towards the end of the session, the speaker even mentioned the industries in demand and which were more open to investment.
- First-wave: Content platforms
- Broad Content startups or platform like FB, WhatsApp
- Second-wave: Disruption of service delivery
- Inefficient offline to Efficient online
- Food, hyperlocal, medicines
- More capital intensive than the first one
- Third-wave: Verticals like vernacular, niche players we are here right now
- Niche segments – App for students, women, etc
He ended the session on a note saying: “Don’t think ‘no funding’ means ‘no success’. It is possible to get to a respectable revenue level through bootstrapping.”
Vivek Raju– Volunteer, Headstart Chandigarh
Reshma Raviprakash– Intern, Headstart Network Foundation