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Starting Up & Fund Raising
Starting Up & Fund Raising
AND
FUND RAISING
A guide book to help first-time entrepreneurs
become better prepared for business and funding
PRAJAKT RAUT
Notion Press
Old No. 38, New No. 6
McNichols Road, Chetpet
Chennai - 600 031
ISBN 978-1-946390-67-7
This book has been published with all efforts taken to make the
material error-free after the consent of the author. However, the
author and the publisher do not assume and hereby disclaim
any liability to any party for any loss, damage, or disruption
caused by errors or omissions, whether such errors or omissions
result from negligence, accident, or any other cause.
Concluding Remarks
There are now more ways than ever for startups to find
and connect with investors, through in-person events
and online deal-closure platforms, but this also means
that investors are seeing more companies than ever before
- it is important for entrepreneurs to catch their attention
as they may only have one chance to make a good first
impression.
Many startups start reaching out to investors before they
know how to make a sound and compelling investment
case for their business - and how to articulate that.
Often even strong entrepreneurs with good ideas never
get a foot in the door, or catch an investor's attention
because they have not been able to present a compelling
case to investors.
Investors want to see a well thought out plan for your
business. And how well your pitch deck or intro video
communicates a well-thought-out plan is what can get
investor attention.
That’s why I wrote this book to help startups in this crucial
step – in helping them refine their plan, understand the
investor’s perspective and help them articulate their
investor pitch in a manner that gets investor attention.
The book is also intended to help founders understand
how to think of the building blocks for their business.
Entrepreneurship is a tough and challenging journey. The
chances of not succeeding are significantly higher than
your chances of succeeding.
xvi WHY THIS BOOK AND HOW TO USE IT
skepticism as it will only help you iron out issues that you
may not have thought about.
If you still do not get funded and do believe it is a concept
worth fighting for, you need to find innovative ways of
building a proof of concept.
Find mentors and investors with belief in your concept.
It is also important for you to find investors who have
a strong belief in the domain that you wish to be in
and convince them about your ability to deliver on that
potential.
Importantly, don’t be a lone ranger. Connect with
other entrepreneurs. Seek guidance. Ask those ahead in
the entrepreneurial journey to share their experiences.
Network and seek mentoring from accomplished and
successful entrepreneurs.
To end, I would like to clarify that entrepreneurship to my
mind is not just about starting or owning an enterprise. It is
about an entrepreneurial spirit that inspires individuals to
take ownership of an assignment or area of responsibility.
It does not matter whether it is in your own enterprise or
whether in an organization where you work or whether
the organization is a commercial enterprise or a not-for-
profit entity. Do well in whatever you choose to do. Do
it diligently, honestly, ethically and with enthusiasm and
commitment.
And THINK BIG.
As the advertisement of a spirits brand said ‘Its your life,
make it large’.
3. Some learnings from my entrepreneurial
journey and from startups that I have
engaged with
any HR person or a CXO and they will tell you that, all
things being otherwise equal, they would prefer a failed
entrepreneur over a career professional because the failed
entrepreneur is most likely to know more about ‘business’
and life than the career-professional).
Ask any entrepreneur and they will tell you that
entrepreneurship is a high that you will enjoy despite
all the ups and downs that it brings. It empowers you. It
gives you a sense of purpose, a direction and a positive
restlessness that makes you believe that you can contribute
a lot more to this world. And really, there is no excuse left
not to start up.
5. Ideally, aspiring entrepreneurs should work
for a start-up AND a large company before
starting up on their own
Large aspiration:
Clearly, unless the aspiration is large, it is difficult to create
something that is valuable. Large does not necessarily
mean large just in revenues. It could be large in impact
as well.
Optimism:
An entrepreneur must be high on optimism. Simply
because they need to have a motivating purpose in order
to convince others to join them in the journey. However,
there is a fine line between optimism and arrogance. An
entrepreneur needs to have the humility to test his/her
optimism by cross-checking with others.
Confidence:
Without confidence, all ideas will remain just that – ideas.
Taking the first steps, going ahead despite being aware of
the challenges, and being wise about taking precautions
against these challenges, are traits of successful
entrepreneurs.
Entrepreneurs however are not blind risk takers.
Successful entrepreneurs understand the risks and take
necessary steps to mitigate those risks. Confidence in their
approach is what helps them deal with the challenges and
risks better.
Patience:
Success is not overnight, and the graph of growth is
NEVER a line going up rapidly as you see in many
projected revenue charts. There are ups and downs in the
18 STARTING UP AND FUND RAISING
14. Is it ok to have a part-time co-founder?
15. The Success or Failure of a Venture can
Often Depend on the Quality of the Relationship
between the Co-Founders.
etc.) need to know where the buck stops and who would
be the decision maker when one needs to be made.
In most cases though, especially when a few friends get
together to start a company, who will be the CEO is a
tough decision. In such cases, it is best to have a healthy
debate within the team and select a CEO.
While it is a difficult question, often leading to stress
among the team, it is critical to address that and take
a decision. Especially if the startup is going to seek VC
funding, there will have to be one CEO who is leading
the team.
17. “If I have the skills to build an MVP myself,
should I hold off on a Co-Founder to Raise
Capital and make some early hires?”
My response
Different people will have different styles, and different
personality types will deal with these situations very
differently.
My style is to have an honest conversation. State your
expectations, highlight where the delivery has not
been as expected, assess if the reasons were within the
individual’s control, and provide an opportunity for the
person to respond. And ask the person what you think is
a fair way forward.
In most cases, if you present a fair assessment of how
things are going, the person may himself/herself offer to
step aside. Of course, if the person is not agreeable to
stepping side, then you need to do what is in the best
interest of the company.
Of course, it is also possible (and often that is also the case)
that the company itself was not able to leverage the advice
and inputs of the mentor/advisor. And that is also a reality
that needs to be dealt with. If that situation is unlikely
to change, even then having an honest conversation and
saying “I don’t think we are geared to make full use of all
the good advise you give us. We are just too bogged down
58 STARTING UP AND FUND RAISING
money safely and easy access when I need it’. With the
same bank, a professional working in a MNC may be
looking to switch from his bank because he is looking for
‘a bank that provides a great online interface and a great
mobile app’. Same core product… different needs because
the customer segments are different.
Even within the same segment, customer needs could be
different. E.g. for a mobile banking app, a professional
who trades regularly in the stock market may want a
different set of features than a professional who does
not trade in the stock market. Understanding needs of
different people can help you design
a. Either a different solution for different need
groups or
b. Design your product to allow a ‘customize your
app as per your needs’ feature or
c. Have a bunch of features that are relevant for
different needs groups but have a communication
campaign which highlights the critical needs of
different types of users.
In summary:
Identifying who your customer is BEFORE you design your
concept, and certainly before you develop your product or
service, is critical. It can be the difference between failure
and success of a startup.
It is important to clearly know who will buy your product,
why they will buy it, how much they will buy, how often
will they buy, how much will they pay for it, … and why
they may not buy even if it addresses their problem. Not
knowing this is like cooking a meal without knowing who
is coming for dinner.
30. What are some Important Questions to
ask in a focus group research for evaluating
an idea?
Doing it differently
Even with existing players in the market, it is possible to
create a distinct identity for the brand. Either on a service
differentiator (same product, better service e.g. private
banks/airlines versus public sector banks/airlines in India)
or on a concept/value proposition differentiator (same
concept, differently positioned) or a price differentiator
(lower price/higher value or even higher price/premium
positioning) or targeting a different target audience
(younger or older or different income bracket, etc.) or
even a brand personality differentiator.
34. Some points to consider when Estimating
Market Potential
Some advice:
• Try to achieve higher conversions than comparable
others in the market, but estimate much lower
conversion numbers in your excel sheet planning.
This way, even if you do not do better than market
average, your plans don’t go awry.
• Validate your assumptions – validate your assumptions
– validate your assumptions…. Again and again and
with multiple sources. Going wrong in assumptions
can be disastrous, even if the rest of the components
of your business do well. E.g. if you assume a 0.5%
conversion, but it actually turns out that you get 0.3%
conversions, you may be off by a considerable margin
in your profitability and may also run out of cash
sooner.
• Identify the key matrices that you need to measure.
E.g. Gross margins, cost of customer acquisition,
headcount per ‘unit’ [i.e. could be a set of customers],
etc.
36. What is the Right Revenue Estimate for a
Startup?
Crowd Funding
Crowd funding is just another way of getting angel stage
funding. Instead of one or two or a group of individual
angel investors investing in the venture, in crowd-funding,
startups use online platforms to reach out to a larger
number of individuals who usually invest much smaller
sums to collectively provide the capital the startup needs.
122 STARTING UP AND FUND RAISING
Bootstrapping
Bootstrapping is the art of going as far as you can
without external funding. I.e. pooling together your own
resources, usually at a pre-concept stage or at a prototype
building stage.
PRAJAKT RAUT 123
When to bootstrap
• When your concept is yet to be proven … and can
be proven with limited capital
• When you too are unsure if you would like this to
be your lifetime career and want to give it a shot
to check if this is likely to work
• When you have the resources to go past the
concept proof stage
Strategic investors
• Larger companies for whom your concept is an
adjacent or related opportunity may find it interesting
to invest as a strategic investors.
• Adjacent opportunity - e.g. Educational content
platforms could be an adjacent opportunity for a large
company in the education space
• Related opportunity - e.g. healthcare services for the
poor is a related product for a microfinance company
A strategic investor, apart from providing capital, also
helps validate the concept for external investors thus
126 STARTING UP AND FUND RAISING
Jugaad to processes:
As the venture plans to secure seed funding, the founders
need to recognize the need to shift from a ‘fix on the
move’ mode to a process-oriented approach. They need to
recognize that as the team grows, they will need to rely
on processes and matrices, and the discipline to measure
performance and progress on well-defined parameters.
the reason why the quality of the team, their passion, their
ability to understand the innards of the business, etc. will
be key deciding factors for seed-stage investors, even if
the rest of the things mentioned above are all positive.
44. What parameters do investors use to decide
on an investment?