What does it take to fund your startup?

Entrepreneurship is clearly the “cool” thing to do in India these days. The sheer number of entrepreneur focussed events and forums one hears about and the large and passionate audience at most of these events is ample testimony to this. However, the first hurdle a budding entrepreneur needs to cross is “funding” to give wings to his/her dreams.

A slightly tongue in cheek look at Rules for fundraising:

1. The team – This is probably the most important factor in the ability of a company to raise funds. If the team has “star” power, meaning previous entrepreurial or corporate fame (or notoriety) then the company is almost certainly guaranteed funding. If the team comprises lesser mortals, then the founding team better be a really smart bunch to get a look in.

2. Stage – There is very little seed capital in India and almost no concept stage funding. You need to build something and have some proof of concept before you can approach Seed Fund or Indian Angel Network (the exception to this caveat is the “star” power mentioned in point 1). If you want money to build your proof of concept, self-funding, family and friends in that order is the best way to go.

3. Sector – This is critical; Instead of coming up with bright ideas in sectors in which you have experience and spot a potential opportunity, it may be wiser to analyse which sectors VC’s are funding and then come up with an idea. In the current scenario, if you are consumer internet or to a certain extent mobile VAS company, you can raise early stage VC money before generating revenue. However, if you’re selling to enterprises, you better be atleast $ 2 million in revenue before you can think of VC funding. Sector and stage are closely tied together in India.

4. Valuation – DO NOT believe the funding amount and valuation numbers you read in the press. Most press releases report inflated numbers. Be realistic about valuation, if you are an early stage company it would be rare not to dilute 25-30% in your Series A round.

5. Time and effort – It takes a helluva lot of time and effort to raise funds, whether it is 50K or 5 million. Do not expect fundraising to be easy. If you dont have the heart for it, stick to family money or better still, stick to your cushy corporate job.

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

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