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Problems that Startups usually face

There are 150 million Startups in the world today, with 50 million new Startups launching every year. On average, 137,000 Startups are emerging every day. These are huge numbers by any standards.

But the question remains, how many Startups tend to survive the violent waves of change that have completely transformed the very nature of today’s Startups?

Yes, there is a massive paradigm shift. And that shift has challenged the overall functionality of Startups. These challenges can be categorized into:

  1. Ever-increasing competition
  2. Unrealistic expectations
  3. Hiring right candidates
  4. Decision-making amongst Co-Founders
  5. Cash-Flow Management
  6. Cyber Security in case it is a Tech company
  7. Winning trust of consumers

Challenges are everywhere. And businesses – in general, and Startups in particular – are no exception to the myriad of challenges that we face today. Facing these challenges, there are strategies that can help startups in their fundraising plan.

Strategy to get seed funding for Startups

For a Founder looking for seed funding, it is imperative to know their operating sector. The key is developing a thorough knowledge of the dynamics of the industry, including market size, pricing, customer profile, acquisition channels, Go-to-market strategy best suited, the status of adoption of Technology, skills required from the employee base; to name a few.

The superior skills required by the Founders are passion about the problem they are solving and their conviction in developing a solution with a sound Business Model behind it. The Founder has to know the narrative inside-out as to what he is creating in the future, and a certain amount of story-telling skills are a must in this endeavor.

A passionate Founder will talk about the problem he is solving, write about it on blogs like Medium.com, and be seen in events. All this works very well for the Seed round Fund-raise, as Investors are likely to search about him and the Startup on Google! Hence, one must have a good Google presence. Check out this article on Inc.com on 17 Venture Capital and Angel Investors to Follow on Twitter.

Once the MVP (Minimum-Viable-Product) is established, the Investors have comfort in the fact that they can see the product. However, being pre-revenue, there is a lot of uncertainty. The more a Founder moves towards establishing a PMF (Product-Market-Fit), the better his chances for securing the seed capital. 

It would be great to get letters of support from potential Distributors, potential Manufacturers, and other vital areas which can show visibility of cash flows immediately post-infusion of Capital by the Investor.

We have been seeing that in instances where there is an FMF (Founder-Market-Fit), it not only becomes easy to get seed, but the ticket size which Founders can raise can be considerable. For example, 10club raised $40 million seed capital on the back of the legacy success of its Founders. Kunal Shah raised $30 million for CRED after selling Freecharge to Snapdeal. 

Some case studies to show how these strategies work

Case Study 1: A Client who has more than three decades of experience in FMCG & Beauty Products companies throughout the world created purely organic formulations of Beauty products (Women, Men’s grooming and Child care) which were ECOCERT COSMOS V3 compliant, the best certification for organic (based in Europe), available in the world. This company was Zero revenue – so we did some groundwork. We got letters from 28 Distributors from India and the Biggest Distributor in the Middle East, saying they want our products. We also got a letter from the certifying agency ECOCERT COSMOS, certifying that the products are purely organic.

Case Study 2: A client in the BPO (Business Process Outsourcing) space required Venture Capital funding. We pivoted the business to a technology-enabled business and changed the narrative to present it as an impact business. We laid down well-defined criteria and processes for getting the company up to the mark on several impact parameters- the percentage of women in the workforce, training to non-graduate staff at company expenses, recruitment from tier two and three cities, etc. 

Case Study 3: A retail pharmaceutical client pivoted the business by having an innovative CRM, facial recognition software, AI-enabled smart database manager, robots for fetching medicines from the stores, and a holistic offering covering lifestyle management and healthcare to all its customers.

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Case Study 4: An IIT-JEE entrance training company with almost USD 60 million in revenue created a new business with gamification of the K-12 content in the national language. We pivoted the business by creating gamified content in vernacular languages as well. The company wasn’t moving the needle much on the revenue front, so we changed the go-to-market and let them enter into extensive discussions with the government, thereby massively installing the app with students of government schools. This led to an earning of INR 100/- per student, with the company’s total revenue crossing INR 350 million! 

Case Study 5: An Ed-Tech company that created video-based online short courses wasn’t getting much traction. We analyzed the situation and realized that the marketing team faced a credibility deficit while convincing potential customers. We advised them of the solution wherein the company did a marketing tie-up with India’s largest online jobs website, which had large availability of jobs on its platforms. The jobs company set up a dedicated Call center to sell the Ed-Tech company’s courses to the job seekers on its website by essentially saying that it would help them get the jobs available. The Ed-Tech company marked up the prices of its courses multi-fold and shared 50 percent revenue of each course with the jobs portal. Both companies profited tremendously. 

Case Study 6: Yet another Ed-Tech company was facing the issue of how to increase traffic for the courses on their website. We advised them on a recent phenomenon wherein YouTube had significantly reduced the payouts for video content creators on the YouTube platform. This meant that many YouTube channels of the enormous following didn’t earn as much as before. We advised the Ed-Tech company to start buying these YouTube channels. The company became successful by buying these channels for as low as INR 8 per subscriber and then directing the traffic on these channels to their platform. 

When should a startup think about fund raising?

The best time for a Startup to raise funding is when it has already achieved PMF (Product-Market-Fit) – meaning Primary and Secondary market research has been completed, the Customer preferences have been mapped and inbuilt in Product/ Service features, types of offerings and their pricing has been finalized, the Go-to-market strategy and Distributor/ Supply-chain tie-ups have been done, and Strategic roadmap is in place. 

With the start of early revenue, the potential Investors are confident and can put in money for marketing and other scaling-up activities.

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At this stage, the Founder can also enjoy the fruits of their hard work in the form of a good valuation.

How to cultivate an entrepreneurial mindset?

Many times, Founders are early in the game, as in, they created something which Investors are yet to develop a fancy to; or the market is not matured enough to accord cash flows to the product/ service. This happened with IndiaMart, after many years of which came Udaan and became a Unicorn.

This happened on many products of Pearson Education, which had an exemplary leadership in EdTech but missed out on the massive rally in EdTech space, with multiple Startups getting colossal funding. But both IndiaMart and Pearson still made a name and business for themselves and rewarded their Founders nonetheless!

But as an entrepreneur or a budding entrepreneur now you know the successful strategies for your next fundraising plan for your beloved startup!


Author

Tushar Kansal is the Founder/ CEO of Kansaltancy Ventures - Tushar is an accomplished professional with experience spanning multiple sectors from Venture Capital. Tushar is a Venture Advisor with Loyal VC, the INSEAD-led Canadian VC Fund, having a core portfolio of over 200 investments in more than 60 countries.

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