Aayush Sachdeva is the Founder and CEO of PitchKrafts, a 360 degree solution for startups, SMEs, VCs and Investment bankers to create fund worthy pitch decks, financial modeling, business plans and investor networking through their flagship platform Accelerator X. Aayush comes with a background of helping founders to build end to end collaterals required for their fundraising journey, from pre-seed to unicorn round and beyond.
A recent report by PwC puts startup funding in India at $10.9 billion in the third quarter of 2021, and that accounts for mostly first-time investments. This number over a quarter is huge and in comparison to the year 2020, is twice as much. Parallelly, CB Insights in one of its reports also places failure percentage (34%) of startups on lack of funding among other things like product-market fit, business model flaws, and legal challenges.
In the same startup industry growth and late-stage investments accounted for roughly 84 percent of all fundraising activity. However, these transactions accounted for roughly 39% of the entire deal volume (count terms). Early-stage investment rounds for $1.6 billion (average ticket size per round $4 million) early-stage/seed companies accounted for around 61 percent of total deal activity. Looking at the figures it is quite clear that funding and investments continue to be a driving force for any early-stage or high-growth startup. The constant fuel of investor money keeps the product, engineering, and operational challenges at bay. Every startup founder is well aware of the importance and preparedness for the same. Let’s know about some of the funding options you have as a startup.
Bootstrapping on the go- A lot of companies run on investments, for which they need high volumes of funding to subsequently make a platform for themselves. However, there are many start-ups in this race that are self-financed a.k.a Bootstrapped Businesses. According to the stats by Bplans, about 90% of the businesses are bootstrapped. These companies are more than successful and reaching great heights without huge financial investments. There are many well-established bootstrapped start-ups such as QuackQuack, Thinkpot, Tradehub, etc. Although bootstrapping comes with personal risks, it also gives entrepreneurs the power to have complete ownership and authority in making decisions. The rest of the funding options contain pitching and presenting the business model in front of potential investors. Most of the founders or Entrepreneurs lookout for assistance, in this case, assistive platforms can offer support to new start-ups in moving ahead with series A or second round of funding. While getting funded may have become fashionable, the truth remains any great business is supposed to be bootstrapped and thrive on its profit. Indian-born Zerodha which continues to be bootstrapped is an excellent example of marrying the right product to the demand fit.
The other options involve investors and funders in their capacity, let’s explore a little about how these processes are different from self-funding.
- Crowdfunding- A much sought-after option for any product at the idea stage or even alpha stage is crowdfunding. It is the means of introducing modest amounts of money from a big number of people to support a project or start a new business. It connects entrepreneurs and investors by utilizing the vast network of networks available through social media awareness and crowdfunding websites/platforms. By employing this strategy, a company can broaden its investor base outside its traditional circle of friends and family, while also boosting the amount of money available. Crowdfunding for startups is collecting funds from a variety of people in exchange for a specific incentive. It may take business capitalization to a whole new level in comparison to established methods. There are numerous ways to raise funds, and the number of possible investors is limitless as long as you have a compelling business idea and a solid pitch. You also escape the hefty interest rates that are the bane of small enterprises by not taking out a mortgage. A quick google search of “Crowdfund my Startup” can connect you to the right platform.
- Business Accelerators– Business Accelerators often come pretty early in the startup phase, it is when a startup is in the idea phase. Accelerators give a free hand to startups more in the form of logistics, resources, and networking than in monetary terms. The timeline of this relationship usually lasts for about 4 to 8 months, and the downside to this is only the choices of the startups. Angel Networks can also help entrepreneurs like business accelerators, they are looking to invest in early-stage companies that have the potential to generate a lot of money. The Network’s members are leaders in the entrepreneurial ecosystem because they have extensive operational expertise as CEOs or a track record of launching new and profitable businesses. They share a desire to help startups achieve scale and value.
- Angel Investors and HNIs – A third sought-after way, for those who want to avoid the whole idea of taking a loan, debt funding, or are not eligible for either of it, is Angel Funding. Angel Investors are individuals who are interested in investing in infant start-ups. They even work in groups or networks and collectively access the proposal before investing. Along with capital they can also offer mentoring or supervision to the start-ups. Angel investors have contributed to many prominent companies that we know as – Google, Yahoo, Alibaba. This type of funding usually happens in the early stage of start-ups where investors expect up to 1-30 percent of equity and great returns. The equity you give away depends on the negotiation you strike with the angels and the exit stage and term you want to work out with them. Those with investable wealth in the range of Rs. 25 lac — Rs. 2 crores are known as Emerging HNIs. These individuals manage their wealth with preservation and appreciation and by that term of net worth.
- Venture Capital- Next are Venture Capital, which is professionally managed funds, after understanding the potential of the business investments. They invest in business against equity and exit when there is an IPO or an acquisition. VCs evaluate your business sustainability and scalability terms. VCs make investments in start-ups that are beyond the initial phase and generate great revenues such as Flipkart, Uber, etc. These are some fast-growing companies that are well placed in the market and have already gained enough traction to show potential growth. Raising investment through VCs comes with its own set of cons too. VCs create pressure to perform, and go by strict growth metrics, they even have set timelines for recovering the investment, which is often between 3 to 5 years. The entire process can be operationally draining for the leadership or core team members, who are invested in the fundraising process. Essentially most of the time is lost in business plans preparation, annual (at times 3-5 years) projections, and pitch decks. To save time it is recommended to choose a partner to assist in the process of pitch creation.