insight
funding
Choose your investor, carefully With the economy back on track, the matchmaking between entrepreneurs and investors is on the rise. The decision, however, should be an outcome of the meeting of the minds and not a desperate attempt to patch a deal
quires serious planning, a number of meetings and presentations. So instead of just trying to fit this into your schedule, it would be better to take some time off and focus solely on the exercise of raising capital. Do some good research and read some interviews of top professionals from the investor community to get a sense of the amount of groundwork that you should be doing before making a pitch. Are you prepared to share ownership? Sometimes, all you need is a loan while you go about chasing angels and VCs. Be aware that taking money from the latter would require you to part with your ownership in the startup, and you must be prepared for that. This would also come with certain terms and conditions about the direction the startup would take, some changes in the team, and
important as you knowing your competitors. Most investors look to put their money in the sectors they know inside out or have the teams to give valuable inputs on the goings-on in a particular vertical. There are now sector-specific investors such as those in the education and clean energy space. They would be able to bring in plenty of experience and mentoring to the table along with the money. Only an investor who has interest and understanding of the space you are operating in would be able to share your vision for growing your startup. No big promises, please: Make sure that neither you make big promises nor your investor. Too many promises can result in disappointments later. Some of them talk of getting you a regular stream of business once they are on board but it would be better
Usually intermediaries look at deals that are in the range of $5-10 million but now some are considering lower ticket-sizes as well Vimarsh Bajpai
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ave you ever happened to see your prospective investor come for a meeting in his bathroom slippers and give you a lowdown on his previous conquests about investing in startups? If you haven’t met investors of this stripe and color, you are rubbing shoulders with the right people. As you venture out on your entrepreneurial journey and seek both advice and funds, it is quite likely that many good advisors would be all too keen to put their money into your startup. They could be wealthy people with bags of money parked in unproductive financial instruments but not necessarily investors. They are only on the look out for opportunities to multiply their money without having any interest in your dreams. As an entrepreneur, it is better not to give in to such temptations. The relationship between an investor and an entrepreneur is like the bond of matrimony. Just as it is better to stay single than to marry the wrong person and then regret, it is better to use your own 74 JANUARY 2011 | dare.co.in
funds than get the wrong investor on board with whom you don’t see eye to eye. Serious investors like angles, VCs and PE firms bring a thoroughly professional approach to investing in businesses and would be wary of putting their money in the sectors they don’t understand. Such investors would insist on some good background work to be done on your part, which involves having a well-prepared business plan and a good startup team in place. Looking for funds doesn’t deprive you of your right to choose a good investor. This is not a decision that you would want to take in a hurry. Depending upon the amount of capital you need, by when and at what stage of your business would have to be clearly thought through. Here are a few points you might want to consider: Fund-raising is a not a part-time job: Money is important for your business and raising it before you run out of working capital is surely necessary. It re-
the broader outlook for growth over the next five to seven years. This is good to the extent that you get professional mentoring that comes with angel and VC funding. You got to be sure that you would be ready to accept this change and not feel claustrophobic about it. Take help from intermediaries: Sometimes it is better to approach investors through intermediaries who could be chartered accountants, lawyers or investment bankers.Usually they look at deals that are in the range of $5-10 million but now some are considering lower ticket-sizes as well. They do add value to your business plan, scan it for loopholes and then help you connect with the right investors. However, going through an intermediary is not a necessity. You could try e-mailing your business plans or making elevator pitches once you meet investors on the sidelines of some events. Look for sector-specific investors: The knowledge of the investor in your area of business is as
to take it with a pinch of salt. The investor’s job is to bring in money and mentoring, not business. If they do help you get new business, great! The devil lies in the detail: Big words such as valuations, ROIs and equity sharing will fly around during several rounds of negotiations but the real devil is in the transaction agreement. Read through it carefully and take help from lawyers before you put your signature. Don’t hesitate to ask for clarifications if you don’t understand certain clauses or are not clear about some technical jargon. Even Richard Branson didn’t know the difference between net profit and gross profit till some years back. In one of his interviews, he shared how a senior member of his team called him out of a board meeting to explain the difference. Vimarsh Bajpai is a content and communications consultant. As the founder of Samvad Sutra, he works with organizations and individuals to help them communicate better.
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