Fundraising is difficult and that’s me being very polite. How many times have you heard a VC tell you – “Your product is really nice and very useful as well. I love it. I just need to see a bit of traction now to convince myself to invest”? If you are a early stage company looking for someone to invest, then I will bet my house on you having heard this from one of the VCs.
A couple of years back there was no shortage of VC money, they were making bets on anything and everything they could find and in doing so many of them have burnt their hands. When I say, burnt their hand, I mean they had literally drowned all of that money down the drain for crazily stupid ideas that would have never made it big, let alone India, anywhere else in the world. That’s changed the investment scenario for the better. The heavily discounted models which a few of these startups were running were extremely difficult to sustain. These models weren’t inherently changing consumer behavior or making consumers loyal to any brand/ product. What they were doing was just delaying the inevitable, that’s running out of money and not finding a backer who will invest at a higher valuation.
With funds drying up the investment firms, including the early stage ones have changed the way they approach investing. These days, Seed stage investing is more or less like the Series-A/ B a couple of years ago. The investors look for genuine traction – Revenues and focus more on profitability rather than GMVs. Gone are the days, when all it took for a startup to raise money was to have a few thousand free users sign up on the platform.
In an ideal world, bootstrapped, cash-flow positive startups would be the rockstars. But there are times when a startup needs fund to survive and grow, the cost of running a startup is often not understood well enough by founders. From my experience, the investors look for the following in a startup:
- Ability to generate revenue (an existing portfolio of a few paying customers). This is also a confirmation on product/market fit.
- Ability to scale – Addressable market
- Identified a Channel to Acquire customers – A process that is repeatable
- The Team – A balanced set of skillset
- Ability to hustle
If you feel your product or startup fits the bill and is in need for funding, then go for it. Remember, fundraising is a painfully long process that will drain you out. So ensure you have a support system in place to continue running the business while the founder focuses on raising money. If your startup does not tick off the 5 criteria listed above, then put your foot down and get cracking on these 5 items.