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The current funding winter has now stretched on well past a year. It has seen valuations crash and startups fall, humanising yesterday’s superstar founders and reminding us that when cut, we all bleed the same. More concerningly, there are few signs of a thaw in the near future.

Funding, however, remains the lifeblood of the startup ecosystem, and while it may be in short supply, it isn’t gone. It’s just that the exuberance of 2021 has given way to prudence. Investors are still sitting on ample amounts of dry gunpowder, they just aren’t as easily convinced by big toplines or as willing to ignore crimson bottomlines.  

In such an environment, YourStory’s flagship startup summit TechSparks 2023 saw Onsurity co-founder Kulin Shah and BCG MD and Partner Nitin Chandalia shed light on what it takes to make a startup more funding. While Shah is well-versed in fundraising, with his insurtech raising nearly $19 million thus far, Chandalia sits on the other side of the funding equation. He works closely with VC and PE firms, helping them evaluate potential investments.

Kickstarting the discussion, Shah was quick to dispel any notions that fundraising was a spontaneous event. “You can’t simply say let’s found a startup and then think you will go and raise funding. There’s a lot that goes on between these two statements,” he told attendees.

Before startups can even begin to think about funding, explained Shah, they must first work on their product. “Think about a problem statement, validate that problem statement, and talk to potential customers. Take the idea out into the market. Then come back to the drawing board if it is not working.”

This was the approach that Bengaluru-based Onsurity—India’s fastest-growing SME-focused employee benefits platform—took. It was only after months spent fine-tuning their idea that Shah and his co-founder Yogesh Agarwal built a prototype.

This preparedness helped Onsurity hit the fundraising ground running. So much so that its seed round itself saw investments of $2.5 million led by bluechip VC firm Nexus Venture Partners.

BCG’s Chandalia, meanwhile, explained that while it is never too early to begin thinking about fundraising, raising money too early also has its downsides. “The earlier you raise, the more the dilution, of course. So, the more time and runway that you can actually drive by bootstrapping—building to a certain level where you have paying customers and PMF (product-market fit) is established—that is the ideal state to be in. That is the time to actually have those [funding] conversations,” said Chandalia.

That being said, both Shah and Chandalia agreed that it is never too early to start building a relationship with potential investors. “It’s one of the things that I always tell people is that never raise money when you need it. Right? Go to investors and build a relationship with them. Tell them what you’re building and get advice because when you get an investor on board, it is equivalent to a marriage. And separation can be very, very ugly, right?”

These conversations aren’t just about the investor getting to know the product, but the startup selecting for the right kind of investor as well. “You need to kind of build that confidence that the investor who’s coming onto your cap table is the right fit,” explained Shah. Nexus, for instance, had a thesis on insurance that resonated with Onsurity’s plans, he said. And while the startup was offered investment from many others, its plans aligned with Nexus’ vision for the company.

Chandalia, meanwhile, shed light on what investors are looking for in today’s market. “I think these three things—unit economics, scalability with ample operating leverage, and paying customers. If you have these three things, it helps build a very strong case for investment.”

All that being said, there’s ultimately little substitute for the value a great product brings. As Shah explained, a lot of funding for Onsurity came from founders whose companies used the startup’s employee benefits platform. “The most rewarding experience is that if your customers are ready to back you, that is the most gratifying experience in life,” he said.