Fundraising at all stages can be a daunting task for any entrepreneur, especially when they are just starting out to build their companies and exploring investment avenues for the first time. It takes most of their time effort, and even their attention away from the company.
Any founder will attest that fundraising is all about selling and presentation skills. But several other aspects can also capture an investor’s attention.
Explaining how they went about raising different rounds of investment, here are some of the top tips by founders:
Storytelling is about believing the story
Shan Kadavil, Co-founder and CEO of FreshToHome, the online meat startup, believes that storytelling is an important skill, but it isn’t about selling your product. He says,
“Storytelling isn’t about the gift of the gab; it is about believing in the story you tell. I realised that the hard way in the early part of my career. I used to run reasonably large-scale sales organisations – Support.com.”
He explains that at some point, everyone will cut through the fluff and would want to know about the real story. After all, it is about being genuine and believing in your story, and the problem that you are looking to solve.
What problem are you are solving?
Whether it is an investor, a mentor, or a customer, your product to them matters only if it solves a genuine problem. Every investor will tell the importance of having a clear vision, especially in the early days of the startup.
All the founders YS spoke with said that the investors connected with their ideas because of the problem that they were looking to solve. It was about the depth of the problem, how they were looking to solve it, and the steps the founders will take that mattered in the end.
Karan Bajaj, Founder, WhiteHat Jr explains that it is important to articulate your story clearly. He says that while pitching, he had a clear presentation of 15 slides that articulated the roadmap for the company.
Also, the details need to be backed by market data to create a compelling and intricate story. While everybody has an idea, converting that idea into a very detailed last-mile execution needs a plan.
Go back to the basics
Shan explains: While raising funds, you have to go back to basics. There are three things I look at:
Market size – Is the market size large enough? Investors are past the stage where fancy terms like AI, bitcoin, etc can grab their attention. Anything with a small market isn’t going to be successful. That’s why funding isn’t that easy these days. In 1999, in the Bay Area, I could speak to a VC for some time and get funding. But that isn’t the case anymore. It is about the fundamentals, and the first part is the market size. The fish and meat industry is a $94 billion market, and such markets which aren’t disrupted are a rare find.
Illustrating the critical problem – Product-market fit is important. You need to make sure there is a need in the market and your solution addresses that need. In our case, 99.7 percent of the market is unorganised and comprises wet markets. So there are hygiene factors that come into play, and there is a clear product-market fit.
Unfair advantage – Most founders miss this, but in the second and third round of funding, it is important to point out the unfair advantage. For us, at FreshToHome, it was using technology to disintermediate the middlemen. We have a US patented technology that allows fishermen or farmers to auction with us. By Series C funding, we had already perfected the process, with over 15,000 fishermen across the coasts using the platform.
There is a 60 to 70 percent gross margin that gets cut by the middlemen, and if you can run your business with a reasonably good gross margin, it makes for an attractive value proposition. Also, our Bengaluru and Delhi markets are EBDITA profitable. You need to demonstrate the unfair advantage with numbers in the later rounds.
Traction and momentum – After the Series A funding round, the pace of growth becomes critical. The investor funding is about you making it big or going home. If you have raised capital, you cannot afford to not show growth and revenue; it isn’t how investors think. Being in a dead zone doesn’t help.
Focus on building relationships
Rahul Garg, Founder, Moglix explains the key is to find the right fit and develop a long-term relationship in which both parties grow together. The right intent and alignment of goals help in building and strengthening the relationship.
He says that one needs investors who can be partners and stay committed to the founder throughout the journey.
“We went through a pivot and our investors supported us through that phase. Such transitions can only happen when your investors are committed to your vision and feel passionate about your venture. The B2B commerce space needs a time horizon of 8-10 years, and only investors who are willing to go through this time commitment will make a good fit for entrepreneurs in this industry,” says Rahul.
Rapido’s Aravind Sanke adds the pitches can form a base for building relationships. The founders explain it isn’t always that startups raise funding from the investor the first time they meet or during the first pitch. Fundraising is all about putting the word out there, meeting the investors, and getting their opinion.
Show strong differences
When the team was raising funds for Rapido, one of the challenges it faced was that its competitors were billion-dollar companies. The mobility segment had strong players and every investor had either already placed their bets on Ola, or they were not investing in the sector. For Rapido, the task was to bring in differentiation in their product.
There was a strong perception in the market that mobility wouldn’t focus on unit economics or its a two-player market.
“We never pitched ourselves as a mobility company. We focused on asset utilisation, logistics, and people transport. Also, Ola and Uber had most of their user base in metro cities; which gave us an opportunity to pitch logistics and mobility for the next 100 million consumers. Tier-II and III cities do not commute by cab,” says Aravind Sanka, Co-founder and CEO, Rapido.