The jealousy is unbearable, when we read news about other startups getting funded in millions. "Why them!!?? And HOW?"

Admit it, such feelings are there for a few minutes at least (if it doesn't keep you awake at night).

Funding for startups is a dicey subject. There are so many stages - seed, series A, series B, Growth stage, and endless list. Let's say your startup is in need of external funding. How do you go about it? Because the last time you might have tried, you were rejected.

Well, Ashish Dave, CEO of Mirae Asset Venture Investments (India), had a meetup with HelloMeets late August. Since funding startups is his full-time thing (read his designation again, if in doubt), he is one of the go-to investors to get a practical guide on raising funds from venture capitalists (VCs).

This blog will answer some of your questions on funding and approaching VCs, and a little more...

How to raise money for your startup. Some basics.

  • Build relationships with VCs and be known for your work, so that you can prove that you can scale as your work is visible.
  • Funding will come to you if you have revenue and value in mind while executing your idea.
  • If people love your product and are getting used to your product
  • Funding is an outcome of having revenue. Run your startup in a way that is visibly generating revenue and has that potential.
  • Thinking about sustainability from day zero, so that you're not always dependent on investors
  • If your idea is generating cash flow, you can take a loan on collateral - you might not even need a VC to fund you then.
  • You can use crowd funding too
  • Revenue is certainty, funding is a probability. VCs may not fund you for different reasons, but your focus should be more on revenue.
  • Have a strong management team that can withstand uncertain times. Your team/squad needs to be very well assembled. They should promise continuity.
  • Have a lot of numbers to show - where your execution, consistency are visible
  • Use a lot of examples and use cases while pitching - so that investors can understand your idea better. Drive the conversation with practical and visible use cases. (use storytelling too)
  • Understand tech, understand finance & how money moves [know how to read a balance sheets]

How do VCs think when they look at an idea?

If your idea is scalable, you're worth investing in.

VCs invest in ideas that can give them 10x to 20x in returns.

VCs don't have time. Try getting investors hooked in first 5 to 10 minutes while pitching. (please tread this line carefully, bathroom conversations can get awkward).

Why would VCs decline funding a startup or an idea:

If you've approached the wrong one.... [if you're looking for seed-stage funding, don't go to a growth stage investor]

So to solve this, research on your investor before approaching them. Find out their details:

  • Stage-wise
  • Ticket-size wise
  • Partner-level

Also, some investors will have a need to have a say in your business. Some might want to guide you, or be a board-member. So also find out if the ones you are approaching have such patterns. It helps.

They might decline funding you, if your business can't provide an exit to an investor. If VCs can't get their money profitably out of your startup at some point, don't approach an investor.

What do investors look for when startups pitch them?

Large markets - Is there a potential to make a lot of money in the market your startup would enter? [Like, EdTech or Cloud Kitchens]

Disruption - is your idea creating a new market? [Create a new market that's adjacent to existing market] Eg: Swiggy's entry and ensuring that food reaches customers in 30 minutes. They've taken existing infrastructure and scaled up with more specific service, creating disruption (that's how they beat FoodPanda).

Unique strengths - If your startup has a unique way to solve existing problems in your market. (Like BYJU's bringing in animation and videos in short, consumable and gamified manner to school students).

Capital-efficient model - it defines your valuation, and growth to higher valuation. Raise less money, grow to higher valuation. Don't burn too much money, but gain revenue fast... can your startup idea do that?

Strong exit potential - if your idea is more sustainable, investors will have higher options of getting their money out in a profitable way. They look for ideas that give them options to exit after growing  and generating money.

Contribution margin - 1 | Contribution margin -2

Pure revenue

Ideas that are tech-enabled, if they are large markets

They're putting money in Content, grocery, pharmacy [frequent purchases], EdTech, Cloud Kitchens, Healthcare, Fintech, Fitness apps

Growth-stage investors look for validation from a startup's performance at Seed and Series A stages before taking them seriously

And if you're growing 100x every year... that you might be worth investing in


A mega shoutout to Ashish Dave for breaking down such a scary topic for people.

If you are looking for funding your growth stage, you reach him here - dave.ashish@miraeasset.com

http://in.linkedin.com/in/daveash

https://twitter.com/ashishdave

Resources: Presentation on Understanding VC’s by Mr. Boris Golden – Partech Ventures