Every other day, I wake up to find my Twitter feed with stories on how startup founders have raised yet another round of funding. As I keep scrolling my timeline, I see the industry folks celebrate the funding & congratulate the founder, which is good, but not always.
The startup ecosystem in India has seen a paradigm shift in 2021 with many of them braving to launch IPOs and grabbing the limelight on the world stage. All of this seems justified for the amount of sweat, effort, time and resources they spend into building and scaling a startup to emerge into a Unicorn. As icing on the cake, we’ve also arrived at a point where we have turned some Unicorn founders into Demigods of the Startup world in India. But, this booming culture also reflects the dilemma on every investor’s mind: “capital capital everywhere, not a startup to fund?”
While the number of entrepreneurs who are willing to risk building their own business is on the rise, there’s also a fancy crop of youngsters who want to raise funds too quickly. And, this is a problem plaguing the startup ecosystem in India, currently. Investors want to invest. But, there’s a volume of startup founders who do not understand or pivot their idea to grow from there (but go in search of raising capital). That’s the point at which you need to step back and assess — do you really need it right now?
Are you really ready to raise capital?
Well, first things first. You may have developed your idea and pivoted it multiple times. But, you are still at the pre-product, pre-customer and pre-market discovery stage. At the same time, you may also feel the market is hot for your idea (without clear understanding) and hence, you need capital. Got it!
It may seem attractive to raise capital and usher in funds for your startup. But, before fundraising, do a “Want Vs. Need” analysis of your impulsive decision. Doing a simple pre-PMF (product-market fit) analysis will help you see whether your startup can succeed or fail. Now, assessing whether you want to raise capital also needs a plan which requires meticulous research and careful consideration.
Interestingly, this study points out that most businesses fail due to poor management of cash flow. Raising capital may sound cool but it can make or break your company. You cannot approach a bank for a loan or a venture capitalist just for the sake of having more cash.
Signs you don’t need capital:
- Lack of clear business plan: It may give you the cushion but if you don’t know what to do with the capital you’ve raised, then you’re set to go downhill.
- Capital comes with expectations & you lose equity: You will have to give a portion of your company. As a result, investors will raise questions and involve them in key decision-making. That also means you are not the only person controlling the company.
- Time-consuming: Raising capital is more like a full-time job. You need conviction to stick to it as it is a time-consuming chore. Not just days, but for years. You will not just need to zero in on potential investors but also spend time making a business plan, crunching your numbers.
- Financial forecast: Investors want to know if your business has potential for future growth. This means you have to prove that the market is on your side. If the data points in the other direction, then you know it is not time.
- Too much too soon: If you are someone who wants to grow your startup rapidly, then opt-out.
Every successful startup founder knows the value of raising funds when there’s a need, managing cash flow well and most importantly, knowing their customers well. And, investors are attracted to that!
Raising money raises your evaluation. And, it can end up hurting your strategy.