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Harsh Mariwala

Is your firm ready for fundraising?

04 August, 2017

Entrepreneurs today play the role of jugglers with much panache. While there are several aspects of running an enterprise, handling them all simultaneously can be a tall task.

One of the most difficult tasks that an entrepreneur faces is fundraising. The mere mention of the word can make entrepreneurs break into a sweat. However, does it really have to be as scary as it sounds?

Through many years as a family-owned business entrepreneur, I have realised several myths regarding the aspects of entrepreneurship, with fundraising being among the foremost. Certain pertinent topics like ‘funding’ and ‘Investment’ need further detailed explanations so as not to intimidate or overwhelm entrepreneurs, but to help ease their anxieties by explaining each aspect with a meticulous rationale.

Does your SME/MSME need funding?

The first and foremost question, while contemplating fundraising for your company, is “Does my company, at this point, need external funding? If so, then how much?” The following are the factors to be considered while deliberating upon the aspect of fundraising for your company:

  •  Understanding the fundamental concept of ‘funding/equity’
  • The fundamental concept of being a borrower in terms of equity is essentially the discipline of repayment. Running a company is like having a meter ticking, not only in terms of the cost of capital but also in terms of the cash required to actually service the capital, as well as the interest of it. Hence, the decision to borrow is something that should be considered at a time when there is a clear visibility of the cash inflows required to service it over the period of the debt.
  • In the case of offering equity, a considerable factor is on identifying the right partner to share the stake of your business with. This involves managing relationships, adversities, etc. Choosing a wrong partner can sometimes set you back if both are not on the same wavelength.
  •  Defining the context of your funding

Today, the fabric of entrepreneurship, funding, and investments is significantly different from earlier times. The definition of fundraising changes every year. Today, we have a network of angel investors, initial public offerings (IPOs), venture capitalists (VCs), etc., whose roles have been intricately diversified in multivariate ways to offer ad-hoc tailor-made solutions to contribute to your business’s financial health. Hence, it is chiefly the entrepreneur’s role to gauge the calculation of investment required and then approach the corresponding body for it.

  •  Trusting the personal instinct

The entrepreneur is the captain of their ship. They, better than anyone else, will understand the current health of their company, whether it is ready for external capital, whether the company is able to service the debt, ensure accountability for somebody else’s money, if the company is ready to reach the exponential growth to show to their venture capitalist, etc. As such, they have the foresight, intuition, and instinct to approximately decide if and when the company is ready to be funded externally.

Important factors to consider by entrepreneurs while seeking investments/funds

Fundraising is an extremely delicate decision and can harbour dire consequences if not contemplated upon well in-depth. For this, some of the factors to consider while seeking investments are as follows:

  •  Stage and phase of your company

For a startup or early-stage company, there will naturally be no defining data points to validate the profitability of a business. This would fall in the pre-revenue category, where primarily, only the concept and quality of the entrepreneur become the overbearing and overarching factor during decision making for investors. In a growth equity deal, there are historical financials to analyse, endemic margins, proof of concept, revenue richness, EBITDA, etc. Hence, there is quantifiable content that investors can rest their decisions on. In a public-listed company, one has a larger board, more stakeholders and, as a result, more credibility, so the emphasis on explaining your business is existentially lesser.

  •  Intersection of personal and current market interest in sector

As an entrepreneur, one may harbour ambitions of being a disruptor in their sector and come up with ingenious concepts as business plans. However, what they also have to realise is whether the business plan is viable in the current market conditions or not. If there is a prevalent interest for the said concept, the venture is sure to succeed. If the current market in that particular sector does not seem promising and is not ready for the idea, it would be wiser to shelve the idea for a while and revisit it during a more viable climate.

  •  Doing your homework

You have to have your five-minute elevator pitch crystallised in your mind before your approach your investors, to simply have a foot in the door. Further details of your pitch, if you are fortunate to get a meeting with your investors, must be immaculately distilled and succinct to explain your concept in the fewest words in the most effective manner. You have to do a thorough study of market research, analysis, competition, projections, investors and profitability to be able to duly convey it to your investors who need to see the same fruit as you aim to bear.

Important factors that investors consider while investing in an entrepreneur

Here lies the tricky part. Several entrepreneurs, despite all their homework and due deliberation, still meet disappointing situations with investors. Following are some of the key factors that investors are hawk-eyed about when it comes to investing:

  • ·Gauging the ability of the entrepreneur

One of the biggest benchmarks to recognise a genuinely ethical entrepreneur is identifying the way he balances risk trade-off. Investors do not like entrepreneurs who sit on the face. They are impressed with clarity of thought with at least a somewhat-in-place roadmap of how he intends to drive his business. This gives them the confidence to trust the entrepreneur’s ability and instincts.

  •  Due diligence

Investors are known for their background research practices and with good reason – they are placing their stakes on risky bets. Entrepreneurs should ensure clean past practices, genuine referrals, personal and business credit and an overall positive market reputation. Investors also study the viability of the entrepreneur’s proposition, current market conditions and competitors.

  •  Market projection and sustainability

Whether a startup or an established company, investors delve beyond the surface to understand the running of a company. The integrity of the entrepreneur, potential of the team, vision of company scalability and long-term sustainable goals help investors at bay about their apprehensions about their potential candidates.

How a peer-to-peer platform for entrepreneurs can be the perfect sounding board for fundraising queries

Fundraising is most definitely a defining, yet daunting factor of entrepreneurship. As it is one of the key focus areas for every entrepreneur, it is the most common concern for entrepreneurs to resolve. With the right advice from the right sources at the right time, the tedious process of fundraising can turn into a rather enjoyably challenging process whilst harnessing long-lasting relationships. This is where a helpful sounding board proves extremely beneficial to entrepreneurs.

A peer-to-peer platform is essentially a group of like-minded entrepreneurs, who come together for the sole purpose of professional problem-solving techniques through the advice of peers and guidance of mentors. Mentors play an integral role here, as a topic such as fundraising often necessitates experienced professionals at high managerial levels who have witnessed similar journeys in their time.

Through their experiences and lessons, members benefit exponentially, as they are shown the roadmap, tools and vision to navigate their businesses through fewer roadblocks. Peers help to realise the different kinds of challenges that entrepreneurs, who may be at the same level as you, face, and how they overcome their challenge and have raised funds for their business.

Newer ideas are discussed, strategies are planned, creative avenues are exposed – and as such, an entrepreneur’s horizon is vastly expanded. Any guidance through this platform is of tremendous help to the novice entrepreneur, who would otherwise not be as aware of the complexities and knowledge of corporate finances and capital markets. After all, as they say, “A penny saved is a penny earned!”

Harsh Mariwala is chairman of consumer goods firm Marico Ltd and is also the founder of ASCENT, a mentorship and peer-to-peer platform for entrepreneurs and startups

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Nelson P C . 4 months ago

Excellent Article on Fund raising for start up

Is your firm ready for fundraising?

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