One of the biggest (and most interesting) challenges that an entrepreneur has to face is ‘when is the best time to raise money and if at all it is necessary’. I say interesting, because there is no right answer to it. If you ask your friends, family and mentors, most will give you these two pieces of advice:
The best time is when you need the money. And, when you do not need the money.
Though conflicting, both are excellent advices. Which one is the best, depends on various factors – personal funds that the entrepreneur is willing to invest, what is the stage of his startup, what kind of product he is selling and how much investor intervention he is ready to accept.
Personally, my belief is to refrain from raising the capital at the idea generation or concept stage. I strongly believe in “too much money too early can prove to be detrimental”.
When capital is floating around you, your teams expand too quickly, your marketing spends go into a dizzying spin and you spend too much time worrying about how to justify your expenses to the VCs rather than in front of customers. Early days of a startup is all about capital efficiency…small teams and bigger innovations. However, too much money will push you into spending it inefficiently.
We have already seen the devastating impact of overvaluation. The market is stuffed with too many companies who raised in excess of their economic worth and are now feeling the heat. They look good on paper, but are too expensive for most buyers to go in for them.
You must be wondering by now (I know I would) if you should raise money at all. Well, my solemn advice is to answer these questions (honestly, of course) before you go about raising money from an angel investor or a venture firm.
Have you put in your money?
Building your company demands you to invest not only your sweat, tears and blood, but also your own money and, perhaps, some amount borrowed from your friends & family. Unless you have put your life’s savings into your business, and are dangerously close to living month to month, you should not take a penny from someone. When you have given it your all, you are aligned with the risks of the business, and value it more.
Do you desperately need capital?
If your startup is in a desperate need of a capital infusion, the chances are you have left it too late to raise money. This is the time you should be focusing on where you went wrong, planning on how to get out of the situation and who to partner with to build your company. This is clearly not the time to cover your mistakes with capital.
Are you in a position to build value for your investors?
If you are thinking of taking money, you should first think of returning the money. Unless you are absolutely sure that you have a sustainable business and can build value for your investors, don’t raise venture capital.
Does that mean you should not raise capital? I never said that.
My mandate has been very simple – do not raise money unless you absolutely need it. If you need it, come up with an alternate plan in which you don’t.
Concentrate first on building your product, team, user base, revenue pipeline and everything that you deem important for your startup before taking outside funding. Try to know the journey on which you are heading to, and if you have some good validation from the market, do not raise capital at the concept stage. I am not saying it is wrong to raise at the beginning, but it is something which I have never believed in.
As founders, we are very much answerable to the people we work with and people with whom we work for. The intent of money raising is to able to justify every penny of the money invested in the reputation and the vision of the company.
India has always been the land of opportunity as I see it and will remain. There is always room to build a good company provided that the founders and the team building it have a balanced head on their shoulders.
A company is built to address the pain points and create lasting value. A company is built due to the joint efforts of many people. As you need the right team who believes in your vision, you need the right investors whose core values and principles are aligned with yours. The best investors are the ones who believe in mutually rewarding partnerships (though not always financial) and bring value additions to your company, than just the money they invest.
I, along with my team, am building an IT logistics products company and have taken good strides towards the vision we have set out for. Our transport/fleet management system is gaining acceptance and we are glad to see that positive response to our efforts.
Our roadmap is clear as we gain acceptance from this wonderful market, we will join hands with like minded investors who believe in the vision we are working towards. The end goal is to build a good lean company with the right set of people on board on a long term basis. There are no short cuts to success and we are happy to be the tortoise in the race.
As the line from movie CREED; there is only one competition “YOU Against YOU” and we are ready.
Amit Singal has more than 17 years of experience in IT Operations and Strategy, Program and Product Management, across IT indifferent domains like Insurance, Telecom, Manufacturing, HR, IT and ITES. Amit has worked in companies like CSC, Cincom, Patni, WNS, Eicher Motors before Sainergie. He is an alumni of ISB and holds a B Tech in Mechanical Engineering.