by Sudhir Ahluwalia | Negosentro.com |
Only a small number of startups end up as successful businesses. The reasons for failure are myriad. Rarely have I have observed lack of funds or inability to raise funds to be the primary cause of failure. But every startup is worried about how his business will secure funding.
A question that confronts a startup is to when should we start pitching to investors to secure funding. It is important to understand that investors, be they HNIs or Angel investors are not in the business of philanthropy. When they invest into a venture, they take a risk. It will be natural for them to expect cautious. They too expect a reasonable risk adjusted return. Investment happens when there is meeting of minds and business interests of both the investor and the startup.
How long should the bootstrapping stage last? Generally, a entrepreneur in the early stages of idea incubation funds his idea from either his own, friends or family funds. A venture in early stages goes through a lot of hits and misses. A longer bootstrapping phase helps in teaching the entrepreneur simple but critical principles of prudent financial and business management.
But these were some of my own ideas. I needed to get another view and a second opinion. I therefore got around chatting with Vivek Durai whom I have mentioned earlier in this article. Vivek by pedigree is a lawyer, a programmer by hobby and an investment broker by profession. As an entrepreneur he has floated a new startup that helps early stage startups secure funds from Angel investors.
Vivek has secured early stage funds for a host of startups. Ather Energy, Cupick, Aisle and LiveBraille are some that are listed on his website. His website www.termsheet.io offers facilitation services for both investors and startups. He focuses on the Indian market.
Vivek curates both investors and startups. He helps prepare both parties and introduces them to each other only when prima facie they are convinced in their mind that a deal is likely to happen. Startups signing with termsheet.io additionally get access to simple legal documents that are acceptable to both investors and startups. .
Vivek explained to me that early stage investing requires simple standardized legal documents. Investing in early stage ventures should not be an elaborate time consuming exercise. If both the investor and startup like what was on offer and it made sense to both parties funds should flow quickly.
The need for elaborate due diligence, preparing a term sheet, drafting cumbersome definitive agreement is something that is required only in cases of late stage funding, mergers or acquisition. It is in these cases that an initial understanding is captured in the form of a term sheet. Startups early stage funding does not require agreeing to a term sheet first. You can go straight to a legal agreement.
Termsheet.io is not a match making engine, Vivek explained. It is a simple platform on which a few documents are available and there is an information sharing blog. For the purposes of early stage funding, I found the model adequate and pertinent.
Vivek looks to be well on his way to helping Indian startups secure Angel funds. His venture should do well. But he and his ilk will have to face competition from Narendra Modi’s Startup India funding organization. I know he does not like government but he has no option but to compete with them. This is a model that could be replicated in other parts of the world too. Stagnating Europe, resurgent Philippines and Asia please note!
Sudhir Ahluwalia is a business consultant. He has been management consulting head of Asia’s largest IT outsourcing company Tata Consultancy Services, business advisor to multiple companies, columnist and author of upcoming book on herbs-Holy Herbs. He has been a member of the Indian Forest Service. His webpage is: www.sudhirahluwalia.com