I ended my rant about my Start-up Journey last week. However there are other topics that I think you should be aware of so that you can plan effectively. I have shared a deck from letusventure, thanks to a noble soul who was kind enough to share, where the questions around fund raising are better articulated.
The answers in Quora are structured better than what is about to follow, but I will give my views as well.
The stages of funding could be classified as
- Friends and Family
- Series A…Z
I wish there was a magic formula on when you would choose what stage, but I have not figured it out yet. It is a combination of science and art, but mostly art.
There are a million parameters that can make a difference, but the simple ones that needs to be in place to help you arrive at a decision are
- Monthly Cash Outflow
- Revenue Forecast
- Time to break even
If you can manage your monthly cash flow till revenue starts coming in and you could break even , bootstrapping could be the way.
However if you cannot bootstrap, the next best alternative would be through friends and family. But you cannot expect a large ticket size here. The maximum would be in the range of 60 Lakhs to One Crore Indian Rupees.
The next best alternative is Angel or Seed, but most bets taken in this round are bets on the team rather than the idea itself. Angel/Seed can vary between 1 Crore to 6 Crores.
Series A rounds happen once you have some predictable revenues coming into your enterprise and they are in excess of 6 Crores.
Though I have not ventured into serious round of capital raising, I find the investor climate to be extremely friendly, and approachable. That does not translate into money for you, but there are lots of entrepreneurs who have become VC’s and they are benevolent enough to give you a patient and empathetic hearing.
If I have to give you just one piece of opinion, build your product when you have a day job, or in other words, boot strap as much as you can and build traction when you are still in the job. When I say traction, it means your idea is generating revenue.
There are plenty of avenues to get work done. Just ensure that you are covered by your employment contract to operate this way and you have no intellectual property conflict. In some companies, the companies themselves would be the first customers of your product and there cannot be a better launching pad for you. You could be up front with your employer and the best thumb rule that I have heard is ‘When in doubt, disclose’.
The advantages of boot strapping is that you have put skin in the game and you will have a good position over equity dilution. But the disadvantage is it could hamper your speed and growth plans.
Raising external money seems to be a must have milestone in most start-up plans today as the point of view is that you have some external believing in you, your team and your idea.
However, the best thing I heard about bootstrapping is below reproduced from here
“I read a ton of articles about ‘bootsrapping’. They are fascinating. To me bragging about the fact that you’ve bootstrapped your business is like boasting to your Mexican friend that you’ve just made a tortilla from scratch. He’ll simply laugh at you, because that’s how his grandma made them her entire life.”
Bootstrapping is common sense and common sense is not common.
As for as my journey is concerned, I did not follow any of the above and have been bootstrapping till now.
I did not burn investor money, but misplaced the time and effort some very good people(friends, peers, mentors, family) placed on me. Time and effort translates to money. I am confident that I shall pay all of them back in some tangible or intangible way.
That is ok in one sense as I am able to sleep better and that is not ok in another sense, because I approached fund raising in a pretty lousy way and in that sense did not bother to find a believer in me or my idea and that is one heaven of a lesson.
However, the best piece of investment advice came from an investor himself in a panel discussion I attended.
“Do not chase us. Chase your customers and get traction going. If you can get that to happen, we will know how to chase you”
I may not have been extremely lucid in this note, as this is one hazy topic, you can ping me directly I can give you very straight answers and more clearer directions.
Enjoy Maadi (Have Fun)