Penned by Mr Ajay Jain, Founder & Managing Partner at Silverneedle Ventures
Let me embrace thee, sour adversity, for wise men say it is the wisest course~ William Shakespeare
Most extreme/difficult situations require us to go back to the basics and believe in self. For a startup, the funding winter might mean a few things:
- Reduced valuation
- Lower-than-expected capital infusion
- Release of funds in tranches
In such a scenario, what can the founder do? At Silverneedle Ventures, we have been clear that while the winter has sent chills around the world, the Indian startup ecosystem is not as badly affected.
First & foremost, get a handle on your financials – what is your burn rate and what is the runway you have. Ensure these numbers are got from your books and accurate. Get some scenarios going with these numbers in an excel. Get a good grasp on the situation.
Next, take cues from the conglomerates & reduce overall burn. This reduction in burn needs to come with clarity & prioritization. Ask yourself what the top 3 priorities for the company are for next 2 quarters. Now try to reduce the budgets of the items with lower priority. For example, if you can postpone the shift to the new larger office or the hiring that might not immediately have an impact.
But you still need the funding! For the same, firstly understand that the investors are still sitting on capital – question is how will you get them to write a cheque. Here, you need to think from an investor’s perspective. We always play to the risk vs reward ideology. Investing in such markets is risky and hence we expect a better reward if the bets pay off. So, try to structure the deal in such a manner that the investor is interested in further discussions. For example, can you allow release of funds in tranches or would you consider doing a convertible round with a decent discount on the next qualified fundraise.
Even in good times, when you approach an investor, you need to play out the scenarios wherein what would happen if you raise 2 Mn USD vs 4 Mn USD. During trickier times, these scenarios need to be thoroughly vetted. You should be able to show to the investors that you will be able to ride the wave with lesser infusion as well. While in normal times, these scenarios might be more to do with achievable growth vs infusion of funds, during these times, it is about surviving and emerging stronger as a company.
Also, it is a great time to search for the right investor. While we investors do like numbers, funding decisions are also made because we understand/appreciate the space. Try to get the investors who understand the space and know how the growth can be achieved. Obviously, this can be a double-edged sword, especially if the investor is an expert in that space – but it is worth going to such an investor. This might be the right time to get closer to these investors – keep them warm even if they do not convert immediately.
Most importantly, during such times, it is important to believe in yourself and your team. Spend time with your present investors/advisors – seek help/inputs – not only on funding but other important issues. Look at your business plan and make the necessary adjustments. Make sure, you are focusing more on the ‘important but not urgent’ quadrant that you rarely had time for. It is a great time for you to build the fundamentals of the company stronger.
To sum it up:
- Remember funding is still available but you might need to conjure a better deal on the table
- It is a great time to dig deep and focus on building the right business model for the company
I hope and wish that all the startup founders emerge stronger from this macroeconomic challenge to achieve their goals.