In the last 3 years Indian entrepreneurs and startups have seen huge access to angel and venture capital funds like never before. We have also witnessed many failing startups despite raising big money. This post aims to thrown some light on when you should raise money.
Entrepreneur as much as possible should prefer to run the company from savings or family and friends funds, which gives you the comfort to drive the company with out external push. Investors generally does not participate in your day to day business activities, but when your startup is not going in a direction you projected or the growth they anticipated is not visible, investor tends to get over focused on your startup.
Most of the startups do not perform as projected in excel sheets(Excel sheet projections are easy to compute and not the business) and the founder remains cornered every time when the numbers are not met and it becomes the responsibility of the founder to give comfort to investors by showing the passion on how he is planning to handle the situation.
If you wish to avoid a situation where investors are making decisions and driving the company and not you. Then Before Raising Money you should answer the following questions.
Did you try all the possible ways to bootstrap?
Bootstrapping the startup is the best way to run a company. Though the access to finance is limited and growth is slow. You can run the company as per your vision.
Does funding makes you grown very fast?
There are 100’s of similar startups around and some of them fail. Investor do not want your startup to fail. By taking money from investor you should be able to make the company scale at 10X pace in all the directions.
Are you ready to do justice to investor money?
Investor money is just to give an additional push to your business and not to do extravagant expense or for luxury. Some startups increase the expenses very rapidly more than the growth and some or the other day that puts you in a spot to be questioned. Each and every penny you spend should have a right reason. Treat investor money as your money
Can you scale at the rate investors expected?
If you have taken angel money then the expectation is to raise additional money from venture capital institutions and most of the startups fail at this stage where the growth or traction may not be encouraging for a VC to put his money.
Can you get exit to your investors in next 4-5 years with good IRR?
Investors aim to consolidate their investment in 4-5 years either though external investments, Merger or Acquisition or IPO. And for them to have right ROI your company should have build that value.
Do you have vision and energy to run the company for next 10 years?
Startup is a long game and it take time to build a good startup and unless you commit decent amount of time and effort you will not be able to take it there. Many founder tend to loose their focus in between and founder is the only best person to run a company.
Do your investors add value to the company?
Do not get investors just for money, startups on continuous basis needs help from third party perspective and right mentor ship and experience will be a boon for a startup and engaging investors in your business will make them understand your day to day challenges.