Why Startups Need Advisors in their Journey?
Date: Monday , December 28, 2015
The startup world especially in India has changed over the last few years. There has been excitement, the traditional parameters have been disrupted, its all about an idea and capital that has followed direct to entrepreneurs and most funding takes place on the back of idea traction and often open ended to follow on rounds, assuming traction continues to be demonstrated, followed by the funding.
In this environment, startups have focused on their business idea proving its market traction/potential and reaching direct to investor pools with a hope of closing it. Investors have nurtured this approach to some extent.
The world may be changing again as we speak and we believe businesses and startup ideas will be asked to provide bankable plans having visibility to profitability, the models need to get robust and so will the idea. The realities of a sustainable and bankable business would have to be proven as execution abilities to back the scale up of the startup.
Given the emerging reality, even if business traction and idea is good, but converting it to a profitable and scalable model would be key and therefore, requires experience and expertise to fill in where gaps exist. The experience could be from a regulatory standpoint, to insights on unit economics, to business and policy relationships as well as strategic relationships that enable success of the idea and executes scaling up successfully.
Fund raising in our view will also change, as business model will have to get robust, so will the relationships with changing mix of investors that are emerging here.
If you look deeper at the startup lifecycle, mostly, startups have had strengths in core areas that are bound to create business traction, often technology, product knowledge or market relationships. Often, many business aspects are absent or ignored, especially finance and regulatory, relationships with influencers and broadly investment community. Also, update on market development given the dynamic nature of startups today is crucial. Advisors we believe can plug the gap efficiently even during this time.
Inducting investors is also a crucial phase and right advisors can be very useful both from investor selection to actually engaging in the right engagement construct and terms. Especially, as the entrepreneurs are often concerned by the round under negotiation, often not paying enough weight on what will happen in the future and what restrictions they are entering. Most startup entrepreneurs raising funds will go through multiple rounds and thus have to be protected to have meaningful play and incentive even as they might be minority in the future. Also remember most investors are always using the best advice and consultants to evaluate the startup, which most startups tend to ignore.
Overall, advisors play a good plug and play solution to get best talent and experience which cannot be owned. Advisors can enable a wider span of investors and assist in negotiating a deal that is good for the start up, which is crucial, especially in the long run.
Experience counts, even as disruptive ideas seems to be often ignored, in actuality, disruptive ideas require experienced execution to be sustainable and successful. Also, while startup may have set out to create a \"Facebook\" or similar success, the reality is many will be creating businesses that may vary in scale and have to be maneuvered through many maze and the wise will use all tools to do this deftly, advisors being one such tool to ride this journey successfully.