Common Challenges Startups Face
Host of challenges which start up faces are arranging funds for setting up the business initially or for developing prototype, proving the concept, ability to scale up, convincing the investor that the business is not promoter dependent but can be made process dependent, availability of team to execute the plan etc., Most of the VC’s in India tend to behave like PE’s which would require proof of concept and some even want to see profitable operations before deciding to invest. This becomes significant hurdle as fixed costs do not get absorbed in the initial stage of the business. Also given the peculiarity which India as a country poses, there are many a times no comparables which can be drawn from the International arena to prove the potential viability of the businesses.
Added to all of these above, the number of investors in the VC space in India are very few. It is actually easier to raise $10 million + capital given the number of potential investors in that segment compared to sub $10 million investment. This makes the market an investors market (buyers’ market) where numerous proposals are chasing limited amount of capital / VC funds.
My Advice If You are Starting Out
As an entrepreneur they are inherently optimistic and have such a view of the market and the business potential. This generally results in company making over ambitious business plans which the investors feel are too good to be achieved. As banker, we help promoters set realistic assumptions and targets while drawing their business plan which would not be discounted by the VC investors. We have noticed that VC investors prefer a detailed plan which is drawn from base assumptions. These provide a comfort to the investors that numerous aspects of the business have been thought through and incorporated in the business plan.
3 Piece Advice
The key advices I would give the entrepreneurs is
Always think about creating long term values for the Company and act in accordance with that. It is very tempting to get swayed by adopting short cuts which may provide cost advantage in the near but they may have long term impact on the business.
Invest in your team and develop an good HR process (both financial and non-financial) which keeps the employees motivated to achieve goals.
Choose the right advisors and bankers for your business who have a good team, demonstrated track record in the industry, understand your passion, expectations and future goal and who have very strong relationships in the market.