Having spoken to a vast array of entrepreneurs (ranging from the folks who are now in the billion dollar group to the startup gang),I have found there are three typical statements made by people:

 

 

Rather different statements, these. And they inherently reflect the way people either go about trying to get funding or the manner in which they handle the funds when they have got the same. So let's figure out what is happening!

 

HOW TO MAKE GETTING FUNDED EASIER

 

First and foremost, "Think of 'their' money as 'your' own." What that means is if you have a business plan and you are certain its the next big thing, use the litmus test on yourself before you head to an investor. If you are not willing to invest in your own idea, it would be imprudent to believe anyone else would. Investors like to see promoters having some skin in the game before they decide to come in. So treat 'their' money like you would treat 'your' own.

 

Secondly, have a clear idea what you want to do. Define the problem you are aiming to solve. If you are not clear what problem your venture intends to solve, then there is no product, no solution. No one is going to fund a venture without knowing the real world problem it intends to address.

 

Thirdly, consider your credibility. Are you a domain expert in what you are planning to do? Are you a proven leader of people? Have you expertise to hire, attract and develop talent? What is the differentiation you bring to the table? Investors do not invest in the idea. They invest in the founder/ founders. Therefore your credibility needs to be paramount. In case you yourself do not have sufficient credibility, examine how you can get it by involving other people with you. This could be co-founders who have tremendous credibility; or mentors who have proven track record in what you are doing; a strong advisory board or in some cases, even selecting board members for your company who can lend that credibility and become sages guiding your business.

 

Fourthly, build a strong business plan. Outline your operating plan and your strategic vision. Break down everything into quantifiable metrics. It makes it easier for people to understand the same. And enables you to discover if you have left out anything. Have a strong financial model that lets you know where you are headed and what you need to plan in advance for. Stress test the model yourself before you go to investors. Look at worst case scenarios and check the model for robustness under those conditions. If the model still holds up, you are on to a good start and investors will mentally compliment you at having done part of their work.

 

Next, have a set of recommendations/ endorsements/ testimonials ready. These could be people you have worked with earlier, or if you are a relatively young gun, even university professor's endorsements work well. Remember, the more people that recommend you the better your chances of building credibility with investors. Try and have a mix of people here. And if you can get someone from the industry (related to what you plan to do) recommend you, it is even better.

 

Finally, be clear on what you want from the investor. Do you want a million dollars or five million? Or maybe just a hundred thousand. The amount of money you are looking for will to a large extent dictate the kind of investor you ought to go to. So for instance, should you go to an angel investor, or a venture capitalist or a PE fund? Depends on what you want. Would you just need the money or would you also require some mentoring from the investors? This too would have a bearing on the kind of investor you should be looking at. Also, before you start bombarding investors with a phone call or nicely worded e-mails, try and check whether they invest in the sector you plan to venture into. And whether they have a minimum level below which they would not be keen to invest. This and several more considerations will ensure that you are talking to the right people, and in turn will maximize your chances of success as far as getting that initial funding is concerned.

 

WHAT SHOULD YOU ENSURE W.R.T. THE NEXT ROUND OF FUNDING?

 

It is important to remember that your first round of funding is only going to see you so far. You will need that next round coming in, and then the next and so on, especially if you are looking at building a business at scale.

 

So, much as you might want to, do NOT over-commit during the first phase. An excel sheet and a smart presentation might win you the first round, but it's gonna knock you down silly when you plan the second round. Make sure the milestones (revenue, EBITDA, user base, registrations etc) you put in are doable. And this is where the stress testing we spoke about earlier helps. Take the best case scenario, stress test it, and then drop it by another 20%. That done, it is highly unlikely you will screw up, though the possibility still remains, and the latter is something every entrepreneur lives with.

 

Don't be led by the lure of short term gains. Have your eye on the long term and plan your strategy with that in mind. More often than not the investors will be in sync with this (remember, they don't want you screwing their investment any more than you want that). If an when they are not in sync, rather than being led to scale faster than it is prudent to, you may want to sit them down and explain to them why it makes sense to go a little slow - as long as you can demonstrate that it is good for the business in the long term.

 

Scale is good. And at times you may need to sacrifice short term profits for scale that translates into long term profits and leadership positions. However, do be cognizant that it is a double edged sword. Mere scale is not going to help. So at some stage, you and the investors will need to work out how to get to profitability. If you are making money on every transaction but posting an overall loss because you are investing in logistics, technology etc, that will build traction for the future, it is great. But if you are losing money on every transaction and literally having to buy your business, then perhaps you may need to rethink your strategy, before the investors rethink their investment.

 

Finally, meet those damn milestones. If you miss those, you are losing credibility. And opportunity! In a best case scenario, you will get the next round of funding at a much lower valuation. In a worst case scenario, you won't get money at all. Plus, nothing kills morale in the team as much as knowing that the company (they mean YOU) has been unable to meet the targets. It just sets up a culture where every person down the chain begins to believe that it is okay to miss deadlines or commitments. I have known founders who have put in money from their own pockets to buy products from their portal in order to make up for the shortfall in numbers in a particular month. They did it not because they wanted to cover up their team's under performance. They did it because they wanted to make sure that they are on target. And that the team realizes that targets will be met no matter what. And that defines the culture in the company that I am talking about. No wonder that the company today is the largest portal in their category and will soon hit the billion dollar club I spoke about in my introductory para.

 

THE GUYS WHO SAY, "MONEY IS NOT AN ISSUE HERE!"

 

Finally, we have the chaps (and they are in a minority) who don't really face trouble getting funded. What do they do? They embody everything we spoke about in the earlier two sections.

 

Their focus is less on getting the funds (doing what I spoke about above mostly takes care of that), and more on the following questions:

 

 

 

 

There are several other things one can do. In my experience though, I have found if one practices some of the things outlined above, that's a fairly good start to building a sustainable business.....and getting funded!

 

Readers are welcome to comment. If you would rather ask specific questions related to your business/ venture,, you may send me an InMail and I will endeavor to respond as soon as I can. Best of luck.