Between growth and unit economics, what do investors want? Expert panel at DigitalOcean TIDE answers
What do investors want? It is a question that every startup founder looking to raise funding racks his brain about.
At a panel session at DigitalOcean TIDE, an annual conference organised by cloud infrastructure provider DigitalOcean, in association with NASSCOM 10,000 startups, prominent investors in India’s startup ecosystem talked about what they expect from entrepreneurs, and how they judge them. The audience comprised techies, entrepreneurs, and aspiring entrepreneurs.
(L-R) Athira Nair, Ray Newal, Shalini Prakash, Radhesh Kanumury and Sachin Unni
Titled ‘Growth Vs Unit Economics: What investors want from you,’ the panel, moderated by Athira Nair, a senior correspondent at YourStory, had four investors letting the audience take a peek into their thought process when they look at the growth of a startup.
For Radhesh Kanumury, CEO and Managing Partner at Arka Venture Labs, a Mumbai-based VC firm that focuses on the B2B sector, expectations on unit economics depend on what stage the startup is at.
“If it is pre-revenue, one of the criteria we look at is how to get an early-stage startup to get customers. If they are already profitable, the idea is to get more customers and look at ways to scale up the revenue. It is all about getting to the next level.”
On the other hand, Sachin Unni, Partner at of Zeroth.ai (a global early-stage accelerator programme for startups working with artificial intelligence (AI) and machine learning (ML) technologies), said he tries to differentiate between the tech and the product. “If there is a problem, I find out if it requires AI for solving it, or whether it can be solved in any other way. After a talk with the founders, I come to the final decision.”
Shalini Prakash, Venture Partner at early-stage venture fund 500 Startups, believes that there is not much traction in an early-stage startup based on which you can judge its growth potential.“Once you have a customer who suits your software or product, then you are in for a long period,” she says.
Indian market vs global market
India being a dynamic market, it is important for a startup to understand the market before starting operations. Ray Newal, Managing Director (India) of US seed accelerator Techstars, a Canadian himself, said that back in 2009, when he tried to build a company focussed on India from Canada, it did not work. The reason was that no investors in Canada then could understand the Indian market.
He added that a country like India, which has got the largest young population in the world, requires scalability in any kind of business model. Ray explained that not many deep tech startups are getting funded in the country because of the focus on the unit economics.
“I see that the path to profitability is a part of the larger investment decision that one makes. However, we have placed bets on things that are less provable. It is our role to bet on those which are less proved,” Ray said.
Shalini added that it is essential to find out and understand clearly who and what the target market is, and see if the market is ready for the product, especially when it is in pre-revenue stage.
On expanding to global markets, Sachin said that it does not matter where a startup operates from if its functions are AI-related, as it has similar markets everywhere.
“If it does not have similar markets, then they should not plunge into global markets in the early stage, and rather figure out their early mistakes and work on them,” he added.
Ray believes that it is always better to try and test the products locally first before foraying to foreign lands.
Communication is key
While it is important for an entrepreneur to choose the partner they work with, Shalini said that it is important to also treat the investors as equal partners in the business.
“It is always important to derive the maximum from the investors. If there is a clash of opinions or thoughts between the investors and entrepreneurs, it is better to manage the expectations right in the beginning before going forward,” she explained.
Radhesh emphasised on the trust factor and keeping conversations with the investors real.
Interestingly, Ray compared the investor-entrepreneur relationship to that of a marriage. “The relation is similar to how a husband/wife feel when their partner takes them for granted, if the partner just asks the other to do things without giving anything in return.”
Sachin concluded by saying that both investors and founders need to be on the same level with mutual respect and with no air of superiority. He felt that communication does help in personality match.