TechSparks 2019: Panel demystifies the journey of scaling, says founders and investors must be aligned on startup's goals
"Founders and investors always have to be aligned. Startups should bring in investors who are aligned with them for the long term." This was the key takeaway of a panel discussion that concluded on Day 1 of TechSparks, YourStory's flagship event.
Speaking as part of the panel, Rutvik Doshi, Managing Director and General Partner, Inventus Capital Partners, said, “Every entrepreneur must realise the kind of scaling that is required for her business; it could be blitz scaling or scaling for driving profitability alone. The truth is the answer lies between the two. Every business is different. At the end of the day, financial markets go with cycles. Funding might be available today, and it may dry up tomorrow.”
He pointed out that a company would be immune to cycles if the business fundamentals were strong. "If the business cycle is very bullish, latch on to the trend and scale fast. And, if the cycle is slow, you can also slow down and survive," he added.
Speaking about the likely risks in scaling, Rutvik said, "While scaling and getting investments, founders sometimes lose sight of the business fundamentals. They have the impression that money is cheaply available. Unfortunately, capital is not infinite. At some point of time, money will stop coming. Startups need to be self-sustainable.”
Recalling the learning from his entrepreneurial journey, Thirukumaran Nagarajan, Co-Founder and CEO, Ninjacart, stressed that it was important for a company to know when there was a support system and -product-market fit. Referring to his experience, he said, “Initially, we didn’t realise about the cash-collection problem in our business. We collected small-ticket cash size. It’s too costly; if you don’t collect today, customers lose interest.”
Thirukumaran pointed out that it was important to be aware of the scope for monetising a venture. “In my previous startup, we realised that there was good traffic and that schools were happily giving out their information on our site. But, when we tried to monetise, we realised that neither the parents nor the schools were interested to pay at those price points.”
Speaking about bootstrapped startups, Rutvik said, “They can’t afford to burn [through their cash]. They need to generate cash flow from day one and profit should be recycled to grow fast. But, in the case of a VC-backed firm, it can take loss and continue to build processes and systems.” He added, “Flipkart can burn because it operates in a large and massive market. But, there are some other markets which are only a billion dollars in size."
Highlighting the case of the food delivery business, Rutvik explained that the assumption in that sector was that once a customer placed the first order, s/he would get hooked to the service and keep coming back regularly.
"Hence, the startups spend more money on marketing. But, in the case of a used-car business, an average person buys a car once in five to six years. So, you have to recover the cost spent on acquiring the customers and you have to recover the marketing spend fast. But, you may need upfront money to, let's say, building a parking lot to hold your inventory. So, where the fixed costs go depends a lot on the nature of business,” he said.
The profitability conundrum
Hari Krishnan Nair, Co-Founder and Director, Great Learning, spoke about when founders should ideally start thinking of profitability. “It really depends upon the market size. We focus on edtech; our market is not big as the ecommerce market. We were very conscious about price points and didn’t worry about mass traction. In the seven years that we have been training professionals, we have delivered about nine million learning hours. In the first four to five years, we grew very slowly,” he said, adding, “Every year, our focus has been on investing in new products rather than taking a certain part of the profit.”
On conflict between founders and investors, all three panellists agreed that the goals of the two sides had to be aligned. Their approach to how and why the startup raises money in every round had to be aligned as well.
"It is entrepreneurs who run firms. Half the investments will work out; half won't work out. And among the half that work out, one or two or three startups will become very large businesses and deliver returns. That is the nature of VC businesses. At the time of investments that alignment is there. As investors, we also understand that not every plan works out. So, we work very closely with entrepreneurs, stay aligned and ensure that the marriage is successful," Rutvik said.
Speaking about the lure of getting a unicorn status, Thirukumaran said, “Founders are more worried about survival and running their business.” Rutvik agreed that founders do not usually care about "unicorn" status. "But, being a unicorn has a ripple effect on the ecosystem. It boosts confidence and inspires others.”
Hari echoed their opinions, stating, “Founders are more worried about growth. These success stories become a poster child for others. But, I have never come across any founder who started his business just to create a unicorn.”
(Edited by Athirupa Geetha Manichandar)
YourStory's annual extravaganza TechSparks brings together the best and the brightest from the startup ecosystem, corporate world, policymakers and, of course, the investor community. Over the past decade, TechSparks has grown to become India's most loved tech and startup platform for knowledge sharing and networking. A big thank you for all your support over the years and a big shoutout to our sponsors.