[YS Learn] What young startup founders can learn from the successes and failures of fundraising

The fundraising process can be long, cumbersome, and tiring. The current coronavirus pandemic has made things even worse. Funding has become even tougher as many investors are inclined to conserve money rather than investing in startups.

To address some of the growing concerns, Dhruv Nath and Sushanto Mitra co-authored Funding Your Start-Up – And Other Nightmares. The book is published by Penguin Random House and is set to launch today. Speaking about why they chose to write the book now, Dhruv tells YourStory, 

“Not too many books are available on the subject of funding startups – particularly in the Indian context. And that’s where this book scores.”

He explains that the authors talked to highly successful founders of today – such as Sanjeev Bikhchandani of Naukri.com, Deep Kalra of MakeMyTrip, Yashish Dahiya of PolicyBazaar.com, Dinesh Agarwal of IndiaMART, and Sairee Chahal of Sheroes.

The book also tells stories about the entrepreneurs of small startups that were founded recently, and how the founders struggled their way to get funding. 

“Startups that are facing the same problems as those run by young founders. So the reader can learn from both the big guns and the smaller guys,” Dhruv says. 

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Learnings in failures 

While there are many books on how successful startup founders and entrepreneurs became successful, few talk about the ones that failed. The authors believe entrepreneurs can also learn a lot from the failures. 

Taking an example from the film industry, Dhruv explains that learning from Shah Rukh Khan may be great, but it is even more important to learn from those who arrived from their villages to try their luck in Tinseltown, failed, and went back to their fields. He adds, 

“But here’s a secret – stories about failures are kept under the wraps. Startup founders do not talk about it except to their close friends – usually over liberal amounts of alcohol. They are not written about. And therefore, no one really knows what went wrong and why they were unable to get money.” 

In Funding Your Start-Up – And Other Nightmares, the authors have written about both the success stories as well as the failures to provide insights for budding startups. 

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Understanding of P.E.R.S.I.S.T.E.N.T 

Sometimes, reading too many stories can get very confusing. After all, each startup is doing something different. Two startups may do the same thing, but one fails and the other happens to succeed. So how do you learn from them? 

The authors have created a framework called PERSISTENT, as follows: 

• P: Problem: Are you solving a problem? Will people pay?

• E: Earnings Model

• R: Risks and how you will mitigate them

• S: Size of the market

• I: Innovation

• S: Scalability

• T: Team, starting with the founders

• E: Entry Barriers

• N: Niche – where the entire market is crowded, identify a large niche

• T: Traction 

Interestingly, the authors realized that successful startups tend to follow this PERSISTENT model, whereas failures usually miss out on one or more parameters, such as understanding the size of the market, building the team, or evaluating risks. 

Consequently, all the startups in this book have been evaluated using the PERSISTENT approach. 

“Hopefully, at the end of the book, you will be able to use this approach to evaluate your startup – and therefore, figure out what you need to do to increase the chances of success, as well as the likelihood of getting the funding,” says Dhruv. 

Understanding business and business plan 

• Most founders are blissfully unaware of what a business plan is, and why it is required. This is particularly true of young founders who are just starting out.

• The business plan is of critical importance, not only in ensuring the startup’s success, but to also convince the investor to put his hard-earned money into it. 

• It is a known fact that while founders understand business – or more specifically, their business, they are clueless about the nitty-gritty of fundraising. 

• Founders are often flummoxed by concepts – such as term sheets, shareholder agreements, preference shares, right of first refusal, drag-along rights, tag-along rights etc – which are an integral part of any fundraising process.

• One subject which most founders are clueless about is valuation. Incidentally, that’s the case with several investors as well. Valuation determines how much of your company you are willing to let go in exchange for funding – and therefore, it is a crucial component to any fundraising exercise.

• Finally, most founders are not aware of how to pitch their startup to maximise the chances of getting funding. The book contains one complete chapter of how pitching needs to be done.

“To summarise, this book contains everything that a founder might need to ensure that their startup is successful, and also to ensure that they are able to pick up those most welcome dollars (or rupees if you prefer) from investors,” says Dhruv. 

Launch event: Lead Angels Webinar, 11 am, September 18, 2020 (Click here)

Book: Funding Your Start-Up – And Other Nightmares (Click here)