Funding your business idea

Meera siva :BL: 12 Oct 2013

Having customers endorse your product increases the odds of getting funded.

Say, you have a business idea and you believe it has great potential. 

But like yours, there are hundreds of ideas chasing funds.

“Success rate is low and currently only one in ten companies gets funded,” said Raju Venkataraman, Chairman of TiE, Chennai 2013, an entrepreneur network. So, how do you beat the odds and take your business idea to the next stage?

GAIN CLARITY

Successful entrepreneurs advise you to do a lot of preliminary work before approaching an investor.

Usually, you may see a problem and come up with a solution. However, you need to work on refining the problem and solutions.

“It takes two years to learn the business and learn from the mistakes made,” said Baskar Ethirajan, co-founder Indianstage.in, an online ticketing service for live shows. He advises that clarity on what is unique about their solution, on the target market and the revenue model is a must, before approaching an investor.

Also, you must talk with people who will help validate your ideas and strategies. Founders advise that a start-up also needs a good team, to add to the credibility.

The founder must be able to understand all aspect of the business - from selling to managing the finances of the company.

When you feel external advice and funds are needed to help propel your idea further, there are early or seed stage investors you can approach.

FINDING INVESTORS

These angel investors are usually successful entrepreneurs or HNIs who are interested in helping in the growth of start-ups.

According to Baskar, most angels provide advice in addition to funding, typically work closely with the start-up and do a lot of hand-holding. You may be able to connect with angels through networks such as Mumbai Angels and Indian Angel Network.

The Chennai Angels network suggested that founders can look at media news and publications, references from investors or financial advisors.

Entrepreneur networks, such as chapters of TiE, The Startup Centre and accelerator programs also provide advice and help connect with investors.

Those who do not seek mentoring, but only funds can look at sources such as banks for loans. Government funding may also be available for start-ups, which have the tenacity and patience to convince the government, said Raju.

PITCHING FOR FUNDS

After you identify the investor, prepare well by understanding what they expect from you. You need apitch which summarises the business briefly. This is essential because there may only be a limited time available to present your case initially in person.

Baskar suggests that founders should try to personally meet the investors and talk to them one on one. This helps establish trust, which goes a long way in building a relationship.

A common mistake made by those looking for funds is to approach too many forums at the same time.

“Ideally an entrepreneur should identify potential investors and/or groups and then approach them one by one. It will help him improve his pitch as well as give enough time for follow-ups,”said Pratyush, founder of PlusTxt, an SMS messaging platform.

He also noted that while you must meet as many people as possible, you must not ask for funds upfront. If they like the idea, funding follows on its own.

INCREASING ODDS

However, even when investors may be interested in the idea, they may hesitate to fund.

For instance, most investors look at the size of the market opportunity and may only want to fund those ideas that have a large potential. Also, when it comes to funding, having a customer endorse the product carries a lot of weight, compared to a paper idea.

You may also increase your odds of getting funds by approaching the right investors.

For example, the Chennai Angels has a preference for ventures from South India. Similarly, some angel investors may prefer certain sectors as they have a passion for those.

Raju noted that IT industry is favoured as it is not capital intense; manufacturing and FMCG/retail business models are also becoming favourites , if they are focused on tier 2 and tier 3 cities.

Paying attention to cash-flows like following up on dues also help build a better business case when approaching investors.

You must be prepared to wait three to six months to get funding. And if funding is rejected, you need to understand the concerns and address the issues, for the well being of your business.

(This article was published on October 12, 2013)