Getting investors on board

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Getting investors on board

 

Will I be able to get investments for my idea? Why isn’t my startup getting funded? These are the kinds of questions that often keep entrepreneurs awake at night. It’s not that most startups cannot attract investors,  it's that investors are not gamblers. Entrepreneurs and startups already know that investors are taking calculated risks into their ventures. That is why there are certain factors that come into play when sourcing investment funds. We asked some investors and investment facilitators in the capital to explain what they think are necessary for a startup to get funding. 

 

Vidhan Rana, Biruwa Ventures

“The first thing we look at in a startup is the team. Without a good team, the best ideas fail. We look at whether the entrepreneurs have the passion necessary to convert their ideas into reality. We determine whether the entrepreneurs have any prior experiences and skills that will help in them achieve their goals. We like startups where the entrepreneurs are themselves invested in the business (not necessarily monetary investment) so that the chances of the entrepreneurs’ quitting are low when the going gets tough. We like entrepreneurs who are focused and determined, but at the same time, we prefer people who are willing to learn from mistakes and are open to criticism or feedback. They need to have strong leadership and communications skills, as these skills are an absolute must in order to succeed as the business starts growing. 

The next thing is to judge whether the startup has a strong business model (or a good proof of concept if it is an early-stage startup). We want to see if the entrepreneurs know what problem they are solving and the value they are providing to their customers. Startups that can define their products and services well are usually a better bet for investment. Startups that provide value to their customers can always figure out a way to make decent profits from their operations. If the business has multiple revenue streams, then that is a bonus, as it will help make the investment less risky. We like startups that have a good understanding of their market--those that know their customers and competitors well--and most importantly, know what is missing in the market. If they have little or no competition in the market, we like to see if there are any unique elements in the startup that will be hard to replicate. The market (or customer base) should either be large or it should be growing to justify the investment. Startups need to have the ability to innovate and adapt, as surviving in a challenging business environment like Nepal is tough. They need to be agile and should have the ability to pivot (or change directions) when necessary. We judge this by understanding the kind of decisions the entrepreneurs have taken in the early stages of the business and how they explain their decisions. Because we are in Nepal, we also look at supply side risks. That is, we look at what might cause disruptions in the business--or make it difficult for it to produce the product or deliver its services. Investments are safer if the business has good control over its supply chain or has good relations with its vendors.”

 

Ajay Shrestha, iCapital

“We look at the founder’s credibility, his track record, his team, his vision for the company and how open he is to taking suggestions from institutional investors. After that, we look for business risk, innovations in it and scalability.

There are three things that can make or break the investment:

They should understand the value investors bring to the table. It is not only a one-time investment that we bring; we bring further rounds of investments; we bring our network, using which startups can form strategic partnerships for growth; we also bring our corporate governance values, years of experience in business and financial/human resource/marketing consulting.

Right valuation is important. Valuation is very subjective and most deals do not happen due to problems with this. The startup should also not discount the value that we bring in; value should not be based just on financial projections.

Having a clear investment plan is important.And investment plan should include projections, ways in which the startup plans to use the money, ways to maintain investor relations and so on.”

 

Deepesh Vaidya, Kriti Capital & Investments 

“As an investment banker, it is hard for us, or anyone, to invest in just the idea of a startup. So an entrepreneur must turn the idea into something that is ‘investor-ready’ after working on it for some time. Initially, any investor will analyse the people factor, since it is the most important element in decision making. In the case of instituitonal investments, the investors are not going to run the company; they are only there to help, and the ones who will actually run the company are the entrepreneurs with the ideas. Let’s say if the person looks like someone who is frustrated in Nepal and might go abroad right away, then obviously no investor would put money on him. That is why it is important to analyse how stable and serious the person is as of now--because no one can foretell what is going to happen in the future.

The next important thing is the product. If an investor invests in the product, and if for whatever reason, the entrepreneur backs out in the middle of the process, the investor has to see if he can continue building the product himself or with the help of someone else. So it is necessary to understand how sophisticated the product is. If, for example, investors look at how new apps in the startup sector are coming up, they should be able to easily understand how they work despite the complexity of the source code of those apps. There should also be a strong correlation between the skills and the background of the entrepreneur and the demands of building and running the product. Say, if someone comes from the Arts stream but has no background in technology whatsoever and wants to build an app himself, then the investors will obviously have his doubts. The other things that investors look for in a product is its market and the potential for scalability.

After all these issues are sorted out, we have to tackle the issue of valuation. We’ll ask questions about what the partnership model is, how do we structure it, how the board is going to work, what the advisory roles are. The entrepreneur’s investment plans will also be analysed: does he want a chunk of money now or does he want it on an installment basis? If the entrepreneur needs full support from the investors, then it makes sense for both parties when the entrepreneur says that he is going take a certain amount each month as salary and when he finally builds a profitable business, he takes 50 or 60 percent of ownership. But if the entrepreneur says he needs, say, Rs 20 lakhs now, then the investors will definitely hesitate.”

 

So if you are an entrepreneur in Nepal and are looking for funding, you have to be serious and passionate about your venture. Unless and until you are, no matter how great your idea or product is or how incredible your team is to run the product, you are less likely to get the money from the investors.

 

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Guest Wednesday, 20 June 2018