Since the Corona Virus hit the world in December 2019, a lot has changed. Business came to a halt around the world as countries took severe steps to contain the pandemic, causing financial agen- cies to reduce growth estimates for the global economy, including India.
All start-ups have faced obstacles as a result of glitches in the sup- ply chain network. The start-up ecosystem, on the other hand, has been working hard to adapt as quickly as possible to the current circumstances, focusing on the need to innovate and diversify their business tactics and operations.
The start-up ecosystem in India has emerged as a significant force in recent years, owing largely to the efforts of stakeholders and government policies to encourage the establishment of start-ups. Investments in start-ups have risen considerably from $550 million in 2010 to $14.5 billion in 2019.
We created this journal with the goal of educating start-ups on the various fundraising alternatives open to them, thereby assisting them in dealing with the pandemic.
A more in-depth periodical, startupedia, fundraising volume II, will be released shortly! Keep an eye out!
We hope you find this journal helpful in developing new business strategies in a comprehensive manner. We’d also appreciate hear- ing from you at info@shuruup.com.
CONTENTS
1. STARTUP LIFECYCLE
2 WHEN TO RAISE FUNDS
3 OPTIONS TO RAISE FUNDS
4 FUTURE OF STARTUPS
STARTUP LIFECYCLE
1: Notion
The notion phase of any startup is when the con- cept of the startup is created, where the core idea of the startup is decided. During this phase, the underlying idea of the upcoming startup is decid- ed by you and your team, as well as the question “what purpose are we serving?” is answered.
The notion phase leads to the formulation step, where how you are going to implement the idea is achieved. The topic determines how the notion will be carried forward and revolves around the question “How will you achieve this”.
2: Formulation
In the formulation stage the zero or core model of the startup is created. It consists of model that is designed in such a way that it consists of minimum, yet enough features to satisfy early investors, on the basis of feasibility of the idea.
It need not be a detailed model of the startup, but is a rough model, which states what start-up does and how to functions.
The model is also known as the MVP (minimum viable product).
3: Funding
Once the model is created, it is pitched in front of the investors for funding. For the purpose of selection of startup from the investor point of view, they require clarity on business model you provide, for which the study your MVP is done. They look for the 4Ps of marketing: Product, Price, Promotion and Place.
These are the 4 basic questions asked by them: What is the core product
provided by the startup?
Is the structure of price feasible and viable with respect to the market?
Is the market size appropriate and is the marketing feasible?
What are the platforms where the startup provides their services or product?
To persuade investors to invest in your idea, you must first decide on the core sellable components of your product or services.
4: Verification
The verification is an essential phase before launching your product in the market. Here, your team, along with the investors checks for possible reasons why your product might fail in the market. To be on a safer side, it is advised to have an external team along with your core team to find limitations and possible changes in the business and revenue model and final product.During verification, a beta launch of the product is done
5: Beta launch
Beta launch of the product is like having a test drive of your model in the market.
It provides the final chance to make amendments in your final product.
Beta launch is generally done for services which are provided online.
This is the stage which gives way to the stepping stone of creating your brand.
6: Final product launch
The particular final product is offered to the market
at this point.
Aggressive marketing strategies should be used since it is critical to reach the largest potential market in order to achieve the best potential growth rate.
7: Traction
Startups should start grabbing market share outside of their test zone at this point, which will help them bring more revenue.
It should be designed in such a way that existing consumers stick with your product, while new customers can sample your product instead of the competitors and feel comfortable switching to your product.
8: Maturity
This is the phase where your startup life has reached a saturation point, i.e. your idea is now known in the market, there are enough competitors and you don’t have the upper hand of uniqueness.
This is where you provide services to your existing customers and have improvements in your products, enough to keep them intact with your brand. This point onwards, the competition will rise for which countermeasures must be taken in order to retain your existing customer base.
This is where you think about the future of your company, which is no longer a startup.
As an entrepreneur you have some options:
To work on the existing product
To create a new product
To exit and start with a new idea
Conclusion
Every point discussed in this process is a part of lifecycle of a startup, which is critical to its success.
WHEN TO RAISE FUNDS
How funding works:-
In the notion phase, pre-seed funding is what keeps the business running. As the business starts gaining its shares in the market, it goes for seed funding, followed by series funding rounds. Arrangements for retaining partial ownership for previous investors and investing companies is made as the investors expect returns from the investment.
The valuation of the company and its growth in the market plays a major role in the funding rounds
The growth factor answers why the company needs new capital and what type of investors are likely to get involved
Funding timeline:-
Pre-Seed Funding:
This is the very first investment which is raised by the company’s founders to get the startup in operation. The timeframe of this type of funding depends on the initial setup cost and the type of business. The investors at this stage are not looking for equity in return, rather, the investors in pre-seed funding are mostly the founders themselves.
Product Market Fit:
The degree to which a product satisfies a strong market demand is referred to as product/market fit. Product/market fit has been described as a first phase in developing a successful business, in which the company contacts early adopters, collects feedback, and measures interest in its product (s).
Seed funding:
Seed funding is officially the first time when a company raises funds from sources other than founders.
Seed funding helps a business in funding the process that come before the final product launch. The tasks involved are market research, product development, determining final product, target area, and employing a finding co-team.
Usually seed funding has a range of amount
$10,000 to $2 million.
Series A Funding:
Once a business has set foot in the market and is fully functional, they can go for series A funding which could help them to reach broader and untouched market, and to improvise their current product.
Series B Funding:
Series B round is to take your business from developing stage to developed stage. The companies that have gone through seed funding and series A funding have already marked their name in the market and have a sufficient customer base to prove to their investors that they are ready to achieve on a greater level. Series A and series B have the same process and similar characteristics, the only difference is that in series B the business is introduced to many venture capital firms which help them in later stage of investing
Series C Funding:
Business that raises funds in series C are already prominent in the market. They use this fund to introduce a new product or expand within their current market or they may even acquire other similar companies. Investors invest with the thought of receiving more than double of the investment as the company they are investing is already a success
After Series C Funding:
Some of the companies (but not all) might extend their external funding rounds to series D and even to series E. these companies already have their valuation highest in the market, still the companies opt for series D funding because they might need a final hit before an IPO. Or maybe in some cases, because they have not yet come up to the mark, they set for themselves during series C funding. The time usually expected for return on the investments is 5 to 10 years and in the form of exit or an IPO.
IPO:
when a company is mature enough after the stages of funding, it has an option to opt for IPO. IPO gives a company an opportunity to raise ample amount of money from public investors. This gives the company the strength to grow and expand beyond their current limitations.
OPTIONS TO RAISE FUNDS
Bootstrapping:
During the initial stages funding in your own startup, also known as bootstrapping, is an effective way of startup financing. Investment from friends and family is common during this stage. Bootstrapping is not a viable choice for the business which require liquidity of funds from the start.
Crowdfunding:
Crowdfunding is one of the more non-conventional ways to raise funds. More than one person is involved in generating this kind of fund which could be like a loan, preorder, contribution or investment.
Crowdfunding has benefits of its own as during the process of crowdfunding, funds are raised as well as more and more people get to know about the startup as they would anyhow approach to enough people for the purpose of fund raising. Also, a success in this campaign can lead to gaining attention of venture capitalists. For the purpose of crowdfunding, the business model should look really strong to the people in order to convince them with just an image and some of the content.
Angel investors:
These are the people or a group of people with extra funds who could be interested in investing in startups. They have more risk capacity with an expectation of higher return, giving advice and directions to the founder. While they have a higher risk capacity, investimg in startups that are far from maturity, but funding they provide would be considerably less than that of venture capitalist
Business incubators and Accelerators:
Incubators and accelerators are almost similar terms but with a thin line of difference. Incubators help a startup by providing tools, training, shelter and reach to the market. Incubators help a start up learn to walk. Accelerators are pretty much the same and pro vide with similar help but accelerators help the startup learn to run. Accelerators are helping in speeding up the process of growth, and incubators are giving a push to begin with a healthy growth. This whole process is for about 4 to 8 months, where the owners need to provide with a commitment of time
Venture capitalists:
Venture capitalists are professional individuals who invest in startups that have huge scope of growth. The investors demand for equity against the fund they provide and prefer to exit when there is an IPO or an acquisition. They provide mentorship and consultancy along with investment. A venture capital investment maybe ideal for small enterprises that have moved past the startup phase and are already profitable.
Contests:
Contests which help startups to raise funds encourage entrepreneurs with business ideas to start their own business, either build a product or prepare a business plan in these contests. An entrepreneur can present his or her idea in person or pitch it through a business plan
Bank loans:
The bank can provide financial assistance in two ways, working capital loans and funding. The loan required to run one complete cycle of revenue- generating operations is known as a working capital loan, and its limit is normally determined by hypothecating stocks and debtors.
Funding from the bank is when bank provides loan to the startup which usually involves sharing of business plan and valuation details and project report.
Government Programmes:
Miscellaneous options:
Preordering is one of the ways to create funds. By selling a product before it is launched provides funds for development of the product itself or for other growth prospects. An example of it is tesla’s cyber truck, which raised funds by prebooking for the truck.
Selling assets can give a short-term solution by generating funds from the assets the startup owns and then buying back the assets in some time.
Business credit card can provide with funds when there is requirement of some funds that is during the very beginning of the startup. But to keep in mind, the interest rates compiling over time could turn out to be really expensive for the business or the business owner. It is better to walk safe on this path as interest compounding overtime often leads to making payments that could be double the actual cost of the asset you acquired just because of the interests.
Miscellaneous Options:
There are several programs launched by government to promote startups. In 2014-15 Government of India kept a section for creating a better startup ecosystem with funds of 10,000 crores in union budget. To promote more innovative ideas and businesses, government has also created a program known as bank of ideas and innovation. Some states have their own way of supporting startup as well, such as Kerala State Self Entrepreneur Development Mission (KSSEDM), Rajasthan Startup Fest, etc.
Government grants can be one of the best ways of funding the startup.
FUTURE OF STARTUPS
Introduction:
There are over 50,000 start-ups in India, making it 3rd largest start-up ecosystem in the world. About 20% of these start-ups are tech-based startups. In 2019, alone, 1300 new tech firms were founded, meaning that about 2-3 new tech startups are founded every day. India continues to provide the startup ecosystem with a mature market as well as a larger opportunity in terms of untapped audiences, which brings in more investment opportunities. Every coin has two sides to it. What are the advantages and disadvantages of investing in startups? The following are the specifics:
Profitable:
A start-up with a great business idea and effective core team can have maximum returns from the investments. Returns can also be expected if the start-up is acquired by a large firm for a significant portion of money.
Gaining market recognition:
If the start-up you’ve invested in succeeds, you’ll get a reputation among influential investors.You learn more understanding about startup investing, which broadens your market and increases your options for startup funding. By investing in start-ups you bring change in the market, along with influencing people to invest in startups, thereby, helping start-ups grow multifold.
Risky:
It can be risky to invest in start-ups. According to a survey, about 90% of start-ups fail.
As a result, before investing in a start-up, one should extensively research the business plan as well as the revenue model. Once he or she is certain about the start-up, he or she must devote both time and resources to it.
Liquidity of investment:
Startup investments, unlike publicly listed stocks, are illiquid. This means they can’t be traded, and you won’t be able to sell your stake until the firm goes public or is acquired.
Investment returns take time, sometimes decades:
Returns from a start-up take time because the best returns are gained once the company has a market presence and is boosted.
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