In answer to the oft-asked question “How much have you raised?”
9 Jul, 2017E27.CO
As a founder and someone who has been involved with the Indian and South East Asian startup ecosystem for a sometime now, I get invited to a quite a few speaking engagements, investor/founder meets and college events. After a few pleasantries and general talk, one question that I get asked a lot is this:
How much have you raised?
This innocent question is one of the biggest issues with our startup ecosystem.
People are more concerned about how much funding you have been able to attract or how much are you going to raise in next round than how your business is coming along? Or, if unit economics in control? No, hardly anyone asks that.
On telling people that I have not raised any funding for my current venture, the next question that follows is this:
But you know so many investors. How come you haven’t raised money?
Because, I don’t want to.
The startup ecosystem has made a certain section of entrepreneurs believe that if they have started-up, they are entitled to get funded. Models have been built to ‘ensure funding’ at various stages: idea stage, prototype stage, early customers stage, growth stage, and a dozen more stages.
Basically, the entrepreneurs have been convinced that they any stage they are in, they can get funded. Which is in-fact true. A venture can get funded at any stage. But the bitter fact is, none of the models ensures that every startup gets funded.
Many an entrepreneur start their ventures with hopes of getting funded as per these models. They have all their stages planned right from Idea Stage to Series A, B, C and so on till an ‘exit’. Over the years it has become a norm in the startup eco system that once you startup, raising funds for investment is the only way you can grow. I have seen entrepreneurs quit and wind up their business just because they could not raising funding.
One of the biggest myths of the startup ecosystem is that more than 95 per cent of the startups shut down in the first year of their operations — majority of them because of paucity of funding. There is another big myth going around for long now that one has to ‘raise external funding’ to survive.
These myths have propagated because we have conveniently excluded a large number (read majority) of new businesses started every year from the definition of startups. The only difference is, we don’t like to call them startups and thus exclude them from our radar.
Look around yourself. Hundreds of thousands of business across the world are started every year with a focus on surviving and flourishing without funding. The flower shop around the corner, the family owned bakery near your office, the tea stall you visit everyday. All these business started without any plans of raising funding. They started with a plan of becoming self-sustaining. And, majority of them did become self-sustaining. They might not become billion or even a million dollar businesses, but they do run profitably for years and decades and some of them are handed down from one generation to another for centuries.
Do these businesses raise funding? Yes. Many of them do. Many of these businesses become profitable over time and then raise funding to expand. Which makes sense.
Due to the nature of my work, I meet a lot of entrepreneurs on a regular basis. Somehow I feel that the major focus of majority of entrepreneurs is on achieving KPIs to attract investors and not on building a fundamentally strong business. A perception has been created that a business must go through the process steps created by various business models that help raising funds.
Blame it on the investors or the entrepreneurs, there have been precedents (and many of them) where ventures which did not have any clue of how to become sustainable got heavily funded, became unicorns or aimed to become one and then burnt to the ground. Although these are exceptions and not rules for building a business, but they are highlighted so much by the media that everyone thinks they are the rule.
If you look carefully, most of the ‘entrepreneurs of the year’ chosen by various organizations and publications are running loss-making businesses heavily funded by deep-pocketed VCs. In the din and shine of these handfuls of well-funded startups, the smaller, bootstrapped and profitable ones get lost.
My advice to young entrepreneurs is to focus on building a sustainable business and not chase funding. Even if you have funding on your mind, build a startup aiming for sustainability without any external funding. Think of external funding as a fuel for growth of a strong business model and not as a fodder to satiate your losses.
Harshdeep Rapal is the founder & CEO of LeanFlo Inc. He has been a serial entrepreneur and angel investor. In his earlier role he was a venture lead for South East Asia region at Rocket Internet.