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What should you do if you can’t raise startup capital?

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What should you do if you can’t raise startup capital?

  December 10, 2019
 

Raising startup capital can be crucial if your business requires a certain critical mass to survive. Unfortunately, more companies fail to raise capital than those who successfully do. The good news is that there are a million ways to raise money and you only need one of them to work. Today, we’re going to talk about what to do if you’re having trouble raising startup capital.

We first need to address the fact that most people go out looking for funding far too early. If you’re serious about raising money and don’t have a successful acquisition under your belt, then there are a few things you need to accomplish before you ever reach out to investors. For starters, you at least need some sort of initial version of your product/service and ideally a concrete proof of concept. Your proof of concept doesn’t need to be a million people using your product but it does need to be some people using your product, giving you regular feedback. This shows investors that there’s actual demand for what you’re offering.

1. Stay close to home: One thing we see all the time is hopeful entrepreneurs never actually tapping the full potential of their network. Most people don’t realize it but they almost invariably have a group of people around them who want to back their ideas and believe in them. If your family and friends aren’t willing to invest in your idea, why would a professional investor? Jeff Bezos’ parents mortgaged their home and invested over $200,000 into Amazon while it was still nothing but a pipedream. If you haven’t already tapped your network and asked your friends and “friends of friends” then it’s too early to be going to investors. Also, if you haven’t gone to your family then it’s definitely too early to be going to investors. Keep in mind you don’t have to ask for a lot of money but, in most cases, you can get enough to at least show proof of concept.

2. Get creative: If your friends and family have already helped you and you still can’t get investors behind you then now it’s time to get creative. What do we mean by getting creative? Well, let’s look at a great example. Back around the 2008 presidential election, Airbnb was nothing more than a fledgling startup that was struggling to stay alive. The founders had already raised money from their family and racked up thousands of dollars of credit card debt in order to get their proof-of-concept off the ground. Even after doing all of that, they weren’t able to raise money from professional investors. So what did they do? With the election right around the corner, the founders thought fast and devised a money-making strategy completely unrelated to Airbnb’s business. Brian Chesky and his co-founders created special label cereal called “Obama O’s” and “Cap’n McCain’s” and sold nearly $30,000 worth around the time of the election. They used this money to keep Airbnb alive until they could convince investors to join.

3. Crowdfunding: Speaking of getting creative, crowdfunding is one of the most creative things you can do. Up until the last 10 to 20 years, if you had a great idea you had to go through industry gatekeepers to get your idea funded. The advent of the internet changes all that. Never before in human history have normal people been able to get their message out to millions, without spending much money. Crowdfunding isn’t just for small projects anymore either. Over the last 10 years, crowdfunding has helped raise billions of dollars for promising startups and business ideas. If you thought your company wasn’t a good idea for crowdfunding you might want to reconsider. This can be the basis for a multi-billion dollar company. Sites like IndieGoGo, Kickstarter, and many others now make it ridiculously easy to set up a campaign. Even if you don’t hit your target, it’s worth a shot.

4. Persevere: The next thing you may want to consider is that you just haven’t tried enough times yet. There are countless stories of brilliant entrepreneurs who had to try many more times than they thought to get their idea across. For example, Tim Ferriss was turned down by 26 publishers before one picked up his book The Four Hour Work Week, which went on to be a global phenomenon. How could so many publishers miss out on a homerun opportunity? It’s hard to know, but the one thing that’s for sure is that if Tim would have given up on his twenty-fifth publisher no one would probably know who he is. How many pitches have you made? Probably not enough. Even if you pitched a hundred investors, the hundred and first might say yes. So our advice is to simply persevere and never give up.

5. Ask for feedback: This is one tactic we can promise you not many entrepreneurs use. After every single investment decision, you get you to need to be asking investors, “Why did you say no? What can we do to improve?” These two questions can unlock the sea of doubts that investors are thinking about when they’re reviewing your opportunity. Once you’re able to understand why they’re saying no, you can go back, adjust your messaging, and then knock the next pitch out of the park. While it might seem obvious, most entrepreneurs don’t do this. They make the same pitch over and over hoping one investor will just say yes. However, if you improve after every single pitch, you’ll eventually land in a meeting where everything goes perfectly, you address every concern, and investors are nipping at your heels to get involved.

6. Know when to quit: Last but not least, unless you want to spend the rest of your life pursuing this idea, have the courage to know when to call it quits. This doesn’t mean you’re giving up on your entrepreneurial aspirations, it simply means that this idea, at this particular time, isn’t going to work out. If you can make that distinction and then act quickly on it you could save yourself years of pointless work and move on to your next venture. Don’t get this confused with someone who simply jumps from idea to idea but understands that if two-hundred investors have told you “No,” even after improving your pitch every time, then there might be a fundamental flaw in your plan. Chalk it up as a learning experience and move on to the next. Your odds of success will be dramatically higher, after all, you’ve learned.

Do you have one more pitch in you?

At the Tandon Group, we’ve invested in dozens of successful companies in the consumer, defense, wireless, and IT industries. We’re always looking for the next big opportunity and can especially help emerging startups expand into the Indian marketplace. With offices in Silicon Valley and multiple offices across India, we’re truly a global investment partner. If you think you have what it takes to be the next big success, reach out to us. We’d love to be your partner for the road ahead.

Tandon GroupWhat should you do if you can’t raise startup capital?

Selecting the Right Venture Capital Firm for your Startup

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Selecting the Right Venture Capital Firm for your Startup

  November 26, 2019
 

When looking to raise funding, there are many factors you need to consider before choosing a venture capitalist partner. Many great startups have been thrown off course by choosing an investor for the money and not for the other assets they bring to the table. While capital is important, it’s only a small part of startup success. That being said, here’s a list of things you need to consider before choosing an investor (or group of investors):

  • Availability: Knowing how many companies a firm is currently invested in can give you a better idea of how much time they’re going to be able to devote to you and your business. Ask the venture capitalist directly how much time they anticipate devoting to your startup each month. You don’t want to get into a situation where you have either an overbearing investor or one who isn’t involved whatsoever in the operations of the company. Most startups need to find a “happy medium” where they get the advice they need but also have the freedom to operate the business in the same manner that brought them success up until now.
  • Connections: Most startups don’t raise capital just one time. Partnering with a venture capital firm that can introduce you to future funding options is something you want to think about from the outset. Look into their funding history and see what their past funding rounds have been like. How were they structured? Who did they bring on-board for additional capital? A semi-celebrity venture capitalist might have more overall connections but a lesser-known investor might have more relevant connections in your industry. A great question to ask while meeting with investors is, “who do you know that can help us grow this company faster?”
  • Cultural Fit: Do you have the same values, ethics, and morals as the venture capitalist you’re speaking with? If there’s a clash of fundamental beliefs between you and your funding partner(s) there will inevitably be larger problems down the road. Decisions can become extremely difficult when you put yourself in the shoes of your investor. There’s a tendency for all investors to be more shortsighted than company founders. Short-term focus on ROI can sometimes mean the death of a promising startup. If Facebook had started charging customers for access or started advertising sooner, we might not be talking about them as a global superpower like we do today.
  • Integrity: Over the last few weeks, there have been widespread stories about sexual harassment and gender inequality in the venture capitalist community. While it’s disheartening to see this kind of behavior, it’s also a part of human nature. There are always going to the unethical and untrustworthy people conducting business in the world. It’s important that you do background research about each individual that manages a venture capitalist firm. Do they have a history of unprofessional behavior? Taking the time to do this could save your startup from an embarrassing scandal or expensive legal trouble in the future.
  • Intelligence: Emotional intelligence is harder to quantify than other factors on this list but it’s just as important as the rest. You should do your best to find out how a particular venture capitalist firm handled emotional situations in the past. Whether it’s replacing executives, firing ineffective employees, or any other event that causes high tension, a venture capitalist’s ability to communicate and understand the situation is paramount. The most effective course of action for a startup is to talk with previous company founders and get their opinion on the firm’s emotional intelligence.
  • Knowledge: Almost all venture capital firms have their areas of expertise. Usually, it’s a certain industry or group of industries. For example, at Tandon Group we specialize in the EMS, IT, healthcare, defense, and consumer industries. We feel that we have the highest chance of success when we stick to our domain of expertise. Other VC firms might specialize in industries like fintech, cryptocurrency, or any other number of specialized industries. While knowledge of the industry is extremely important, it’s only the starting point for finding your ideal venture capital partner.
  • Location: It’s common practice for venture capital firms to set up funds that are specifically used for different geographical areas across the globe. Make sure you do your research to ensure you’re talking to someone who’s interested in investing where your startup is headquartered. This isn’t always a deal-breaker but many investors feel more comfortable when they invest in companies that operate where they’re familiar. As an example, the Tandon Group has offices in San Jose, California, and Mumbai, India. While we’re open to investment pitches from all across the globe, we put a special precedent on companies that are headquartered in either of our locations. It gives us the ability to provide guidance and work directly with company founders.
  • Performance: It’s a common saying that success breeds success. That being said, how much success has the venture capital firm you’re considering seen in the past? Some firms prefer a widespread approach, investing in many companies, hoping for a few big successes. Other venture capitalist companies take a more exclusive approach,  working hand-in-hand with each company they invest in. Either way, these firms are going to have past successes and failures. It’s in your best interest to know about them. At Tandon Group we’re proud to say we have a large portfolio of successful investments and one of the largest mergers and acquisition deals in Indian consumer internet history.

If you’re a startup founder looking for funding, the Tandon group is always open to hearing promising investment opportunities. If you work in any of our areas of expertise (mentioned at the beginning of this article) you can contact us to discuss potential investments. If you’re already apart of a successful startup and you’re looking to expand your business offerings to the Indian market we’re also interested in speaking with you. We have 40+ years of business expertise in the Indian market and are perhaps the best company to partner with if you’re looking to grow there.

Tandon GroupSelecting the Right Venture Capital Firm for your Startup

Checklist for Raising Startup Capital

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Checklist for Raising Startup Capital

  September 4, 2019
 

Raising capital for the first time can seem daunting. If no one on your founding team has done it before, you’re bound to make mistakes. The only thing you can do to calm your nerves and feel more confident is get as prepared as possible. Luckily, most VC’s and angels have similar needs when it comes to the information they want to see before making an investment.

Here is a list of items we like to see at the Tandon Group before we consider investing in a company. While some startups will have more concrete information for each item on this checklist, you simply need to do your best to flush out your company’s position on each of these items:

  • Company Overview: Your overview should be an overarching description of your entire business. It’s usually best to complete this part of your preparation after you’ve gone over the rest of this checklist. The company overview will be a shortened version of the main points contained here.
  • Physical Location: Where is your company located? How many locations do you have? Where do you plan to open new locations? Is your team all “under one roof” or remotely based? Basically, spell out where and how your company is operating.
  • Founding Team: Most investors are looking to invest in a team of founders. While this isn’t a definitive rule, it’s usually a best practice to find someone who has complementary skills to your own. If you’re a coder or an engineer, you should find a business savvy co-founder (or vice versa).
  • Product Demo: At the very minimum, if you’re not a seasoned entrepreneur with past successes, you need to have something to show an investor. It doesn’t have to be as complicated as your final product but it needs to capture the essence of what you’re trying to do. Ideally, it proves your concept viable.
  • Addressable Market: You don’t want to go into an investment meeting saying that your addressable market is the entire world. You need to have a specific target audience, at least for your initial marketing efforts. Who is most likely to use your service? What’s their age, gender, interest, demographics, etc?
  • Problem/Solution: This goes hand-in-hand with your addressable market. Now that you know who you’re serving, what specific problem, need, or desire are you going to solve? The number one mistake we see entrepreneurs make is they create a product or service that no one actually needs or wants.
  • Business Model: How are you going to make money? You can start a business and not immediately monetize your user base but, eventually, you’re going to need a way to make it sustainable. Your product demo should align with your business model to show how you’re going to generate revenues and profits.
  • Competition: There’s a common saying, “business is cut-throat.” Your competitors are trying to steal your customers, take away your market share, and put you out of business. It’s in your company’s best interest to know exactly who all of your competitors are, where they operate, and how they operate.
  • Financials/Projections: You should always be able to show where you’ve spent every dollar and where you generated every cent of revenue from the beginning of your company’s existence. It’s simply bad accounting if you don’t have records of all the money you’ve spent and made so far.
  • Legal Information: How is your company legally formed? Is it an LLC, corporation, partnership or some other legal business entity? In most cases, you need to have this already setup before you go to any sort of investor because you’re not even going to be able to open a business bank account without having a company formed.
  • Past Funding: If you’ve raised money in the past this is going to be one of the first things investors are going to want to know. What was the last funding round valued at? How much equity was exchanged for what amount of money? What kind of shares and what sort of control do the previous investors have? These are all questions you going to need to make sure you have answers to.
  • Future Vision: Where do you envision taking this company? While most companies will need to pivot and change course multiple times during their lifetime, you should always have some sort of vision that you’re aiming to attain. A compelling vision aligns your employees, your investors, and your goals- so that everyone is on the same page.

If you follow the checklist above, your chances of raising capital for your startup will greatly increase. If you’re a startup founder looking to raise capital, Tandon Group wants to meet you. We have over 40+ years of startup experience and have invested in startups from many different sectors.

We’ve had numerous successful exits/acquisitions and would love for your company to be the next one. Reach out to us and we’ll get back to you with more information about setting up a meeting.

Tandon GroupChecklist for Raising Startup Capital