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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

Should Startups Focus on Growth or Profitability?

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Should Startups Focus on Growth or Profitability?

  May 23, 2019
 

This question has been asked in every major business on the planet. From concrete manufacturing companies in the 1950s to PayPal in the 1990s, and now the Facebook and Uber empires of today. They created a great product, have started to gain traction, recently got funding, and now they must ask, does the company focus on growth, or profitability? A point needs to be made from the outset: It’s mathematically impossible to maximize growth and profitability at exactly the same time. You’re either doing one or the other, and often it’s these decisions which will ultimately determine the success of your company.

Questions to Consider

First ask this question: “When should my company start worrying about making money?” This isn’t simple to answer because there are many subtle distinctions which need to be made for a right answer to appear. Are you a business-to-business (B2B) company? What is the economy like? Are you a first mover? Have you already achieved funding and is it easy to get additional funding? What are your personal goals with this business- are you trying to run a global company or a niche money-making side business?

Based on the above, if your company is business to consumer (B2C) than it’s smart to focus purely on growth. Reason being is the consumer behaviour is notoriously fickle while corporate behavior is relatively static. This means a B2C company needs to pour money into advertising spending while locking down their user base. Let’s look at Facebook as a case study.

When Facebook initially started they didn’t have a clear revenue model but the executives did know they had something groundbreaking on their hands. They reasoned it was critical to gain the user’s first, in massive spending sprees for growth, and would figure out the revenue model second. Thus, the Facebook advertising platform was born, and out of it a multi-billion dollar revenue stream.

Money for Growth

Let’s look at this problem from a different angle. We already asked if there was easy access to capital, either in the form of private equity or venture capital. Now, let’s assume you decide to pursue an investment from a private equity fund. If you do this they’ll most likely lay down the business with debt in long or short-term loans. Now, if you’re a tech company it’s not smart to go down this route, because tech companies generally need to focus on user growth. However, if you’re company is building a physical product, then going through a private equity firm might make sense.

Rules of Thumb

If you’re a technology company that requires user interaction for viability, than obtaining users should be your primary goal because the greater volume of users you have, the greater amount of time people will spend using your product. Thus, it’s in your interest to focus on rapid growth from the outset with plans to weather unprofitability. Eventually you’ll have to monetize but it can be unwise if done too soon or before critical mass adoption.

Second, if your company is developing physical products which are capital intensive and growth is achievable, but at a slower rate than profitability will be your best option. Reason being is that your company’s main goal will be reducing costs of production for goods sold, which inevitably leads to greater margins. Your massive growth will come from an initial public offering (IPO) which infuses the company with liquid capital which can then be used for greater growth down the line.

If you’re a startup looking for resources to help you succeed, Tandon Group has provided numerous startups with business advice and funding support for over four decades.

To learn more about our company, please contact us.

Tandon GroupShould Startups Focus on Growth or Profitability?