Over the last decade, startup funding ecosystem has matured a lot and made a lot of progress. Credit should go to both the government as well as funds involved in this process. Having said that, it is also true statistically that less than 3 percent of startups end up raising money from professional investors. The reasons could range from being non-fundable ideas to an entrepreneur reaching out to a plethora of investors for a long time to an investor not being able to quickly evaluate new and innovative ideas.
A startup knows why it needs funding – product development, sales and marketing or expansion, i.e., assessing the need for funding. However, the first challenge that hits a startup entrepreneur is which investor to target and how; i.e., how to search for a suitable funder. How will a startup know funds that invest in a specific domain, that match the ticket size a startup is looking to raise, funds that invest in startups in a particular stage, funds that may or may not have done competing investments etc.? From an entrepreneur perspective this remains a daunting task. However, technology has reduced the pain in the last few years.
Startups can register themselves with reputed online databases that make them visible to investors looking for investments. Networking platforms have become very effective knowledge sharing tools for startups looking for funding. A few angel networks have developed fundraising platforms focused on startups and can connect entrepreneurs to VCs, angel, and institutional investors. There is a little dilemma though, when sharing on such networks, regarding confidentially of the idea and business model. However, with time, technology should be able to address this concern too. Tech enabled crowdfunding platforms are also gaining momentum gradually in India.
With the kind of startup boom that we are witnessing in India, funds and investors are flooded with potential deals. For each deal a VC fund invests, it considers on an average 80-100 opportunities. The time taken to close a typical deal can also take months. To effectively manage such a quantum, funds are quickly moving from Excel based data management to CRM and Deal Pipeline solutions. While an investment decision by a VC may not follow typical textbook or time-tested corporate formulas, having tech solutions allows it to automate the deal sourcing (from multiple channels and networks) and thus deal management process to a very large extent.
A lot of startups do not get past the first round of funding evaluation process of the fund. New and innovative ideas are particularly difficult to fund in India because if no one has done that in then past. It thus becomes difficult to apply any model or metrics to them. Tech solutions are increasingly helping funds a lot in deal evaluation process – thus not only easing the life of Investment managers but also giving an average startup a fair chance to get evaluated by the fund.
A good PE/VC focused-CRM solution enables the fund team to collaborate with each other, be in sync all the time and track all communications, notes and tasks with respect to a deal in a centralized manner. Integrated analytics empowers them to compare deals across various parameters. There are strong tech tools in use by funds to quantify trends, source regional statistics, pull related news, etc. thus providing critical information to evaluate deals and funding opportunities. Deal pipeline solution providers are integrating with such tools – making tech a real enabler in deal evaluation and funding process.
In India, a lot of talent and startup ideas come from tier II cities. Internet penetration (with good speed), lightweight video conferencing and other tech solutions have made tier II cities fertile grounds for innovation, employment and funding.
(Ankur Agarwal is Co-Founder & CTO, PE Front Office-a comprehensive software system for Private Equity and Venture Capital professionals.).
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