Monday, January 23, 2017
As I close my account for 2016 I find that there are others out there in the new business space who are of the similar mind set as myself, Ranju Sarkar who writes for the Business Standard, being one of them. Go back to the basics, improve your fundamentals and then look at funding.
Founders trying to get their companies off the ground often find themselves caught between venture capital and a hard place. Like the devil and the deep blue sea it seems a hopeless choice. One that either forces founders to bootstrap - work out of their homes, have the dining table double up as a work station and a conference table or compels them to succumb to the dreaded equity sucking financing rounds.
This begets the question if there really are no other options for founders at the early stages of their business. Dipti Vaidya & Bharat Agarwal, founders of Pune based Investronaut, believe that there is an alternative route that startups might do well to consider. According to them right now the startup industry finds itself choosing venture capital or multiple traditional funding rounds with mixed results. They believe that there needs to be a reinterpretation of the idea of ‘funding. A re-interpretation that is based on a set of principles that determines how equity will be treated, how growth will be evaluated and how to view employees. This they say is a more sustainable way to grow companies that doesn’t keep venture capitalists at one end and startup entrepreneurs on the other end.
Such an approach automatically focusses less on creating value for the investors by building up to an IPO, eyeing a lucrative exit or forcing that ‘next big acquisition’. Instead it relies more on building a self-sustainable organization. The idea here is that if one has a long term horizon and have a more humane way of building companies than we do right now, the multibagger returns will follow in due course.
An even more unfortunate consequence of the short sightedness towards returns is that a founder, who has put in countless manhours and sacrificed much money in terms of opportunity cost is often left holding and small and insignificant piece of the very company he started and built a few years down the line.
A more sustainable way to grow companies
Here is where Investronaut believes it can make a meaningful difference in the venture capital industry.
Investronaut, is a mentor driven business advisory in the startup world. Its founders believe that it plays a small but critical part in helping companies become self-sustaining in the market place. Investronaut works with startups in the early or growth stage of their lifecycle. The Investronaut approach is to bring self-sustainability into the core building blocks of the company - the management, the board structures, goal setting, strategic decision making and more. It is known that good governance practices in all areas of a business help a company to be in a better position to mitigate risks and capitalise on emerging opportunities. Startups that approach Investronaut are advised to look beyond funding as a solution to their pain points. Instead, every startup goes through a set of management tools designed to construct an ‘as is’ story of the business. Each aspect of business right from whether the business idea solves a problem or addresses social need to finance, the life-blood of any business is discussed thread-bare.
Then starts the process of plugging the loop holes and fixing the gaps in the business model coupled with the supporting aspects of business to make the business profitable. Startups that are incubated with Investronaut can either work out of the incubation centre or from their own offices. A detailed statement of work is designed along with the mentor for each pain point of the customer. This period is for 3 months and can be extended depending on the need of the customer.
Rakesh Jhunjhunwala in an interview with CNBC TV18 said that real companies who have given returns to investors have been built by cash flows generated by the business and not by spending investor’s money. The Investronaut approaqch is a firm believer in this as can be seen by the above outlined process.
Therefore, when investors of the mind-set of Rakesh Jhunjhunwala, ask how will a company be profitable, Investronaut clients would have already gone through one of more cycles of tweaking and managing challenges on the path to positive cash flows and self-sustainability. While this might result in higher valuations more importantly it ensures that startups are not forced to divest large amounts of equity for small amounts of funds.
With the focus on being in business for the long haul Investronaut works to advise their clients on the importance of stakeholder engagement. This process is valuable for identifying key risks and opportunities on sustainability challenges.
You can read the full article of Ranju Sarkar here: http://www.business-standard.com/article/companies/vcs-go-back-to-basics-start-ups-told-to-imrove-unit-economics-116122801294_1.html