Is your product what the investor is looking for? Can you take the 10x pressure? There is a lot you need to know before you go in to ask for an investment. Here is what Rabeel Warraich has to say abut the misconceptions of startups about investment and the 3 trends you’re seeing emerging in the ecosystem for the upcoming years.
What do you think are a few misconceptions of startups about investment?
They think that a VC is interested only if a large enough market is there and that means that only startups with such a market are successful. This is not the case. VCs look for 10x return on their investment. This doesn’t mean that startups that have a niche market or not very high returns are not successful. The point is that these startups can survive on their own. It is the startups with potential of 10x growth that are of interest to VCs because they can get their return and these businesses would be liquid enough in the event of an exit.
Another misconception is assuming that the money investors are putting in is just external money and startups can use that money however they want – this entails stating one thing when initial discussions are taking place and then using the money differently when given funding. I believe that it’s a learning process and startups will learn. It is essential for startups to decide who they want funding from, what they would be using it for and what the investors’ expectations would be regarding that investment.
The 3 trends you’re seeing emerging in the ecosystem for the upcoming years?
One is surely that the space is becoming very interesting for venture capitalists. This will also take the form of large international tech companies taking interest in terms of investment, led by the Chinese I believe. As a result, we would also see liquidity events come through – perhaps not in the immediate year or two, but the trend is certainly moving in that direction.
The second trend that has not been experienced in the last one or two decades and has become evident in light of the new government and its policies, is the return of the successful diaspora because these people bring not only capital, but also experience of previously building ventures and learnings from other ecosystems.
The third trend is relatively less emerging, but is more of a natural effect of entrepreneurs picking up learnings from their previous ventures and coming up with better solutions going forward. The learnings from the ecosystem is resulting in improved companies coming forward. There is no single reason for it – when you look at all the incubators and accelerators – the main trend is that players in the ecosystem are looking at opportunities to work together and also work with investors to collaborate to share common practices that are needed to improve the ecosystem. There would be major standardization in terms of the practices, benchmarks and investment terms as well as how entrepreneurs and investors should be behaving with one another.