When is a start-up not classified as a start-up?
THE QUESTION:
Mr. Khugan,
I recently came across your articles on Start-ups and wanted your advice. I have a Start-up, for which we got initial seed funding in 2021. We have been involved in R&D and now need more funds to launch our product into the market. We have given the actual market analysis to Investors. However, the Investors are not interested in coming in. Why would a start-up get the seed money, yet not able to source for investors for launching the product in order? I would really like some insight on this, especially as I believe this is the moment when investors will be making a profit.
Shahruddin I.
THE ANSWER:
Well Shah, I guess the first thing that you ought to know is…YOU ARE NO LONGER A START-UP! When you have already procured seed money and established your company, it means that your company is already a valid business enterprise; especially after almost 3 years.
The initial investors that had come in with the Seed Money had already taken into consideration on the R&D period and the time when your product is supposed to launch and earn revenue for the company.
To me as a consultant, the problem inevitably lies with the mis-management of funds. Most start-ups on procuring seed money spend it on glamorous offices, numerous expats with amazing designations and high salaries, and use maximum 20 percent of their seed money for actual R&D. Moreover, more often than not, zero funds are kept aside for production and marketing of their product. You are among the 6 emails that I have received that are having similar problems. Fortunately, some of them have already started generating revenue but not enough to sustain Marketing efforts.
Nevertheless, let me see how can we help you with your problem:
1. APPREHENSION OF MARKET ANALYSIS.
INVESTORS VIEW: Seeing your Market Analysis for your product was more than 3 years ago, Investors might feel that your market analysis is not convincing. Your analysis might be considered outdated as Market demand and conditions have certainly changed. Thus according to many investors, your product may no longer have a strong selling proposition in the current market.
YOUR SOLUTION: Re-Evaluate and enhance your Market Analysis, include current data supporting the demand of your product in today’s market. Show the current relevance of the product, get the analysis done by a Consulting or Research Firm to further validate your projections.
2. MONETIZATION OF YOUR BUSINESS MODEL.
INVESTORS VIEW: This is the most important stage. You need a very precise Business Model showing how you are going to generate revenue for the next 36 months. That would give them some comfort that the new funds would be used for the income generation.
YOUR SOLUTION: You need to refine your business model to clearly outline how the product will generate revenue and achieve profitability. Provide detailed financial projections, including different scenarios, to show how you plan to scale and ensure an acceptable return on investment.
3. TEAM COMPETENCY PERFORMANCE.
INVESTORS’ VIEW: As mentioned earlier, Investors might be uncertain about your team’s ability to execute the go-to-market strategy effectively after the time incurred from incorporation.
YOUR SOLUTION: You need to highlight your team’s experience, skills, and track record. Consider bringing on board, advisors with proven expertise in areas where your team may lack. Show a detailed execution plan with clear milestones and timelines that your current team can actually execute…
Well Shah, I hope that I have managed to give you some insight to your queries. If you can execute the ideas above, there could be some ways to bring the negotiations with your Investors back to the table.
If you need other clarifications, please do not hesitate to email /WhatsApp me. Once again thank you for the E-mail.
Best Regards Always,
S. Khugan