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Who moved my cheese – Crypto ‘Exchanges’ Saga - Manish Kumar

A little context from our journey – similar but not same

About two and a half years back when we were building GREX as (what is now known as) a Private Market, we had to face daunting and unforeseen challenges. It is simply not easy to create anything that is completely digital – its paradigm shifting and needs a lot of components to move in tandem. Some of the challenges were on Banking side and the others on the Capital Market Ecosystem side. It was common for us to hear that XYZ is a financial institution and this will need to adhere to given rules. And yes, we were never flouting the rules, but there were grey areas of interpretation. When one does not have any ‘extra’ incentive (something we as a humble Fintech could not offer), no one wants to ‘interpret’ things in your favour. For example, we wanted an escrow account to collect investor money, but that could not be provided to us (despite our intent being investor protection) because the rules had a certain technicality. No one, no bank came forward to help. (how did we solve it? we had to seek clarification from the regulator itself). Similar challenges on almost all regulated (and even unregulated) intermediary sides. And we respect that. We do understand that for prudential financial and capital markets, these things are important.

I will be putting our journey in context with the Crypto Exchanges all the way in this article. Why? Because there is no better way to contrast with facts – I’ll be sharing facts that are our very own.

The curious case of Crypto Exchanges

The ‘Exchange’ word

I was surprised at the fact that they could use the word ‘exchange’. Well if you are not a company dealing with the financial world and you use the word exchange, nobody minds. But the word exchange for a financial services company takes a different connotation. We faced so much heat only when we used the word ‘exchange-like’. I wonder how these were never advised, overtly or otherwise to not use this fiercely protected word.

The Bank Account

There are a small finite types of Bank Accounts allowed by RBI. Specialized accounts, that not normally fall within their boundaries have to be expressly approved by RBI. Alternately, the Bank may simply open an account based on their conviction that it falls within the scope of a certain account type and its approved set of activities. My experience says it must be very difficult to open a bank account for this purpose. We were denied bank accounts, even as we could explain the law etc that we fell under – it was no one’s initiative. We had to reach out to RBI directly because we could not get any clarity/support from Banks.

Today, RBI has taken the same powers to indirectly ban the exchanges. But the moot question is, how did the bank account for these guys open up in the first place? Why did the Banks do it? Did their legal and compliance really ensure things were proper? Or were the Banks/departments themselves kept in the dark?

The Regulatory Angle

The Exchanges have been consistently maintaining that they mustn’t or cannot be regulated as they are dealing with tokens which is not a defined entity. I beg to disagree, at least in part. Any token, is either a currency, a commodity or a security, until it is legally clear that under what bucket they will finally be recognized. And we have laws, regulations and regulator for all the three buckets! So, the argument that there was nothing that they potentially fall under, may not be correct. But it surely was assumed to be an advantageous position to take to avoid any regulator behind your back, or at least they thought so.

Let me contrast this again with our case. We were dealing with ‘non-marketable’ securities i.e. shares of unlisted companies. We built the platform and its processes to ensure complete compliance with laws. We worked with all SEBI regulated entities (intentionally so). We had explained our risk management, legal compliance and best practices with almost every SEBI regulated entity we worked with. Even then, we ourselves went to the regulator for clarity (or at least their understanding) as soon as we had established our first couple of transactions. Even as we are relaunching GREX now, we are actively pursuing with them and government to ‘get ourselves under the regulator’ and otherwise.

We simply never believed, that one can work in this market without the comfort of the regulator.

The Innovation and Impact Quotient

One can argue that for impact generating companies, the regulations must catch up with innovation and not the otherwise. This is the reason why despite many statements, warnings and even after being in violation of motor vehicles act on multiple accounts, our taxi hailing services were never really stopped from operations.

Our Crypto Exchanges were not innovative ideas from entrepreneurs in India. They were a copy-cat replica of something that had begun to make waves abroad. The product of these exchanges was new, but as far as their own innovation quotient, they were simply imported ideas – so in that sense, these companies were similar to commodity traders. And commodity markets are regularly impacted by market forces or government policy (through budgets). In this case, it is regulatory action.

On the impact side, there is hardly anything to say in their favour as well. Their existence or otherwise was not affecting (positively) any developmental agenda for the government or the regulator. In fact, it was only going to increase the headaches of the regulators for no developmental impact at all. What does one then expect of the regulators?

I’d not give much contrasting point wrt GREX here except that it is appalling to see that 85% of the formal demand of capital is not met. Plus, technology must allow access and participative growth through better-structured risk participation – this is good for informed investors and good for the growth of the economy. We thought so. We did do. And we then still went to the regulator so.

Bottom-line

One may conclude that I’m arguing against the Crypto Exchanges. No, absolutely not. They are my fellow Fintech companies and I’d love to have their interests covered. But, my arguments were simply that the approach they took was probably not right. We took a contra approach to them. We were simply advised by the regulator to stop fundraising operations, and we completely stopped them (to the extent of almost killing us) until we believed we have developed the shared understanding, knowledge and more importantly the confidence of the regulator. This is the only way any Fintech entity can think of thriving in the market. I had to answer to lot many of my investors and stakeholders on whether going towards the regulator was the better way. Today, the verdict is crystal clear – that’s the only right way. The Crypto Exchanges went somewhat the opposite way and thence the outcome was only expected.

Note: This piece is written to with the singular purpose of knowledge sharing only to the benefit of existing or aspiring Fintech companies and other Fintech stakeholders.

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How to increase your chance to get Business Loan - 6 Points for Good Credit Profile

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Increase Your Chances To Get Business Loan: Better CIBIL Score Of Promoters

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Unsecured Loans - When should you take it?

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Super Heroes of Mentoring Era - Startups and .coms - Sameer Gupta

A few days back I was attending an event on startups. In the presentation, there was a slide which reflected upon the role of Mentors. This got me thinking about the relationship a mentor should cultivate with a mentee. It is a very demanding and a delicate affiliation.

To kiss a sleeping beauty (a new business idea) and live happily ever after (scale it and create value), there are certain fundamentals which have to be deliberated by a prince (Mentor).

We all know that for startups to have a mentor is extremely vital. Mentors counsel a Mentee in their area of expertise and systematically transfer their knowledge and enable the mentee to grow and succeed.

Normally this role is taken very lightly by mentors. I have seen lot many people who are equipped with knowledge and experience fail as mentors. Good mentoring is a summation of BEING INSTINCTIVE, BEING KNOWLEDGABLE, HAVING EXPERIENCE coupled with ABILITY TO RELATE TO THE ENTREPRENEUR, UNDERSTAND THEIR BUSINESS DYNAMICS AND MAKE THEM AN ENABLER. Further, Mentoring doesn’t imply providing read solutions, instead, the entrepreneurs should be encouraged to think like a businessman. This is a daunting task and has to be handled very carefully.

Once both mentor and mentee decide to get into a formal relationship a discussion is required to freeze the appropriate boundaries;

 Mentor-mentee should agree upon their respective obligations.

 A framework on what both parties want to achieve should be decided and it should focus on each other’s strength

A discussion on areas where the mentor can add value to the relationship;

Most important is to agree on steps that are required to address the areas that the mentor cannot advise upon;

Review of the progress of the business and the direction in which it is headed and regularly format the minutes

of the discussion to review them periodically.

To be a good mentor there are a few elements which should be adhered to.

THOU SHALL FORMALLY COLLECT THE INFORMATION ABOUT THE MENTEE: Before undertaking any assignment the Mentor should diligently collect the information regarding the background of the founders. This will help them in assessing the strengths and weaknesses of the entrepreneur. The readiness of the founders should also be taken into consideration as it will help the mentor in creating an advisory roadmap. I strongly advocate that formal questionnaires should be crafted and all responses should be filled in for ready reference.

THOU SHALL ESTABLISH TRUST WITH MENTEE: Before starting any assignment a basic level of trust has to be established. Objectivity is essential while interacting with the mentee. Genuine desire to help the mentee is important. Being a mentor is more of a passion than a mere profession.

THOU WILL BE A GOOD LISTENER: Careful listening will help in honestly defining open and constructive areas for improvement. Mentors should be participative in their approach and should keep their minds open.

THOU SHALL LET MENTEE TAKE DECISIONS: One very common mistake which most Mentors do is take decisions on behalf of Mentees. The whole premise of being a mentor gets defeated with this attitude. Instead, the mentee should be led to decide himself, suggestions and alternatives can be offered by the mentor.

THOU SHALL NOT MISGUIDE THE MENTEE: In this relationship honestly is a key factor. Admit what you don't know and which are beyond your scope.

The mentor has to create a positive environment for the mentee so that they can express themselves freely. Remember no idea is bad. Good and bad is only a perception. What may be bad for you or you may tend to disregard it might actually be a winning point. So be open and humble, learning never stops. There are occasions when even a mentor needs to be mentored by a more experienced person. Always be ready for that.

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Fund Raising Challenges for Start-ups - Abhijeet Bhandari

The first thing you need to remember is that every business is not attractive to a Venture Capitalist (VC) and hence raising capital becomes more complicated. Now, how do you realize that your business is not fit for a VC? Well, the easiest is to ask few VCs. The difficult part is to understand the inherent challenges of scale in your business that makes it less attractive to a VC. The simplest matrix to measure scalability is to assess increase in cost of operations (manpower and others) when servicing 10 clients vs 10,000 clients. If the costs increase proportionately, the company is NOT scalable. E.g. a typical manufacturing company’s costs will increase as sales increase while in a technology enabled company, the costs will not increase proportionately.

I am not suggesting that you only build highly scalable VC oriented business but once you realize that your business is not for a VC, stop knocking their doors. You need to look for alternate platforms, Family Offices, customers, etc. as investors. A typical B2B services company would fall into this category where the company can operationally breakeven after some initial investments. As a corollary, you can also think of starting a company by getting a few corporate customers to get revenues, build relevant product and sustain before taking the next leap of growth.

Once you have achieved initial traction, the next challenge is to identify the “right” investor for your company. It depends on stage, sector and type of company. Stage will determine whether you will approach an angel investor, a VC or a Private Equity (PE) fund. The sector and type of company determines whether you should approach a VC or Family Office or others. We will restrict our discussion to Angel, Family Office and VC only.

Let’s first understand angel investor. The biggest challenge here is to find angel investors who would be interested in your company. Unless you have a strong network, it is extremely difficult to reach these investors, get interest from them and also ensure that they have liquid money to invest at that time. Further, you need to convince at least 5-10 angel investors so that you get some sizable money from them. If you get only one angel investor he would like to get a lot of stake as his bargaining power goes up significantly. You should try to get at least get a few angel investors on your side. The same challenge remain with Family Offices as limited data about them is available so they are difficult to reach. There are platforms like grex.in and others who can help you here.

There is a different challenge with institutional investors. There are more than 400 institutional investors registered with SEBI but few are active. On top of it, institutional investors have their own sector and stage bias which dynamically keeps changing. I recently met a Vice President of one the largest and most active VC firms in India and he told me, “We used to do early stage a year ago but we are not doing it now.” The other challenge is to find the right person in the VC who can understand your value proposition better. Although all VCs claim that they speak to everyone who sends them a mail, the fact remains that if the right person doesn’t see your mail, it can just go to junk. And by their own admission, if a mail comes from a “trusted” reference, the chances that it will be taken seriously and quickly is quite high. So, if you have a reference, use it and if you don’t, find one.

Once you find the right investor, you need to spend time with them. Most entrepreneurs think that they will present to investors once and either they will agree or disagree to invest and the story is over. How I wish this could be true. Investment decisions are taken over a period of time and investors would like to assess tenacity, persuasiveness and relationship building with them. If they like you over a fairly long period, they will eventually invest in you. A typical fund raising exercise takes upwards of 6 months with an institutional investor and at least 3 months with angel investors. During the same time, you need to manage your business as well and it can be quite a task.

Being an entrepreneur, you should be prepared to hear “No” from both customers and investors. But there is no excuse for not doing your homework. If you go to a VC asking for half a million when their minimum ticket size is $ 10 million, not only are you wasting his time but yours too. So, you must read a lot about the VC firm, the person you are meeting, ventures have they funded, their current focus, etc. Even if the VC says No, they generally help entrepreneurs as they also want to build relationship with great entrepreneurs even if they don’t invest.

Further, you also need to be prepared to answer some tough questions. Most entrepreneurs get stumped when asked, “what will they do if they don’t get funding now?” Not only should you have a plan to tell your investors but also for yourself. Investors test your perseverance and survival ability in adversities. You need to have alternate plan (slow growth, internal accruals, family and friends, etc) so that you can sustain before you get your big break. Another typical question asked by VCs is, “How will they get exit?” This is extremely relevant question as VCs also want an exit for their investments. You need to research about potential buy-outs, other exit options for VCs.

Don’t assume that getting investors is panacea for your problems. Instead, I would strongly recommend entrepreneurs to focus on their customers more than investors. If your customers are happy, you will stay in business and investors will come sooner or later. You need to keep building your product and get paying customers. Investors are bound to come if customers are coming. Focus on your customers and keep them happy.

Far too often entrepreneurs feel that if they solve 5 big problems, they should get funding easily. This is far from truth. You need to start from a core problem and solve it better than others. You only plan other additions once your core story is strong. Investors will also invest once there are customers buying your core story. In a limited resources (money and people both) environment, losing focus can be quite costly – both from customer and investor point of you. So, stay focused.

In the end, the success mantra is start small, fail fast, build value and customer loyalty and funding will surely follow you.

Source: http://techstory.in/fund-raising-challenges-start-ups/

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Why “Women Entrepreneurship”?  - Damini Gandhi

Just google ‘Women Entrepreneurship’ and countless number of sites will pop in front of you with information around what is women entrepreneurship? Why should women  lead? why women entrepreneurship? Social agendas around women, and yeah! How some women strived hard to get their shit done? How they struggled through society, tough circumstances etc.

Okay! That’s well and good! I completely admit that it is inspirational for many of us.

All I am amazed about is why  there is a need to highlight ‘ Women’ here?

I mean, Entrepreneurship is entrepreneurship! It is evolution of an idea into a business with a solution to some real time problem which may help individuals or a community.

Why it has anything to do with gender?

Have you ever heard something like “Men Entrepreneurship”?  

No, because when a man starts a firm it is so usual, like it is just meant to be.

It is high time we should cut this cliche. When we talk about equality, it means both men and women are equal, then I don’t think there is a need for  an entirely different club for women entrepreneurship. It is no way equality. It feels more like sympathy. And sympathy is not what is needed for an individual to grow. If you really respect women and their style of working, then just stop creating a fuss about women entrepreneurship! It is not political. It is not social. Let it be as usual for women as it is for men to create a difference.

All I want to imagine is a world where ideas don't belong to a gender but are valued for what they really are worth!

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In search of business (models) - Manish Kumar

I got a message from redBus today about 'Hotel Deals'. Well, hold on. redBus selling hotels? I can barely buy bus tickets from there! This is not because their site has any problems, that is because of the issues with Bus operators and the apathy of the government towards enabling better bus travel.

So, What's going on. I'm sharing two examples to understand this.

1. Paytm (a spinoff of a mobile app company into Mobile Payments), now wants to become a marketplace. I thought its business was serving marketplaces for Payments. if it moves on to become a competitor will it not hurt its Payments business? 

2. Ola wants to deliver groceries? What? just because you can optimize routes doesn't mean you can optimize grocery delivery plus short distance travel. This is wow, if it can really be worked out. However, I think they both have customer delivery timelines and experiences and therefore maybe different animals. 

Extending the logic bit more, if they fit blades on top of their cars they can convert the cars to helicopters and even do air transport/deliveries. Is there an end to such extensions! BTW, nothing seems ridiculous now-a-days.

There are many many such examples like this. You would notice this more pronounced in case of the Unicorns or the would-be-Unicorns. Why?

Firstly, because of the same reason that they are pronounced. Its not that other startups don't try newer, bolder stuff that may not be anyway linked to their business model. They all do. But since they are lesser known, its gets lesser noticed. On the other hand, since these large Unicon-likes are more known they get more noticed. Also, by making large scale announcements, and ensuring that it gets into your attention, they themselves work hard for you to know it.  

Second reason. In case of smaller startups, they are yet to find their best Product-Market mix. They are not riding on so much investment money and they do not have so much of 'advice' currency. So, naturally they will keep 'pivoting' to new models - with slight tweeks to bold calls, until they figure out a Product-Market mix that earns money. However, this reason does not hold true for the larger Unicorn-likes.

Then what may be the reason? Too much money invested may be one of the main reasons. These companies have raised huge sums of money. Not everyone who invested was not doing charity, they all want returns - and returns in multiple of the valuation you received money at. As Unicorn, if your investment value is in Billions, you must get multiple of that when they exit? Well, that's a bit of a problem, right. Markets may have potential to have one or two Billion dollar companies being created. But, it’s difficult to say that the markets have enough potential to sustain multiples of Billion dollar companies stay put.

So, we know the challenge. Too much money in. Too high valuation. Too much to do to increase that valuation. Too to show in revenue. Too difficult a job. Thus, The original market is not enough. Too much to earn, too small a market (addressable market). Natural outcome, look for newer markets, try newer revenue streams. Try the new. Try hard. Harder. Well, in that case anything, almost anything goes (once you are in that mindset)!

I just wish they did not have so much pressure. Wish the economics worked differently. Many of the Unicorns are good companies by themselves. I wish some of this money was available with some other smaller startups - to try, to experiment, to find their base, to succeed. And yes, to generate better multiples.

Wish the economics worked slightly differently.

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Business Model Canvas - Narendra Wadhwani

In my past experience, both with listed and unlisted entities, I have often seen companies struggling to put together and communicate their business model accurately without confusing or overwhelming their audience.

In this context, it is of significant value to refer to a model that has been widely adopted across industries globally – “Business Model Canvas”. It is a tool that helps firms create, communicate, challenge, and even pivot their business model. I find it very useful to talk through a business model using this tool without having to rely on a 30 page/slide document. I will attempt to describe it very briefly in a way that I have personally used in the past (as a story) and continue to do so now. To help illustrate this, please refer to an illustration of Google’s business model canvas.

At the heart of this model is a clear depiction of what the firm has to offer – can be products, solutions, services - something that has a compelling value to the end-customers (“Value Proposition”). It delivers these value propositions to certain groups (“Customer Segments”) within its target markets. To promote, sell, and deliver to these customer segments, the firm uses certain means (“Channels”). The firm interacts with its customers through their lifecycle using certain approaches (“Customer Relationships”). The firm earns revenues from its value propositions sold to each of its customer segments (“Revenue streams”). To deliver its value propositions, the firm has to engage in specific strategic activities (“Key activities”) using certain assets (“Key resources”). The firm may choose to engage with/outsource to other firms (“Key partners”) to ensure it can stay focused on its key activities. The firm incurs costs (“Cost structure”) associated with its activities, resources, partners, and linked to its revenue streams. Please note this is a simplistic description of the business model canvas. A more serious attempt should include one or more of the following: using color codes for the boxes to link the various elements e.g. certain costs will be linked to certain activities, revenue streams will be associated with corresponding customer segments, etc. Further, use of color codes can also help distinguish the firm’s current and future business model e.g. within customer segments, differently colored boxes can distinguish current customer segments from future/target customer segments.

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Basic assumptions incorrect in ET Editorial on Startup Policy by Government - Manish Kumar

Today's ET article is flawed in many assumptions that it makes - http://is.gd/jlHQOw

First.

"...in today’s world of a global savings glut, where investors lavish funds on favoured startups, which then act as if they have money to burn. Capital is not a binding constraint."

The editorial talks about a 'glut' of funding. I'm not sure how this conclusion was made by the Editor.

Almost 80% of all VC money has been flowing in 20 odd companies.

Given the scale (in numbers) of startups that we have this abysmally malnourished number.  Everybody in the ecosystem knows it off the hand that we need more, much more funding. In fact, it is the very media (and this very newspaper as a leader of the pack) that has been celebrating the 'gluttony' that the article talks about. It is good news to know that they finally realize there is glut - but the glut is only in 20 companies. The ecosystem at large is still hungry for required risk and growth capital.  Capital, dear editor, is still very much a binding constraint - as much as brilliant ideas and strong teams are.

Second.

"Do not force banks to pony up risk capital. Let venture capital do its job, the state should stay away from its shoes. Tax concessions will only serve to make venture funding even more of a ‘spray and pray’ game."

Agreed. Banks may not shore up the additional responsibility. But why restrict only to Venture Capital. Why not allow risk taker investors to join risk taker entrepreneurs to join forces and create distributed growth, wealth and happiness together. Please consider a more democratic approach. Venture Capital is good, but it is essentially foreign money as of today. How about creating new Capital Markets.

Look at GREX, and maybe you will have some of the answers.

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GREX crosses the 100 mark!

Over a hundred companies are now a part of GREX.

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Not an Entrepreneur? No Problem. Build a Business.

“Starting a company is like eating glass and staring into the abyss. Creating a company is a very difficult thing. ”

Starting, building and growing businesses is an exhilarating process. One way to take part in the building of businesses is to become an entrepreneur. Entrepreneurship is increasingly becoming a career option for many. Over 50% of the respondents of a recent survey said they would love to be building a business.

However, being an entrepreneur is hard. It takes a lot of grit, time, effort, energy and, sometimes, money. And most entrepreneurs are unsuccessful. It requires serious lifestyle changes. Right from losing the security of a paycheck to being always on the job and be open to the constant stress and uncertainty.

To quote a very popular 2013 Inc.com article titled “The Psychological Price of Entrepreneurship”, Successful entrepreneurs achieve hero status in our culture. We idolize the Mark Zuckerbergs and the Elon Musks. And we celebrate the blazingly fast growth of the Inc. 500 companies. But many of those entrepreneurs harbor secret demons: Before they made it big, they struggled through moments of near-debilitating anxiety and despair--times when it seemed everything might crumble.

Serial entrepreneur Elon Musk sums it up aptly : "Starting a company is like eating glass and staring into the abyss. Creating a company is a very difficult thing. You have to do lots of things you don't like."

Here are a few things to consider before venturing into entrepreneurship: 

The high and lows of the entrepreneurial journey make for stressful environment punctuated with spikes of exhilaration

The uncertainty and lack of information is uncomfortable and disconcerting at times

The risk of failure is high

Family and lifestyle obligations mean you cannot take the risk of entrepreneurship

If these challenges do not dissuade you, then go forth and prosper!

In case this is not exactly your cup of tea, you could still be seminal in building a business by investing in growth businesses. You could support an entrepreneur and share in the profits while bypassing the entrepreneurial pitfalls.

Traditional ways of investing into growth businesses are not without their fair share of challenges. One requires:

Access to the right businesses: One of the biggest challenges of trying to invest in high growth entrepreneurial companies is discovering the right ones for you.

High capital requirement: Investing a large amount of money in a single growth business has all the trappings of financial risk

Lack of liquidity: Growth companies usually do not have visible exits and also lack the liquidity provided by listed entities

Lack of information and validation: Growth companies carry significant risks and the lack of information and due-diligence capabilities of individual investors aggravates this risk.

Then how does one make the path to entrepreneurship and investing less pitfall ridden? GREX addresses these issues and makes it easy for private investors and companies to do business with each other. It allows investors to discover great companies and be a part of  building the businesses.As an investor on GREX, you can build a small business portfolio that tackling the challenges in growth investing. GREX has created an ecosystem where investors get:

Access to High-growth Unlisted companies

Unlisted company investors have got upto 10000% return on the invested capital by investing early-on.

Validated Companies

Companies are validated by external experts and approved by a qualified committee

 Enter & Exit investments with a click

GREX provides seamlessly integrated systems to enable liquidity through secondary markets, all with just a click!

 Managed Portfolios

Get your small companies portfolio managed by professionals with high market credibility

 Co-invest with the best in industry

Get a chance to invest with well known investors - both domestic & international

Be part of an entrepreneur’s journey and offer support in making their venture a success. Being part of the Next Big Thing can be equally exhilarating and satisfying as entrepreneurship and the rewards are exponential.

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Don't rush in where the angels tread

As a entrepreneur, one of the major decisions to make is about how much external funding to raise and how early. The choice ultimately rests on a variety of factors including the nature of the business, the competition, the market and individual preferences.

The startup scene is ripe with examples of companies - both successful and unsuccessful- that have raised millions of dollars in external funding before becoming profitable or even starting the business. At the other end are companies like GoViral that were bootstrapped and never raised external funding in building a valuable business.

Bootstrapping a company isn’t easy, but for a business model that can afford it, presents excellent rewards. The entrepreneur is in full control of the vision and direction. The business is focussed entirely on developing the client and product and the entrepreneur learns how to get the most out of available resources.

If you do need to raise external financing, it is pertinent to consider the timing of such an effort. Attempting to raise funding too early comes with several pitfalls and could be dangerous:

Time-Consuming and distracting:

Entrepreneurs place a premium on their resources and time. Pursuing external funding is a full-time effort and requires serious investment of time and resources. It is also a dangerous distraction from building and running a business.

Business Model and Strategy:

External Funding can be a easy way to shift the gears on a business and aim for growth, but it’s also a dangerous road. Bootstrapping forces you to ruthlessly prioritise your resources and focus on developing the product and meeting customer expectations. This will ensure a product/market fit and help build a viable business.

Before any major external fund raising, an entrepreneur should have iterated to a business model that works.It is essential to have understood the business model and strategy that will take your vision forward. A mature team and strategy is also capable of quickly and intelligently using the funds raised.

If you raise funds too early, you might end up wasting it and also suffer unnecessary dilution.

Equity Dilution and Control:

Equity dilution is perhaps the single biggest drawback of raising funds early. the earlier you raise funds externally, the more it will cost you. Early stage funding is typically costly and provides very low valuation. In essence, you’ll be losing a significant portion of equity for very little money. You may also not retain complete control over the vision and direction of your business. External investors often want a say in how your company expands and progresses.

Apple was diluted heavily and eventually resulted in the shunting out of Steve Jobs as CEO. Baring fortuitous events, Jobs might never have regained control. Dell, on the other hand did not dilute and maintained complete control throughout. This is something that has played out in multiple high profile situations. For example, Housing’s nine co-founders have a combined equity of less than 10% of the company.

Business Vision:

If your vision for the business is something that provides a personal income rather than something you plan to grow for high capital gain, you should not raise external capital. Investors typically look towards a high valuation game and look to exit. Early Stage investing is a gamble. A few good exits pay for many failed ones. Early Investors are playing an all-or-nothing game. Once external funding is in, the clock starts ticking on time until exit and all future strategy could be directing towards this end. This can put them at loggerheads with your vision for your company.

In attempting to raise external funds at a later stage, many of these pitfalls have largely disappeared. This is a factor of a mature business model and strategy, demonstrated customer traction and a developed team culture.

However, in certain industries with negligible differentiation between competition, a startup’s ability to thrive might depend on quick growth and massive customer acquisition. Such efforts might fly in the face of this advice. Taxi For Sure was operating in one such industry and failure to raise sufficient funds in time to keep up with the customer acquisition battle has resulted in them selling out to a competitor.

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GREX is building a seamlessly integrated exchange-like platform and its associated ecosystem of participants, to bring together private eligible investors and high growth unlisted companies for information exchange and securities transactions.

For unlisted companies, GREX makes raising multiple levels of capital simpler, allowing them to focus their energies on delivering a better product or service.

Complete transparency at all levels allows for a more founder driven company and constant engagement with stakeholders ensures business is more productive and organized.

Write to us at startups@grex.in for more! 

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The state of investing in and raising funds for unlisted companies is about to be transformed in India. GREX is attempting to bridge the gaps, introduce transparency, and make the investing and fundraising process, seamless and systematic like never before. GREX is built around a unique platform model that allows approved private investors to become equity holders in pre screened, aka Live on GREX private companies.

The platform combines venture capital-standard due diligence process, with an easy-to-use web-platform enabling approved investors to browse and screen capital investment opportunities, and view investment profiles seamlessly.

The result deserving companies get the capital they need, and investors get unprecedented access to the unlisted, high growth companies they want and the ability to build diversified portfolio.

What GREX truly offers investors is an opportunity to be the force behind the next big thing and invest in the market defining companies of tomorrow with an ease like never before.