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How Soon Should A Startup Approach Investors For Funding? Know What Experts Say

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Sustained government efforts to promote the new-age entrepreneurship among the youth have yielded results in the past few years, with the number of startups rising from just 452 in 2016 to 84,012 in 2022. However, founders of new startups wonder as to when they should approach investors — at the idea or vision stage, early-growth stage, or mature stage. News18.com seeks clarity on this from a number of experts:

Ayush Atul Mishra, CEO and co-founder of Tattvan E-Clinics, said, “It’s always better to start pitching in the early stages of the business as investors gradually get to know you. There is a timeframe for you to make them understand your idea, you have to cater to that timeline in an effective way. Many people prefer pitching later when the business grows but that doesn’t necessarily mean that it will turn into something substantial.”

He added that the most important thing is the portrayal of the business idea and that is something that can make or break the deal for the business.

During 2022, Indian startups raised $25 billion in funding, which is a decline of 40 per cent as compared to the previous year. While seed-stage startups grabbed investors’ attention in 2022, valuations for growth and late-stage startups saw correction and are still undergoing a reset, according to Inc42’s latest ‘Annual Indian Startup Funding Report 2022’.

Kishore Ganji, founder of Astir Ventures, said, “For early-stage founders trying to raise their first round of capital, there are two routes recommended — a) If they have relevant experience, either educational or institutional, they can approach investors even before PMF (product market fit) and, at times, even before an MVP (minimum viable product); b) If the founders do not have experience relevant to the industry they are trying to enter, it is advisable to seek funding only after valid pilots or beta testing of the MVP.”

He, however, added that there is not one formula that fits all for the right timing, but in general, startups can approach investors as soon as they have a clear plan and path for progress. Fundraising is a continuous process; startups of all stages raise funds, just in different volumes.

“Be it pre-seed or growth capital, funding cycles are much longer than before. Founders should keep this in mind and be wary of their runways. Another good practice is approaching investors early but not pitching for immediate funding. This way, you let the investors know that you are building something of interest and value and give them the opportunity to observe and track your progress; so that they may invest in the right round of funding. This method can help save a lot of time for future funding rounds,” Ganji said.

Manu Awasty, founder and CEO of Centricity WealthTech, said founders cannot expect investors to fund a company with simply a business plan and a vision. Your business must already be operational and have demonstrated its ability to transact business.

“Choosing the appropriate investor could make or destroy your firm, regardless of whether you’re employing crowdsourcing or leaning toward the private investment sector. A good investor thinks long-term before lending money to any business, especially a start-up,” Awasty said.

He also said there is not a single best time to invest; rather, it is crucial to match the stage of a company’s development with the right investors.

The Pitch For Funding

Shilpa Mahna Bhatnagar, founder of Haeywa, said, “It’s always better to prepare well in advance as it gives you an edge over others but there’s no correct time so to speak. Some people get investor’s interest in the very first presentation, while some do not get it even after a few rigorous rounds. If we’re talking about investors then we should look at numbers because eventually, that draws their attention.”

She added that along with that, it’s important to have a plan in place so that you are well prepared to present your genuine ideas and are able to convey them in a rightful manner. R&D plays a crucial role in this analysis. Once you are sure about the market prospects and economical feasibility of the business, you should start your rounds.

Govt Initiatives For Startup Fundings

The government has also taken several measures to support startups, including Startup India Action Plan, Fund of Funds for Startups Scheme and Credit Guarantee Scheme for Startups, among others.

Under the Startup India initiative, the government has implemented the Fund of Funds for Startups (FFS) and Startup India Seed Fund Scheme (SISFS), to provide capital at various stages of the business cycle of a startup.

The Fund of Funds for Startups Scheme was approved and established in June 2016 with a corpus of Rs 10,000 crore, with contributions spread over the 14th and 15th Finance Commission cycle based on the progress of implementation.

As on November 30, 2022, in the FFS, of the corpus of Rs 10,000 crore, about Rs 7,527.95 crore has been approved to the alternative investment funds (AIFs).

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