Do you really need an investor?

I kept the phone down. My mind chewed what had happened on the last 48 hours. It settled on one aspect — money. What types of people are out there, who would raise money?

Purpose of money is the primary factor for fundraising

The Fortuners

There are people one side, who have access to it, in plenty — well, when you read the stories on the Internet, it seems that everybody is getting funded almost everyday. There is no dearth of money to these people. They seem to attract money — either as investment or as revenue. Somehow, the lady Fortune smiles on them.

“If you want to know what God thinks of money, just look at the people he gave it to.”
Dorothy Parker

The Flat-graphers

And there are others — who seem to have stories of chasing the lady M.On the other hand, I have seen bootstrapped businesses by urban poor, and they continue to languish because somewhere, they never ‘attract’ customers and therefore revenue.These people are in NEED of money — real stories, real hard work. Funny, none of them seem to give up. They have lived minimal lives,but never been able to get out of it.

May be, for this lot, it is a long way towards twilight, where they run an ultra marathon on thin ice, and that is a settled way of handling their lives. Imagine a graph of growth, a line almost flat and close to X-axis.

They are also the ‘urban poor’, ‘minimalists’ based on their attitude towards their own situation. They stay within a threshold, and seem to be reconciled to the fact.

“Within certain limits, it is actually true that the less money you have, the less you worry.”
George Orwell, Down and Out in Paris and London

Frugal Flyers

The third set is who want money, but on their terms. They aren’t in a hurry, but have a way to move forward and up without the money. Here Vitamin M is more of an accelerating quotient, that is to fly. They can walk and run by themselves, and are not averse to doing it till they get the dollars to fly.

“Anyone who lives within their means suffers from a lack of imagination.”
Oscar Wilde

The obvious thing about these people is that they live within their means, that is run business based on their own capital and revenue accruals, but will fancy a flight only when capital comes in their terms. They stifle their imagination and stay within their means, as against risk or losing controls.

The Icarus

Icarus are the risk taking type. I know few of them. They take risks, whether they have money or not. If they have money, they will fly near the sun, and well you, know the story.

“The Guide says there is an art to flying”, said Ford, “or rather a knack. The knack lies in learning how to throw yourself at the ground and miss.”
Douglas Adams, Life, the Universe and Everything

This is about jumping of the cliff and building a parachute on your way down. Now, capital is a real steroid, but it is absolute risk taking, is where the use of proceeds will be tested.

Figure out which time you are — because this has got everything to do with money. Success has nothing to do with all the four types. Money without purpose is just a waste.

“Money is always eager and ready to work for anyone who is ready to employ it.”
Idowu Koyenikan, Wealth for All: Living a Life of Success at the Edge of Your Ability

Look at it this way — people either fund risk or fund returns. Early stage funders, who take risk, are those called ‘angels’, they are more than investors. They believe in the idea or the person, not even the purpose. Well, this is like drinking on hope. But not everybody gets excited.

“The world’s most deadly fluff is: “I would definitely buy that.” It just sounds so concrete. As a founder, you desperately want to believe it’s money in the bank. But folks are wildly optimistic about what they would do in the future. They’re always more positive, excited, and willing to pay in the imagined future than they are once it arrives.”
Rob Fitzpatrick, The Mom Test: How to talk to customers & learn if your business is a good idea when everyone is lying to you

The belief in the distant future is somebody would write a cheque on a future promise is what all founders bank on. Now, money works in a very strange way — as you go near it, it seems to take flight. From a distance, everybody likes to smile, wave and cheer — but when it comes to that commitment, it is very difficult.

In this world of Internet, one can reach almost anybody sitting from one corner of your home. Success comes from the ‘relentless try’ and ‘resilience’ quotient, but before that, one needs to establish the purpose of money.

“You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible. Most startups that fail do it because they fail at one of these. A startup that does all three will probably succeed.’ [Paul Graham]”
Alexis Ohanian, Without Their Permission: How the 21st Century Will Be Made, Not Managed

Let me bring your attention to the ‘spend as little money as possible’. This is possible only when you tie money with a purpose. For every dollar you spend, you ask — do I really need this money? What will I use it for? A person who is not sure about the purpose, rather do well without money.

Even if there is a purpose, you need to ask, do you really need an investor? Now this leads to absolute fiscal prudence. When you have the purpose, that is ‘making something that customers actually want and pay’, then is when the purpose is clearly defined.

“If you want to glide toward money, you have to make sure your message is clear as a bell, and you need to ensure that you have a unified team capable of communicating it.”
Alejandro Cremades, The Art of Startup Fundraising

Only clarity of purpose, can bring clarity of communication. The answer to the big question ‘ Why should I fund you’? Let us analyse the purpose.

“Each year about 600,000 start-ups are launched. Less than 0.5 percent attract VC. Of Inc. magazine’s annual list of the 500 fastest growing companies in the United States assessed over a decade (1997–2007), less than 20 percent of companies were venture backed”
-
“62.4 percent of VC investments were completely lost while 3.1 percent of the investments accounted for 53 percent of the profits for roughly 600 investments”
Mahendra Ramsinghani, The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies

This statistics should narrow down on the purpose. If you look at the purpose of capital deployed, it is only few that marry the purpose with the capital that survive. It is a hard journey to raise capital and then ensure that the capital deployed was worth the risk and can provide returns.

In this whole journey, it is easy for somebody to make a comment, but it is hard to ensure that the business survives and succeeds. Morale is the fuel, purpose is the direction — for both running the business and fundraising.

“The most important thing is not to let fundraising get you down. Startups live or die on morale. If you let the difficulty of raising money destroy your morale, it will become a self-fulfilling prophecy.”
Paul Graham, Paul Graham Essays

As I wrote this piece, my mind walked across the experiences of last 20 months. Some success, many failures. Who succeeded had a story to tell, but those who failed, had more — it boiled down to one point — without purpose, dont raise money.

~Ashok Subramanian

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Poet and Author. Poetry and Book Reviews. Investment Banker. IIM C Alumni. Engineering Graduate.

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Ashok Subramanian

Ashok Subramanian

Poet and Author. Poetry and Book Reviews. Investment Banker. IIM C Alumni. Engineering Graduate.

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