12 unicorns in 2020 and 10 already in 2021! The COVID-19 carnage may have been humongous, but one space that has remained buoyant is the start-up world. The funding taps kept flowing even as start-ups struggled due to the nationwide lockdown in the earlier few months of the financial year 2019-20. Some caught global investors’ eye while others turned cash-flow positive. Fintech players emerged winners as the year 2020 was the second-best year for fintech funding, according to a KPMG report.
Another report by fintech consulting firm The Digital Fifth says a major chunk of investment in 2020 has been in the early-stage startups. As many as 49 startups received seed funding, while seven fetched funding from angel investors.
There is no dearth of money. Venture capitalists (VCs) are always on the hunt for attractive deals. The real challenge comes in communication. Start-up founders need a well-oiled networking environment that directs them to the right people. A start-up incubator is just the place for them!
A Broader and Deeper Connect
Running a start-up is a daily challenge – brimming with hurdles day in and day out. Most start-up founders are young and inexperienced in how the business works. They will have a brilliant idea on the basis of which they may get funding. But the real challenge comes later. What about regulatory compliance, legal matters, market access or simply an office space? Angel investors and VCs do help them with funds and connections, but they don’t walk with them. An incubator assists them with the very foundation and in scaling up. Mind you, the operational control rests with the founders. The ecosystem partners are always available to help them navigate through the troubled waters – on a daily basis.
Fetching a Trump Card
Connections only don’t work. Relevant connections matter. Founders in pressing need of funding may accept the funds from any investor who may or may not understand their product or the target audience. Incubators can drive them to suitable investors who believe in their idea and are passionate about it – who can mentor them. In them, they have a Trump Card!
Start-ups cannot get global exposure from day one. Incubators open those doors for them. An early-stage fintech start-up in 2020 inked two high-value global deals. There is another that raised funds from overseas angel investors. The international funding environment has evolved. Incubators with the help of global mentors lay bare the cultural differences between global and Indian investors and start-ups. For example, the Indian market is tilted in favour of investors. Founders are at the receiving end. An incubator with global exposure will tell you what to look for in an investor, and asking the right questions to understand if it's the right fit for the startup
Hitting the bull’s eye
An incubator takes a holistic look at the business model of a start-up and the roadmap that founders have. Perhaps the start-up has a unique X-factor that founders did not notice. Incubators give them a fresh perspective – an outsider’s view being very much an insider. Recently a fintech start-up had an idea around ‘insta redeem feature’ for emergency use. The incubator suggested they pitch it to cash-strapped MSMEs facing tough times during Covid-19. The founder had an idea, and the incubator cracked the marketing code.
Incubators bring with them a like-minded community of start-ups – a shared talent pool. Sometimes they find business partners within the community itself. For example, an incubator has a start-up that provides privacy-driven data collection tools. Many start-ups in the fold use those tools. In another example, a founder of a start-up was a chief technology officer of a payment firm in his previous role. Often other founders would reach out to him to discuss technology ideas. Such peer-to-peer conversations to pick the brain yield great outcomes.
Whatever bootstrapped funding is available; start-ups need to spend it in a planned manner. This has become extremely important in rampaging pandemic when businesses have slowed down. Incubators make sure they conduct regular online sessions to enhance skills. There will be mentors taking sessions on fund-raise, brand communication, what red flags to look out in deals, business-to-business sales and why User Interface and User Experience hold key from the very beginning. They help them reduce administrative/ operational burdens by driving them to technology-driven solutions.
The power of soft skills
Sometimes founders will have all the boxes checked (or the lack of it) but their own personality may make or break the deal. Beyond business, most investors observe the minute details. They will casually ask them how they have commuted to come to meetings or in which hotel they are staying. They notice what they order from the menu or how they interact with the waiter. Founders can’t be spendthrift or aggressive. If they are careful about their lifestyle expenses and in the way they treat people, they will show prudence in business expenses and managing the team. Incubators groom the founders accordingly.
Fundraise is not the beginning and the end of it. Start-ups need much more than funding. An incubator combines all power points to build a profitable business. If the foundation is built strong, start-ups will have tremendous opportunity to raise funds at different stages. A well-founded (and funded) start-up can only fly its way to being a unicorn.
-by Tanul Mishra, CEO, Afthonia Lab