Startup is a long journey, or as aptly put by many, “it is more of a marathon than a sprint.” Raising fund is one of the biggest challenges faced by startups. Different types of investors at different stages of the startup lifecycle invest in the startups in different junctures. Starting from angel investor to VC to private equity investors – the world has seen it all. However, when it comes to Bangladesh, we are yet to see a flurry of deals because of a yet-to-fully-develop startup ecosystem supported by proper government policies for startup investment. On the demand side though, startup founders are yet to be matured enough to fully appreciate the value of venture funding and the entire process through which these institutional and high net worth individuals invest in early-stage companies. This piece is targeted towards adding value to such entrepreneurs on this difficult matter.
Exciting investors with your idea might be easy but getting them to write a cheque is far from easy. Having just a good idea is not enough. An idea backed up by market potential, a good team and a clear plan of action are of crucial importance for any start-up. When it comes to investment, one size doesn’t fit all. You need to create an investment profile that is tailored to your idea and tells your unique story. A well-defined investment profile is the key success factor to any start-up getting funding. The profile entails everything that your business stands for and more. Even for the most experienced entrepreneurs, crafting an investment profile is a daunting task. The most common question asked by many is “What do I put in my Investment Profile?” Well, let me try to give you an idea about what you put in an investment profile in the simplest ways-possible.
Imagine investment profile is like a well-written story. Like every good story- it is set on a timeline (industry) with a solid background (market potential), the protagonist (the company/team) and the antagonist (competitor) where the protagonist saves the day (core issue) with a deadly weapon (the big idea) by carrying out a full-proof plan (detailed plan of action) while facing more issues along the way (risks and mitigation). Now, let’s get more technical!
Investment Thesis: Firstly, an investment thesis is written where the problem that your company is solving and how you are solving it is clearly mentioned. This section is backed up by data, facts and figures to make a more compelling argument.
Market and Industry: No Investor wants to invest in a company that has zero growth potential. It is crucial to specify the industry the company is in, it’s detailed market potential and where it stands in comparison to its competitors. The key revenue drivers of the industry your startup operates in is also a crucial thing to identify. It is best to put the final market size in absolute BDT/Dollar value. Estimating growth is almost impossible at such an early stage of the venture/industry but a close approximation of reality might be of help.
Competitive Advantage/USP: Although clichéd by overuse as jargons, having a thorough understanding of what sets your business up for success is mandatory. It always helps to give the investor a clear idea of why and how your startup is unique and likely to be successful over its competitors
Business Model: To my experience, this term is often one of the most alien things startup founders in Bangladesh has ever faced. Although a proper business model takes a lot of time to develop and refine, it actually is pretty simple, comprising of more or less four questions: What do you sell, at what price, to whom, and through which channels.
Competitive Landscape: As startup founders, it is often tempting to say that you don’t have any competition. But I would strongly suggest to hold your horses right there as there is no such thing as zero competition. Either direct, or indirect, or potential – your business will almost always attract competition from “me-too” businesses. Therefore, it always helps to provide a clear idea about the competitions you are going to face today or tomorrow to people who are going to put their hard-earned money in your business.
Milestones Achieved: For an ecosystem like that of Bangladesh, proof of your business’s viability is imperative in my experience of working with investors. It is very tough to get investment if your company is only in idea stage. If you are a tech-startup, look at the relevant traction metrics like number of downloads (for apps), number of page view per session (for Websites), number of active users (for social networking platforms) etc. can come in handy. For other types of startups, think of the metrics through which you can possibly convince someone that your business is viable. Even pre-booking and/or test-marketing results can be helpful.
People: According to Gigi Levy-Weiss, one of the most active and connected Israeli angel investors, “An excellent idea with a mediocre team would interest me far less than a good team with a mediocre idea.” This is possibly the most important part of your investment profile, especially in a country like Bangladesh where qualified human resource is scarce. This section should provide the related experience and educational background of the founders and key management team members.
Finance: This is the most viewed section by investors as naturally they want to see whether you will be getting their money’s worth or not. A detailed budget of how much fund is required, how you plan to use it and how long it will take you to pay it back is vital. Creating a financial plan helps you see the big picture and set long and short-term business goals- a crucial step in mapping out your business’ future.
Valuation: Highly technical in nature, this segment talks about your revenue forecast and the details of the valuation model that you have used to value your company. Identifying the crucial value drivers behind your business model is a key to success. Consultants can help you clarify and identify these critical factors with a thorough assessment of your financials, technology, market and management. Determining the value of your start-up so you can raise capital that you need. As Noah Wasserman and the CB Insights report demonstrate, even though startups tends to focus on aspects of the product and the market the startup operates in but that doesn’t matter as much if the team doesn’t demonstrate a belief in each other, complements one another, and has a sound financial plan.