How much capital should I raise?

How much capital should I raise?

This is something I am asked in most of my conversations with founders. Unfortunately, there is no magic formula, there are only trade-offs to consider

Here are my thoughts:

  • You will end up spending it all. How much ever you raise, you'll end up spending it within 18-24 months
  • How much you raise determines your dilution. Early-stage investing is not based on valuation but on dilution. If you want to raise a large round, be ready to part with lots of equity. Cue issues in the future when you dont have enough skin in the game
  • Larger the round, more explosive the growth required to clear the hurdle. Let's face it, for you to give an exit to your early investors you'll need to be able to provide at least 3-5x. This is easier to provide in a smaller raise than a larger one
  • Larger fundraise take longer to close, and takes that much time off your bandwidth. You do risk losing an eye on the prize
  • Constraints give birth to creativity! This is a no brainer!

There is no right answer. Only trade-offs! Often a winner takes all race makes everyone lose

What is the right amount of burn for startups?

What is the right amount of burn for startups?

Everyone knows the startup mantra:
- Start early
- Raise when you dont need money
- Keep a fair runway
- Manage your burn

Unfortunately, out of every question managing your burn is the most difficult to answer. Anyone who has a very specific answer is bluffing since there is no right answer here.

Your burn should depend on the following things:

How constrained are capital markets at present? Is it difficult to access capital quickly? Will it take a long time to raise capital? Then preserve cash and manage your burn

Are your existing investors willing to participate? If yes, then start having open conversations with them from the beginning to maintain a sufficient runway

What does your cap table look like? Is it complicated? Have you diluted too much? Then access might be low, and you will need to manage your runway

Are your valuations reasonable? Was your last round at a bumper valuation? If yes, then investors would most likely want to wait for execution before putting in more money. Please slash costs and manage the burn

When in doubt, manage burn!

Focus Always Works

Focus Always Works!

Most successful companies have built on the back of a few products or offerings

Apple (iPhone)
Nestle (Baby products)
Pidilite (Adhesives)
Symphony (Room coolers)

Success is a by-product of focus and perseverance

Then why do many new companies with smaller teams, low management bandwidth, and even lower cash balance try to attack the market via multiple offerings, products, and strategies?

Doing the right thing is better than doing everything!

Does the Startup World Need a Reset?

Does the Startup World Need a Reset?

A lot has changed in the past 6 months in the world of tech startups, and the way outsiders perceive the value of such businesses

I do not know if it is too early to start predicting whether it is a trend or an aberration, but I would bend slightly towards the former

A reset does not necessarily mean a crash. It means a pause, reflection, and resetting on valuations, timelines, wins/losses, funding lines, liquidity, and the emphasis on sustainability vs all out growth

What does this mean?
- start early, start small
- control costs & build a runway
- clean your cap table
- think hard who you want to raise from (diff between good and bad investors)

Building great companies during constrained capital markets leads to sustainable business models

And we really need more sustainable business models

How can founders avoid burnout?

We at Malpani Ventures like to work very closely with the founders we invest in

And at times, we see ups and downs, highs and lows in our founders' lives

Being an investor, and a partner on your journey, we can only do so much to help you on your path; most of the heavy lifting is inside the founder's mind and heart

Siddharth Shah, our VC Associate who deals with all our founders has shared his brief pointers on how founders can avoid burnout?

How can founders deal with burnout?

Firstly
Prevent it from happening

How?
Work lesser hours, but be more productive
Let go of the fallacy of multitasking
Master the art of delegation
Take care of physical and mental health

Secondly, if it happens
Identify what caused burnout?

How?
Lack of passion
Misaligned expectations
Lack of self-care
Cofounder conflicts

Lastly
Take steps to counter the burnout

How?
Take a break, disconnect
Realign expectations, meet halfway
Rely on external support, therapy or your network
Rejoin by taking baby steps

This might still not help you at times, and your best bet is to take a break and seek help

But always remember, a founder's mental health and wellbeing is the most important metric for the success of a business

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Aug 27, 2020