#AskTheFounder: Early-Stage Fundraising in India
In this Q&A session, Niket Raj Dwivedi shares insights from his personal fundraising journey, shedding light on both the challenges and successes most founders experience.
Starting a company is like setting off on a grand adventure. It's thrilling, packed with unknowns, and definitely not for the faint-hearted. One of the biggest mountains to climb in this adventure? Fundraising!
Today's article is inspired by a recent discussion in which Niket Raj Dwivedi, a passionate founder from the Razorpay Rize community, shared insights from his fundraising journey for his startup, Medial.
During the session, the founders asked interesting questions that highlighted the complexity and unpredictability of raising capital. We explored topics like the right time to start fundraising, how to craft an impactful pitch deck, how much you should dilute at every stage, and the overall fundraising process.
Niket is an entrepreneur on a mission to revolutionise the way professionals connect and collaborate. After spending over seven years building and running a successful publishing house, he's now channelling his expertise into Medial—India’s answer to the next-gen professional social network. Medial has raised $120K in its pre-seed fundraising round.
What Founders Can Learn from Medial’s Story?
As a kid, Niket spent hours on platforms like Quora, Reddit, and his favourite, Wikipedia, diving into stories about people, companies, and ideas. Over time, as the internet became cluttered, he saw the need for a more organised, professional space, and Medial was born.
And, the path after that has been nothing short of remarkable, particularly when you consider how hard it is for social media startups to make a mark in India. The Indian social media space has seen its share of challenges, with many platforms attempting to capture market share but struggling to sustain themselves.
Hike Messenger, once boasting 100 million users, shut down in 2021 after failing to compete with WhatsApp. Similarly, Koo, which gained popularity as an Indian alternative to Twitter, also struggled to maintain its momentum despite an initial surge in user growth. Though Mohalla Tech’s Sharechat and Moj amassed over 325 million users, they face financial difficulties. Similarly, short-video apps like Chingari, Mitro TV, Roposo, and others saw a surge after TikTok’s ban in 2020 but are now struggling, with Instagram Reels and YouTube Shorts dominating the space.
But, against the odds, a venture capitalist caught a glimpse of what Niket envisioned right from the get-go. Their first fundraising round was almost like a sprint - a couple of meetings, and boom; they had a term sheet ready.
However, Niket quickly learned that there's no magical formula for fundraising. The approach that had them sailing through their first round needed a rethink for the second. Soon, they had tons of questions in their minds; some they figured out, and some they were still looking for answers to.
If you're preparing for your first or the next fundraising round, you might ponder the same questions. So, let’s dive in!
1. How do investors view a situation where a third-party agency is responsible for building your product, and there’s no full-time tech person on your team?
It often comes down to execution. In the early stages, investors are primarily betting on your team and product because you don't have enough data to support your business yet. If you're outsourcing your tech, it's important to ensure the investors that the right technology is in the pipeline. Once you've completed the fundraising, it's recommended that you transition to in-house tech, as this will save you time and money.
2. Beyond having a well-defined team, what other key factors can influence fundraising for an idea-stage startup?
Having someone on your team who's been through the entire startup lifecycle and has successfully sold their company can boost credibility during fundraising.
“When we were fundraising, we really started from scratch—just an idea and a Figma file. But what helped us immensely was my previous experience of building and successfully selling a startup. That background gave our team a certain credibility that made investors more open to our new venture, even at such an early stage.” - Niket
But it's not just about who's on your team. Knowing your market inside out, understanding exactly how many people could potentially be interested in your product (that's your Total Addressable Market, or TAM), and having a clear monetisation plan can make a world of difference.
Persistence also plays a significant role. Investors need to see that you are unwaveringly committed to your idea, even if securing funding proves difficult. This kind of determination can be incredibly compelling and often wins investors over.
3. How can you determine when it's the right moment to approach an investor?
To determine the right time to approach an investor, consider the following factors:
Market Validation: Ensure you have a validated concept with customer feedback or early traction. Have enough conviction on the problem statement and the target market space.
Clear Milestones: Study your industry and identify key metrics demonstrating growth potential and a clear path forward.
For example, a SaaS or B2B company has a clear revenue multiple, which might help you in the future. For other platform products, it can be impressions, Daily Active Users (DAUs), conversions, etc.
Financial Readiness: Prepare a solid financial model outlining how the investment will achieve growth. Whether it is for testing, building the product altogether, or marketing- a clear idea of how the investment can be helpful for both the team and the investor.
4. How do you follow up with investors?
When diving into meetings with investors, brace yourself for the reality of rejection. It's all part of the game, and getting a few (or many) "no's" is pretty standard. Don't let it dishearten you.
Continue following up for up to two years. Yes, it sounds like a marathon because it is! Be courteous in your approach and ask if they would like you to keep in touch, but don’t stop unless they ask you to. Here's how you can keep the momentum without being pushy:
Send a thank-you email right after the meeting, highlighting key points and your excitement.
Be upfront about when they'll hear from you next, especially if it's tied to a significant achievement or milestone.
Keep them in the loop with your wins, whether you've snagged an outstanding new team member or made exciting product strides.
If things seem a bit uncertain, don't shy away from asking for feedback or what steps they suggest next.
5. Does not having a co-founder or a traditional team impact an investor's decision?
Honestly, it’s nearly impossible for a single founder to raise funds successfully. When there are multiple founders, investors often feel more comfortable taking the leap. They're not putting all their eggs in one basket, so to speak, which can make a big difference in their willingness to invest.
Four founders are often considered ideal. However, going beyond four can complicate decision-making due to the number of stakeholders involved. A team of two to four founders strikes a good balance.
For single founders, raising funds can also raise specific legal hurdles that are more easily navigated with a team.
6. What types of dilution & valuation can be expected at various stages of the fundraising journey?
In the fundraising journey, dilution and valuation typically evolve through different stages:
Pre-seed Stage: Valuations are usually low, and initial funding dilution should not exceed 10%. In the worst-case scenario, you can go up to 15%.
Seed Stage: Valuations increase with early traction, leading to around 15% dilution for new investors. If you’ve not raised a pre-seed, the dilution can be 20-25%.
Series A: Valuations are higher, often in the millions, with a potential of approx 10-20% dilution.
7. Should early-stage founders consider seeking government grants?
Seeking government funding as an early-stage founder can be a good idea. Government grants and programs often provide financial support with fewer strings attached compared to venture capital. They can help you develop your product and gain traction without diluting equity early on.
However, the application process can be lengthy and competitive. So, you’ve got to ask yourself if it's worth the wait and effort, considering what you need right now and where you're trying to go.
On a side note, there’s a bit of a side-eye from some VCs when you talk about leaning on government funds. The legal red tape and delayed processes can affect the adaptability and agility of your startup.
8. Do investors have a favourable or unfavourable view of teams made up of spouses or relatives?
Partnerships between spouses or family members can be viewed with mixed opinions in the business world. On the one hand, a lot of good can come from it, like an unbeatable level of trust, a shared dream for what the business can become, and an iron-clad commitment to making it work. Some investors might see potential challenges related to conflicts of interest or difficulties in separating personal and professional issues.
It all boils down to how professional the individuals are, how well you overcome any obstacles, and how you manage to sell your family partnership as a strength to potential investors.
9. How do you create an effective pitch deck?
Here's some genuine advice: The more you pitch, the better you'll get. It’s normal not to know all the answers at first, but with experience, you'll figure things out. Dive deep into your industry—understand the metrics, total addressable market (TAM), problem statements, and your team.
In the early stages, investors primarily invest in you, not just your deck or idea. Therefore, it's beneficial to create your pitch deck using the right templates and resources.
Need help with building or refining your pitch deck? Explore the Pitch Perfect Program by Razorpay Rize.
Sign up or learn more about the Program- Click Below:
10. Are the multiples the same for B2B SaaS and B2C SaaS?
The valuation multiples for B2B SaaS and B2C SaaS companies are generally different. B2B SaaS companies typically have higher revenue multiples because of their predictable subscription revenue, longer contract durations, and better customer retention rates.
In contrast, B2C SaaS companies may have lower multiples due to higher customer acquisition costs and the volatility in consumer spending patterns. The multiples can vary based on market conditions, growth rates, and the overall economic environment.
11. How much time does it typically take for the funds to hit the bank account?
From the moment you begin fundraising, the funds may take up to six months to be deposited into your bank account. For pre-seed or seed rounds, this timeframe can be shorter. Then, there are times when the fundraising round can go on and on!
“For my 2nd round of fundraising, I remember having nine meetings over four months. There were moments when I honestly thought my company might not make it past two months. Just when I was starting to feel the pressure, the cheque came through right when I needed it. It was such a relief!’- Niket
It's advisable to avoid fundraising from September to January, as November and December are particularly busy months for investors.
12. What steps are involved in the fundraising journey- from pitching to receiving funds?
The fundraising journey typically involves several key steps:
Develop a solid business plan and pitch deck.
Present your idea to investors.
A term sheet is issued outlining the key terms of the investment.
Investors conduct thorough assessments of your business.
Discuss the terms and conditions of the investment.
Finalise Shareholder agreements and legal documentation.
Receive the funds in your bank account.
Ending Thoughts
To wrap things up, this Q&A on early-stage fundraising highlighted the challenges and opportunities of securing capital for a startup. Niket shared some insightful answers on timing, pitch decks, valuations, and the process in general.
Fundraising is never a one-size-fits-all journey. So, as you set out on your fundraising journey, remember that the path isn't paved, and you have to create your own because the most successful journeys are those that reflect the heart and soul of your cause.
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