Investors’ Advice to Startups in Lean Times
The Meet the Angels event hosted by The Hub in Singapore on 29th January, Thursday drove home the hard realities when seeking investment. Attended by about 80 people, the event was a Q&A session with 2 angels, Mr. Murli Ravi, co-founder of Unicorn Venture Capital, and Mr. Jani Rautiainen, Managing Director & Co-founder of Property Guru. The majority of attendees comprised of startups with two persons focusing in the medtech space. Much of the investment advice was quite general with a hint of interest towards digital tech. However, the advice should apply to all sectors, although it requires further analysis for medtech. Here is a summary of the few vital points derived from the session.
When should a startup start seeking investments?
The effort of seeking investments is a huge task and startups are advised to begin the process as soon as possible. This is crucial in collating investor portfolios, understanding the investment strategies of individual investors, preparing the right pitch, understanding the value and skill each investor will bring, preferred exit plans and expected business milestones. With these in mind, receiving external investment will invariably mean that there may be some level of investor intervention in the running of the business and heightened pressure to justify performance outcomes.
While the coaching aspects of this arrangement is invaluable and may result in the leap to success, startups are advised never to rush into accepting investments, especially not in desperation, and to delay entering into this arrangement as late as possible. Needless to say that the money is needed, but the conditions attached to these investments should be considered as heavily to avoid surrendering too much to investors from equity, management authority and rights or say in the business direction or model.
So how and from where should startups obtain funding at the early stages?
Bootstrapping is one method of raising money and self-funding. This can be done through sales of a minimum viable product or become part of a distribution channel for other businesses. If the cash still falls short, startups are advised to seek funding first from personal circles, which are more willing to part with their cash on less demanding terms. Unless the startup is headed by a former Managing Director with a wealth of experience in handling large budgets, balancing accounts, running multiple operations, managing teams and partners, and setting goals, a budding entrepreneur should take the time to acquire these capabilities and be fully ready for the challenge before opting for external investment. When the right time comes for this to happen, not only can the funds requested be minimised, but the startup may be better able to deal a stronger deck of cards on the negotiating table.
What do investors look for in a startup?
Investors look for some commercial traction or proof of concept. Startup portfolios are considered risky and investments may be made based on the investors’ own knowledge and experience as well as other indicators such as market or technology trends, risk analysis, demand, potential, viability, integrity, business plan, valuation and team credibility, among others. The rest will ride on trust and perhaps, implementing an “iron-clad” operational and reporting strategy that allows a close eye to be kept on progress. Investors would more likely be interested in startups, which have a clear revenue model, are able to show evidence that it works through some income generated, and could demonstrate business scalability based on the model.
Not only does a startup need to have a cohesive team with individual members fully vested in their roles and responsibilities, but also to demonstrate an understanding of the risks as well as a good commercial acumen. Most importantly, startups that see investors as partners, are inclusive and responsive in their attitude and exhibit “coachability” are more likely to be successful in drawing investors to their call.
Do these advice apply to MedTech?
Whilst these advice may help in times of dwindling funds in medtech, the technological complexity and regulatory hurdles would inevitably require much deeper pockets beyond what one could afford. Inevitably, when the money does not come easy, the more startups should be the entrepreneur looking for collaboration opportunities with business partners or co-founders who can bring value, associating with research institutions and incubators, running a lean design and developmental process plan, being customer-centric through more market research, simplifying the business model, and constructing a more sensible product pipeline. As is true in any industry, including medtech, what a business needs to grow depends on its goals. A startup that is willing to adjust its goals using tested principles like the S.M.A.R.T., would be more successful in quantifying funding needs that is congruous with an organic growth.