Updated: Dec 14, 2020
In 2017, Oxford Economics surveyed 300 Indian executives, including about 600 entrepreneurs, 100 venture capitalists, 100 govt leaders, 500 leaders of established companies and 22 educational institution leaders, for a report on the state of startups in India. Its findings indicated the overwhelming belief and optimism everyone associated with India - with India’s economic openness, its skilled workforce, and of course, large market size - all contributing to making India one of the best places to start up.
And many of us walk the talk. In 2019, India added a startup every 4 hours, nearly three-fourth of those numbers being in the tech sector.
And with a push by the Governments towards “Atmanirbhar Bharat” (self-reliant India), it is certainly the optimal time and place if you’re an entrepreneur looking to launch your startup idea.
In 2020, there has been increased traction in Healthtech, Edutech, Telecom, Gaming and entertainment, media and other similar sectors. The Government of India has shared its predictions on sectors likely to experience increased demand in the post-Covid19 era - a list that we at The Circle, concur with.
That being said, starting up in India does come with its own set of challenges. From obvious problems like initial funding and growth of startups to some often overlooked issues, like networking for startups with the right organisations and learning opportunities, entrepreneurship in India is filled with challenges.
Some of the biggest pain points are:
Education (including mentorship for startups)
Lack of Innovation
Subpar growth strategies
This post will go in detail about facing these challenges and successfully starting up a new business in India.
The foremost and the most prominent challenge faced by many entrepreneurs looking to establish their own startup is funding. Startups are usually funded either:
By the founders themselves, by dipping into their savings (called bootstrapping) or
By raising money from investors in the form of venture capital
Every single startup idea differs, and the choice of funding greatly depends on several factors. There are advantages and disadvantages associated with each of these methods, which should be carefully understood before deciding on the method of funding used.
Investopedia defines bootstrapping as ”the process of building a business from the ground up with personal savings, and with luck, the first sales.” This means the complete ownership of the company stays with the entrepreneurs and is usually characterised by no external funds circulating the business. Bootstrapping ensures considerable control to the entrepreneurs as they own the business. But on the flip side, they have to face the brunt end of the business risks. All the risk of loss is bestowed upon the founders, who also have to focus on the operations and administration.
Limited resources can hamper business growth and opportunities, prevent promotions, and in some cases, even inhibit the quality and the integrity of the product/service provided.
Raising Money Through Venture Capital
Venture capital is an alluring alternative to bootstrapping, but it does require the founders to jump through some hoops. Entrepreneurs pitch their ideas with demonstrable traction to potential investors and venture capitalists and offer to sell a part of the business’ ownership to them in return for funds.
Often, in the early stages of the startup, it may be an individual who provides the capital so crucial for the startup to take off. Since uncertainty and risks is high at these stages and finding investors can be a challenge, such individuals are called angel investors and the practice, angel investing. Unlike venture capitalists, who manage money from a pool of funds, angel investors invest their own.
However, once funding is secured, there is usually a high scope for future growth and expansion for the business. The funding also provides the business with cash influx to keep it up and running. But it does dilute the control of the business quite a bit. The investors can have a prominent say in the way things are run in the business, and also would usually require you to have an exit-plan.
It is more alluring to raise money through external sources, but it does come with a set of challenges. Usually, In the early stages, a startup is bootstrapped until enough traction is generated to raise money from external sources. During this stage, the aid of incubators and accelerators helps generate traction for potential venture capital later.
What are startup accelerators and incubators?
Accelerators and incubators, though used interchangeably, are distinct from each other. Accelerators aim to accelerate the growth of a startup with a set business model. Incubators, on the other hand, aim to instil innovation in the startup and mould a business model and strategy for it.
Both accelerators and incubators help business growth, usually within a set timeframe. The goal is ensuring that the startup can survive and grow exponentially, armed with adequate knowledge, ideas, innovation, know-how and networking opportunities with proper entities.
Pitch Decks and Term Sheets
As mentioned earlier, to raise funds through venture capitalists, it is essential for the entrepreneur to pitch his vision of the startup. This is usually done in the form of Pitch Decks.
A pitch deck, metaphorically, is the resume of your startup. It is a brief presentation for potential investors that provides them with a quick overview of what your business aims to achieve. Gaining the attention of probable investors is probably one of the most important and difficult steps in the process of fund-raising.
Though there isn’t a set right way for a pitch deck, it is usually recommended that the following 12 components are present in your pitch deck:
The problem which the startup is trying to solve
The advantages of why your product/service is the right alternative
The solutions your business has come up with
Predicted Market size and distribution
Competition to your startup
Once the investors are ready to invest in your business, and you’ll be presented with a term sheet, that lays out the terms of the investment and collateral. It puts in writing the details of what you as the startup are offering, and what you are expecting in return. It also consists of the guidelines concerning how both parties will act to protect the investment.
There is no set length or template as to how a term sheet document would look like, but the entrepreneurs are expected to make sure that they thoroughly read and ensure that they thoroughly understand the terms and conditions of the investment. Usually, it is a good practice to avoid term sheet that:
Contains adverse debt-financing and convertible note terms. This could potentially bankrupt you and the business.
Asks for an extremely large controlling stake, indicating that you will be replaced
Curtails further fundraising
Doesn’t have a realistic expectation to succeed in your business, but wants a quick short.
Once your company has grown adequately, you may even consider going public, via an IPO. An IPO, or Initial Public Offering could potentially raise much more money for your business, that may otherwise not be available to your company.
That being said, an IPO can be extremely demanding, and only startups with a proven business model and a successful track record typically have a successful IPO.
Learning & Networking for Startups
The second most significant pain point when successfully running a startup in India, and frankly, anywhere else too, is access to knowledge on:
How to run the business,
Who to learn from and
What resources to look for.
Usually, startups opt for assistance from accelerators and incubators to find the right connections and gather invaluable information during the association. There are several essentials, like drafting of founders’ agreement or even trademarking the company’s name, which may be overlooked by a first-time entrepreneur, and become a major issue during a startup’s life.
The best bet for a startup in India is to enrol with an incubation/acceleration programme, one that provides all the learning opportunities the startup might need, along with a designated mentor for the startup, who should help guide you through the multiple nuances of the business world.
One other way to learn the fundamentals and nuances of how to run your startup in India is by networking with peers. It ensures that ideas from like-minded people are shared, and even potentially find new investors along the way.
By ensuring that you network regularly, you’re likely to meet industry experts who would be happy to share insights, providing you with ample learning opportunities.
Networking channels for startups in India
As a startup in India, the challenge lies in identifying the right people to network with, and potential places/platforms to network in. Each niche has a unique method of networking, and it is up to you as the entrepreneur to identify the right networking channels. It is significant to note that incubation programmes also offer networking opportunities along with other benefits.
Some noteworthy channels enabling networking for startups:
Business Meets / Conventions
Finding the right mentor for startups in India
It is also equally important in identifying a proper mentor entity which would assist your business’ growth both on the long and short run. A perfect startup mentor who can provide knowledge of the inner workings of a business and take your business to new highs.
There is no one size fits all solution when it comes to identifying and partnering with the ideal mentor for startups. It depends on a wide variety of factors, and should ideally be someone who
Is familiar with your industry
Can help with short term problems
Suitable for your startup
In line with the startup’s ideologies, goals, mission and vision
Has the necessary technical skills
Choose the right entity/person who can give you the best experience. But while the best they can do is provide you with knowledge and share some of their experiences, it is ultimately up to you to implement learnings while ensuring that your business stays true to its original intent and purposes.
Do your research on people you think would fit the criteria required for your business. If you know someone who does, reach out and build a relationship.
To leverage your startup mentor relationship well:
Be curious. Step out of your comfort zone
Honesty with your mentor is crucial
Understand your expectations from this relationship thoroughly
Be receptive to criticism
Do keep in mind that mentorship is a two-way street. You, as a mentee, may be expected to take on certain duties, or maybe even pay them a fee for their services. Finding the right startup mentor can be a daunting task, and is made extremely easy with partnering with incubation/acceleration programmes.
As Ideacorp puts it, “Innovation is important to all companies, but the very premise of a startup is based on fresh, new ideas, plus a thirst for risk and transformation. They, therefore, tend to have a special relationship with innovation”. Businesses and startups often fail to continue adapting to the growing pace of innovation by the competitors, and this can hamper the future potential for the business.
It is extremely important to set up, drive and maintain innovation culture in your startup. Between 2015 to 2017, more than 1500 startups in India closed down. About 90% of all startups in India fail within the first five years, with a lack of innovation being cited as the primary factor by venture capitalists.
Innovation offers the following advantages:
Gives startups a competitive edge
Innovating helps startups gain a competitive edge and chart a path to becoming a market leader. Many organisations grabbed a new market or niche by launching an entirely new and disruptive technology but failed to retain their edge later since they were unable to keep up with the pace of market innovation. Nokia and its failure to keep up with smartphone tech is a good case study.
Makes startups efficient
If innovation culture is set up successfully, teams are more likely to seek new ways to improve the company’s offerings and make the business a well-oiled machine, performing to its fullest potential.
Will help your business compete with the best organisations
What startups may lack in time, experience and resources, they can make up for by focusing on innovation. Some of the important things to keep in mind while setting a successful innovation culture in an organisation are
Lead by example - Don’t just ask, do.
Welcome and commend new ideas
Make it safe to innovate
Collaboration is the key to success. Collaborate with your subordinates
Offer rewards and recognition
Accept that failure is a part of innovation
Merely setting up an innovation culture does not ensure it’ll remain an organisational priority. It is essential to keep in place processes and practices to instil and encourage a mindset of constant innovation throughout the ranks of your startup. These practices may include:
Constant research and evaluation of new ideas,
Allocating dedicated time for innovation, and
Making the maximum possible usage from the technology available to us, etc.
Partnerships for Startups
Partnering with other businesses in your industry can be a crucial factor in determining the success of your startup. There are several advantages for a corporate partnership for startups, some of them being:
Access to new networks
Sharing of know-how and trade secrets
Access to emerging technologies
Access to new markets/verticals.
However, it is important to not hastily agree to any and all partnerships but to pick and choose the optimal opportunities which mutually benefits all the parties involved. Ensure that the following aspects are kept in mind before signing on a partnership with a new business.
Non Disclosure Agreements can be crucial
Understand the other party thoroughly
Thoroughly evaluate what the other entity brings to the table.
Discuss future plans and roadmaps.
The partnership goes both ways, be comfortable with what you offer.
The Founders’ Club
Founders’ Club is an initiative by The Circle, with an aim to support and nourish early-stage startups to help them succeed. It’s a virtual accelerator (with a physical option) with the objective of offering startups funding, mentoring, and a global network that they require above all else. Consider it an acceleration programme on steroids, backed by corporate and institutional support.
It addresses all the pain points of successfully grooming a startup:
The Founders’ Club aims to enable access to funds via a circle of angels and other partner funds to tackle the funding challenge - the most predominant problem in the current scenario.
It also seeks to enable international partnerships for startups via embassies, providing entrepreneurs with much-needed reach and connects.
Customised learning experiences and specialised mentorships for startups are also on offer, of course - both absolutely essential for startup success today.
Founders’ Club will assist with marketing services and PR strategies, since the goal, after all, is long term growth.
The Founders’ Club would also be happy to introduce startups with potential customers and partners to promote corporate innovation. Entrepreneurs stand to grow and learn with the best in the business.
We’re currently accepting applications. Check out the Founders’ Club for more details.