Finding the finance and the founders: The golden rules of starting up
Your startup requires a co-founder, fund raising, and other strategies too Photograph: (Others)
For all start-up aspirants, the first few golden rules, as we discussed, are having a macro view of the venture. The person needs to know why it is so crucial developing an understanding of the user and the problem that needs to be solved. On accomplishing these two steps, the next phases involve finding a co-founder, building a team, running a bootstrapped business and then fundraising.
Step 1: Finding the right co-founder- yes, it’s a bit like getting married!
While there is no golden formula on the ‘right’ number of founders for a start-up, and you can certainly do it by yourself, the norm tends to be either two or three. Some put the ideal number as three (hipster-hacker-hustler) while others vouch for two, where each co-founder is responsible for solving a unique problem. The number is, frankly, secondary- what matters most is the chemistry and trust- both of which, will be better and higher, the longer you’ve known each other. Running a start-up is tough and will come with unforeseen challenges that can test the best of relationships. It is vital that you have an established bedrock of trust that can weather these frequent challenges.
Running a start-up is tough and will come with unforeseen challenges that can test the best of relationships.
Now, where to find this elusive co-founder? Tap into your network- friends of friends, ex-colleagues- spread the word. Don’t hesitate to put up your requirements on Angel.co or Linkedin. However, do your due diligence- don’t rely on the CV or the person’s claims alone- meet them several times, do background checks but ultimately, trust your instinct.
Tip: You and your co-founder may be childhood friends or could have met at a networking event. In either case, formalise the agreement and keep the terms fair and transparent. While seemingly unnecessary, an exit or separation clause should be drafted- it will save everyone involved from heartburn and unpleasant situations in future.
Recommended Resources: (i) Sample co-founder agreement
Step 2: Building a team- while bootstrapped!
You are crazy to believe in your idea- what’s crazier- a set of talented folks leaving stable jobs, and helping to bring an idea to fruition. Building the right team is crucial and also effort-intensive that make sure you budget for at least 1-2 months from when you craft and post a job description to when you finalise the hiring. Most sites allow you to post a job for free or for a nominal fee. As with Step 1 above, due diligence is a must as is your conviction about the person being a right fit with the company values. Most sites also provide a compensation benchmark for the skills and experience you need. Equity offers by start-ups are standard but should be linked to long term commitment (do read about vesting schedules and cliffs).
Co-working spaces are also great and help you meet like-minded people- scout for the cheapest one in town.
Do you need full-time employees working in a central office? How about hiring interns or people looking for part-time work? Remote working opportunities can help you get great talent and yet avoid the fixed office expenses incurred over printer, cleaning, and deposit. Co-working spaces are also great and help you meet like-minded people- scout for the cheapest one in town. Keep overheads and burn rate low so you conserve cash for the product and testing it with users.
Tip: While not mandatory, it will help if you have incorporated a company, have a logo and a business profile on sites such as techcrunch, crunchbase, angel.co to build credibility. Also, best to draft agreements through a lawyer, compliant with the local labour laws.
Recommended Resources: For hiring: (i) Hasjob.to (ii) Angel.co (iii) Start Up jobs Asia (iv) Internshala (v) Sheroes.com.
For communication and project management: (i) Slack (ii) Trello or Asana (iii) Gsuite-mail, hangouts and more.
Step 3: Fundraising (Slave. Pitch. Get rejected. Repeat.)
Cash is the lifeblood of business. Unless you are booking profits from day 1, you will need to identify the source of funds which will sustain your business. Ideally, you should have a line of sight and access to funds for 12-18 months which means you can sustain your monthly expenses for 12-18 months, even without any revenue.
If you are an early stage start up founder (such as myself), after dipping into your savings, the first port of call is your network of family and friends and other angel investors. For them and for your own sake, create a clear pitch deck that details the idea and why it makes business sense. You can also decide to go for crowdfunding (refer to Kickstarter/ Let’s Venture). In any case, start early- the whole process could take up to 3-6 months.
Ideally, you should have a line of sight and access to funds for 12-18 months which means you can sustain your monthly expenses for 12-18 months, even without any revenue.
The question most start-up founders grapple with is around valuation, especially if you are pre-product or pre-revenue. Refer to Bill Payne/scorecard method or take a look at benchmarks but do bear in mind that at this stage, valuation is quite subjective and will undergo some negotiation. How much equity to give away is really based on your threshold and investors’ demand. On the matter, Paul Graham’s excellent essay should give you food for thought.
Fundraising is not a sprint or a one-time activity. It probably takes the determination and sustained effort of an endurance run. Do your homework- know the key investors and if anyone in your network can help connect, their chosen sectors and investment stages. Have a plan B in place, learn from each pitching session and be prepared to handle rejection many times. Good luck!
Tip: It helps to have a well-designed pitch deck that is easy to the eyes and a maximum of 10-15 slides. This is also an aspect that is covered in great detail by many sites and famous founders- happy reading.
Note: The list of tips and resources have been gathered based on my own mistakes and experiences as well as, advice from friends and mentors. It is, by no means, perfect or exhaustive, especially since my start up journey has begun only a year back. I hope these tips are of some use to other budding non-tech founders and help bring more amazing ideas to the fore.