Startup Capital
Cash is the oxygen for a startup. Without cash, there is no venture, adventure, startup, entrepreneur. One of the entrepreneur’s early decisions is to decide how the initial capital is going to come. This is the decision that determines whether the startup will be a proficorn or not when it grows up.
When I started IndiaWorld in late 1994, the initial capital came from my savings in the US with some additional help from the family. Before IndiaWorld, there had been a couple other failed ventures which had consumed much of the capital. So, I had a very limited runway when I started IndiaWorld to turn profitable. At that time there was hardly any funding available for new companies from either angels or VCs. So, the choices were very limited to self, family and friends.
I had to go out in search of revenues almost immediately. Two streams helped me survive the initial months – subscription fees helped fund US expenses while website development took care of the Indian costs. It was later that advertising started coming in and that boosted the surpluses each month.
I got interest from a VC within a couple months of launch. But the deal never materialised. Through the five years of IndiaWorld this same story was repeated many times – many conversations but no deal. I was in no desperation to raise funds because we were generating profits each month by the end of the first year of operations. And thus was born a proficorn.
For entrepreneurs today there are many external sources of capital available. The question is: should one raise capital or not? If the business is capital intensive, then one has no choice. However, for many businesses not raising external capital can be an option. It forces a discipline on spending and drives the early push for revenues – both are good for the longer-term survivability of the venture. Besides, the search for external capital takes away a significant time of the entrepreneur – time which should really be spent building the business. Also, no capital comes in without giving up some freedom and control – again the entrepreneur can do without having to worry about MIS statements and monthly review meetings.
Risking one’s own hard-earned money is never easy. That’s why it is important to think through the worst case scenario and have clarity on how much capital one is willing to spend in building the venture. The reality in India is that most ventures are still self-funded – very few are able to raise startup capital. We only read about those who got the funding and not about those who did not. In software it is the entrepreneur’s time that is actually the investment; so it is much easier to get started.
In short: the entrepreneur’s early focus should be to stay away from external capital, put in one’s own money to get going, focus on building the product, and work on getting early revenues to fund the expansion. Success on these fronts is what will create a proficorn.
