A serial Entrepreneur & Investor with over 15 years of startup & corporate B2B Experience, Jay is bringing digital transformation across business units.
Which ambitious startup can survive without funding? The market is competitive and the struggle to survive is real, yet surprisingly, technical knowledge on the metrics of funding is almost absent in today’s entrepreneurial communities. In this article, we’ll introduce you to the basics of funding, the types, stages, structure and the requirements based on the 1000+ applications that we see of startups who want to be part of the T-Hub community.
Depending on a company’s progress and financial stability, there are several rounds of funding available:
1. Seed Investment
The first monetary investment in a business idea is called a seed investment. In most cases, the amount is raised from personal finances, friends and family
2. Angel Investment
The second round of funding is primarily targeted at ‘Angel’ investorshigh net-worth individuals who invest in potentially high growth start-ups at very early stages.
3. Bridge Funding
Investment raised before Series A funding and post Angel investments are clubbed under bridge funding. The people from the Seed and Angel investment rounds are likely investors at this stage, and fund the startup up to Rs. 5-7 million.
4. Series A Funding
Upon achieving a stable product with regular customer growth, the Series A funding round is initiated. Investors include accelerators, angel investors, seed funds and early-stage venture capitalists are the ideal participants and the amount raised ranges from Rs.5-15 million for midrange potential start-up in the Indian ecosystem.
5. Series B Funding
Once the product has established itself and carved out a consistent user-base with strong growth figures, Series B funding is initiated. Individual angels, seed funds and venture capitalists participate in Series B funding.
6. Series C Funding
Upon finding a suitable business model that has a clear growth path for a 3-5 year period, along with consistent growth in the customer base, Series C funding is initiated.
It is not just the knowledge of the funding, but also there should be sound knowledge of those essential metrics required for investors to evaluate the progress and health of a startup. An investor is not merely looking for an idea; they wish to invest in a business. The core team aggregated by the founders also plays a vital role in an investor’s assessment of a start-up.
These are the Metrics that Investors are Primarily Interested in:
The general parameters that one must monitor are the sales metrics, customer metrics and financial management metrics to predict the areas of improvement for the start-up.
Customer Loyalty is Verified using Feedback Forms and Surveys
Conversion and customer service feedback are two KPIs that capture the company’s image among its user and public in general. As a startup, the Customer Acquisition Cost (CAC) is a metric that causes concern. It is the money spent in acquiring each new customer and indicates the effectiveness of the sales and marketing acumen of the startup.
CAC = (Total Marketing Cost/Total Customers Acquired)
As a B2C startup, advertising is essential to persuade customers. These costs will matter when the start-up is trying to scale up or even stay afloat after a given time.
These factors generally help the investor understand and analyze the lifetime value of the business and the scale it can grow.
Gross Margins Measure the Operating Profitability.
The gross margin of the industry will be helpful in determining the start-ups’ place in this competitive world. The gross margin determines the effectiveness of the management, sales, and customer teams.
Activation can be defined in several different ways depending on your business. It measures quantities like the number of clicks, time on the website, pages viewed, downloads, email/blog subscription, or even a trial signup. This also gives a measure of how many potential customers are interacting with the product.
Before pitching a startup, the product must meet some expectations to generate investors’ interest. It is critical for startups to have in-depth research on the viability of the product. The next task of start-ups to be technologically ready is to track customer on boarding. A beta version is always recommended to evaluate customer reaction and fine tune the product before its official launch.
For a business to succeed, one must understand the market intricacies that the product will be constrained or enabled by. The sectors of operation are crucial to any start-up, and the newest trends will influence the performance of the product in the current environment as well as cause further improvements in its current product or service. The start-ups in T-Hub focus on sustainability, FinTech, social mobility, HealthTech, SmartCity among others.
The prominent business models for B2B are the subscription model and the freemium model. As far as the subscription model goes, B2B can benefit from this as much as B2C startups do, by increasing customer retention. In today’s cut throat commerce landscape, customer loyalty is worth the upfront investment.
The other popular model is the Freemium model, but the requirement for it is a huge market due to low conversion rates - usually ranging from 3-10 percent. The flip side of this is that when you’re trying to build a brand and a user base, the freemium model makes it easier to get exposure, a base of quality leads, the potential of high virality and a built-in sounding board for essential user feedback.
Having an idea is not the only thing required to attract investors. A lot of different things play on the mind of investors before investing in any start-up. Other than these metrics, there are several different ways for a company to get more funds.
There is a greater likelihood that VCs who are more familiar with entrepreneurs are more likely to invest in them. Usually, at the nascent stages of a startup, the business model of the start-up might be overlooked if the team is healthy and there is a belief in the leaders’ passion and execution skills. It is critical for any startup to be able to defend the reason for their existence and why the start-up is essential for a better future. The strength of the business numbers determines whether the emphasis is to be laid on it or not.