Let me begin this piece with recounting an interesting experience. Very recently, I had the privilege of sharing my thoughts on fundraising with a few early and mid-stage startups and while the session/talk was mostly focused on nuances of raising capital, a curiously interesting discussion ensued when one of the founders wished to understand the objectives/rationale behind raising capital, in addition to money.
To be honest, most founders on that session were keen to understand the mechanics of raising monetary capital and that’s what the objective of the session was, but interestingly this question on “synergies beyond money” intrigued the founders and resulted in a coherent and insightful discussion.
As an investment banker for the past few years, one of my critical and significant objectives has been to ensure that the companies we work with are able to raise capital from right and suitable investors. This is because the exercise of fundraising is more than just a transaction and in some form or other is a marriage between stakeholders who align for a common purpose but may have different ideologies, methodologies and endgame postulations.
It is extremely crucial that the financial capital comes in with synergies that will ultimately benefit the business and expand value for all stakeholders in the business including the investors, founders, employees, vendors, etc. So, as a founder who is embarking on the exciting journey of raising capital, there are a few critical thoughts/aspects that should be kept in mind.
Human capital is equally important as financial capital
Any successful business is a function of the team that manages it and hence, building a robust and adept team should be the biggest consideration for any founder.
When it comes to raising capital from an institutional investor or even non-institutional investors, it is imperative that the entrepreneur understands the synergies when it comes to the investor’s ability to usher in actionable synergies in terms of adding valuable team members to the growing team.
The one big advantage that comes with an institutional investor is the relationships and network that the fund team can integrate in order to reach out to and onboard suitable members, advisors, mentors among other stakeholders. Hence, it is critical for the founder to assess and also leverage the investor’s strengths when it comes to human capital and building an agile and strong team.
Building value of the business by leveraging the relationship ecosystem and ensuring right communication to external stakeholders
One core purpose of any business is to build and sustain value for all the stakeholders who have invested money, time and efforts in building the corporation.
Again, a significant requirement while creating a valuable enterprise is to initiate, maintain and enhance communication with relevant stakeholders outside the organisation and its direct ecosystem.
The point that I am trying to put across is that any founder or team of founders should look at leveraging the network effect available from the investor in order to communicate and receive feedback that will aid in strengthening the equity as well as brand value of the company.
This is particularly helpful when the company is looking to raise its next round of capital, entering geographies that aren’t explored previously, experimenting with business domains, etc.
Cross-pollination of knowledge and understanding industry best practices
One big and not often discussed advantage of having an institutional investor is the ability to understand and comprehend industry best practices when it comes to aspects like setting up of SOPs for the business, creation of an efficient and agile middle management, receivables management, etc., as investors bring in actionable insights from across the board including other portfolio companies, executive network, etc.
This cross-pollination aids the founders in creating a growth machine that can sustain trying times (including the one we are currently facing) and enable the company to create a framework that allows every stakeholder to garner value out of the idea.
To conclude simply, it is essential that founders understand and appreciate the synergies that an institutional/non-institutional investor can bring in for the business and the pivotal role it plays in the journey of the startup. The amalgamation of synergies beyond monetary support is undoubtedly the real essence of raising financial capital and this should be borne in mind while conducting this exercise.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)
Link : https://yourstory.com/2020/11/fundraising-not-just-about-financial-capital
Author :- Mihir Mehta ( )
December 07, 2020 at 02:13PM
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