1. Promoters background
- In the start of the business what is most needed is the image of the promoter and his background as the promoter has credentials but not his new venture, so he has to attach his credentials to the business like his technical expertise, his experience, his network, and his past performances. E.g. Mr. Sachin Bansal and Mr. Binny Bansal founder of the e- commerce portal Flipkart have the first hand experience working with the ecommerce giant Amazon. I am not denying the fact that somebody can’t start something in which they don’t have firsthand experience but the only saying it is easy to pitch , easy to understand something which you are experienced at as you know the nitty-gritty of business. Even if you don’t have a background you can hire professionals and can place people with credentials in our board of advisory which will create value.
2. Knowledge of market
The first and the foremost thing is to do a feasibility study and understand the size of the market, its potential, its geography and the medium to reach the market. There may be ideas which are unique but do not have potential to scale up or have a limited size. E.g. you suppose to start an ecommerce portal with the name www.chandnichowkbazaar.com to consolidate the kirana shop owners who will not be able to reach the customers as people don’t feel like going to such a busy market with no parking area. This idea, though unique, is not able to sell hard as the portal has a limitation of the market i.e. restricted to Chandni Chowk itself, scalability shall be an issue.
3. Creating hype in the media
It is not that you have to create a selling pitch; what is needed is creating an information pitch and selling the uses of the product rather than the product itself. You have to use the right media, increase Google ranking of your business website, SEO of your business with keywords to increase your ranking. Today virtual world is more dynamic than the real world and has a greater reach. You can get the grading of your equity shares as well as debt from rating agencies.
4. The cash flow of business
The cash flow generation is the key value driver of business, though the history of the company plays a role, however for a new venture the future potential is of prime importance as the value unlocking can take place by looking into the future. But the business model should be one which is scalable and stainable and the company has placed the infrastructure i.e. made Capex to run the business show.
5. The stake dilution
The startup entrepreneurs should not look for equity dilution at the conception stage as a small amount of capital infusion from angel investor will dilute the equity stake by a substantial level. What is needed that the equity dilution should be undertaken in tranches not in one go. You should dilute a little and grow and keep it doing like this, as it will give you better value everytime.
6. Go to moderator
You should not try to do everything on your own. There are moderators who can give you advice as well as they will help you in shaping your business with the right advice at the right time.
7. Dilute stake only when getting better valuation
- When you have successfully passed the conception stage and grown to a sizable amount but not getting a better valuation because of bear market phase, it’s better to take debt because you are not parting away your stake but only have to pay off interest. You can dilute a stake later at a higher valuation.