Investment in Startups is a Mini – MBA

We all seek to progress & rise higher in our career. But it’s a cut-throat world out there and everyone seems to be running with the same degree of uber-competitiveness! Continuous learning is the key to updating oneself & moving ahead. While nothing perhaps prepares an individual as well for a fast-track learning environment as Entrepreneurship, not everyone can afford to get into it. How many of us have wondered of taking a higher education course to give ourselves that extra mileage, the push to progress faster in career? An MBA is one of the most recognized, accepted and coveted higher education course to give boost to one’s career. But pursuing such courses may come with their own set of problems of giving a pause to career, high study costs – opportunity costs, and uncertain post-facto outcome.

Exposure to new-age startups is a strong alternative to such avenues of learning. In fact, I’d like to contend, engagement with even 1-2 startups, be it investing or as a mentor, is as good as a mini-MBA. Investing in startups is a good idea as it gives you a holistic understanding, far wider than what we learn at our regular jobs. And in today’s world with the startup ecosystem in the country flourishing, and angel-investing being recognized as a viable alternative asset class, avenues to become an angel investor have also increased. Embarking on an angel investment journey in India is now easier than ever with early stage investing networks (like Inflection Point Ventures) providing access to startups through low-membership fee and education & guidance to first-time investors.

Being a part of early-stage startup funding, I’ve categorized the experiences into 7 pillars of learning when engaging with startups, mirroring the various courses and specializations in MBA.

 

 

  1. MARKETING AND CONSUMER ACQUISITION

Digital and social media are disrupting the rules of marketing faster than ever. While Kotler’s principles continue to be relevant, the execution mode has changed drastically. And it’s true for B2B, B2C as well as B2B2C businesses. Given the frugal lives of startups, you begin to ask questions like what’s the right time to go for marketing, what’s the best medium and at what scale? And for a non-marketing professional, terms like LTV (Life-Time Value), CAC (Customer Acquisition Cost), CPL (Cost per Lead), SEO (Search Engine Optimisation), Funnel, Customer retention and cohorts etc. become part of an entirely new learning curve & opens up a new way of looking at businesses.

  1. STRATEGY

Why is the startup in this business, what is the market size opportunity and how is it better than the competition? What’s the current market share and what can be realistically achieved? What the competitors are doing which this startup is not doing and vice versa. You learn about TAM (Total Available Market), SAM (Serviceable Available Market), SOM (Serviceable Obtainable Market), not only from a jargon perspective but practically from the point-of-view of an investor. You understand better about a startup’s short-term operating strategy v/s its long-term success strategy and its expansion plans – these could be domestically or internationally. Familiarizing yourself with the sector, the business model is essential to taking a learned call on the investment opportunity. Also, startup investing is more of a process than an activity. It helps you grow as a professional, and with the appetite to explore, one can definitely pursue Angel Investing as a profitable vertical.

  1. FINANCIAL MODELLING AND VALUATIONS

Evaluating a startup is a great place to start learning about business finance and modeling. Early-stage startups don’t come with a long history of performance or numbers. While valuations for these businesses are tricky, they are also less complex. Like any business, there is a financial model with assumptions filled into them. But in case of startups, it’s a ground-up built of business model. And for a novice starting to look into number-crunching around a business, this is far simpler than scrolling through the balance-sheets and annual reports of established companies. Investing in startups comes with a healthy mix of understanding its financial model with an intuitive sense of the market & its business potential (i.e. assumptions built-in).

  1. HR

A company is as good as its people. This gets amplified in a small setup of a startup, where each individual has a huge role to play. The most crucial consideration in investing early-stage in a startup is the founding team’s potential. It’s the founders’ leadership and vision that shines through in the success of a startup, which as an investor one gets to evaluate closely. The second piece is the people-management skills of the founders. Looking at a startup from close quarters gives you an intimate view of how founders handle multiple tasks when they are bootstrapping and the prioritization of hiring depending on needs. You understand HR better than through books when observing the challenges of attracting talent when not compensating in line with corporates and the crucial role ESOPs can play. Almost all startups are tech-enabled, and you truly come to appreciate the importance of tech-roles now & the dynamics of tech-hiring industry.

  1. DISRUPTION

Technology is disrupting traditional business models at a more rapid pace than ever. There are startups which are changing the fitness industry, gaming industry, the way retailers operate, or the way healthcare is delivered. Enhancing mobile and internet penetration has created a new market and startups are giving birth to innovative products & services with last-mile connectivity solutions. Investing-in or working with such startups from close quarters gives one the exposure which MBA case-studies can never match. Especially since such case study examples are backward-looking!

  1. GO TO MARKET STRATEGY

There is no cash-generation without sales. Sales is the lifeblood for any organization, whether it happens digitally or in-person. An effective go-to-market strategy answers which market to prioritize & the timing of the product/service to enter a market. Whether to expand domestically or globally, and how to choose geographies in these. Depending upon the business model, a growing startup can choose sales through partnerships, franchises, setting-up own sales teams or by hiring sales partners. When investing in a startup, you look at cost-benefits and understand the varying dynamics of each of these approaches. After all, selling is much more than just building a good product or pitching it, it needs to be sold in the most effective & sustaining manner to maximize returns. With Angel Investing emerging as an asset class, one starts to view things a lot more from the perspective of what needs to be put to expect a good ROI. And similar observations are sharpened when assessing the go-to-market strategy of a startup venture.

  1. FUND RAISING

While most of us are enamored by the unicorn startup founders, an entrepreneur’s life is a tough life. Before the riches a founder might achieve, each founder goes through the frugal life of bootstrapping! While in our corporate jobs we receive budget allocations & have the capacity to spend, startups live the reality of cash-conservation & relying on forecasting with uncertainty. Growing a startup is not only about innovative products & disruptive technologies, but also about learning the art of fund-raising, how much to raise and when, while negotiating how much to dilute to attract investors as well as be mindful of future needs! This learning is experienced the most during angel investment, the initial phase of fund raising for a startup.  Fund-raising is a continuous process in the lifetime of a startup founder, till the time it becomes profitable at scale, gets strategically acquired or does an IPO.

The biggest reason for learning with startups is you get your Skin in the game! Whether it is while investing in startups or mentoring them, much more critical than the wealth involved is the reputation, the sense of responsibility and the emotional investment that one does. It exposes you to all the facets of a business and not just the mundane specialization we focus on in our daily jobs. And in some sense, you become an entrepreneur!

After all, it is well-said, “For the things we have to learn before we can do them, we learn by doing them.”

 

[This article is authored by Jignesh Kenia – EVP & Head, Corporate Strategy and Business Development, Times Network and Platinum member, Inflection Point Ventures]

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