UpwardGrowth: Startups Should Be Cautious About Profitability, Cashflow
All businesses depend on investors in some capacity, but for startups, investors are the lifeblood. To improve, grow, extend, or just start a firm, you need funding for your startup. Whether they are in the development stage or the expansion stage, all startups need fundamental resources.
BLinC Invest is a venture capital company committed to funding the country’s emerging edtech and fintech startups. The firm has invested in eight successful business establishments, amounts over 300 crores in 25 companies, and eight successful exits in their portfolio.
In an exclusive conversation with Amit Ratanpal, Founder and MD, BLinC Invest. Below given are the edited excerpts -
What is your strategy to recognise a good startup's potential to invest in it?
BLinC Invest is a venture capital firm that primarily invests in two sectors: education and financial services, and we look for companies in their early stages. (a) The company must be in its infancy, have a team, a product, and a transaction worth between Rs 50 lakh and Rs 15 crore. The overall market size should be a billion dollars plus. The founding team should have prior field experience. And third, they should have a working marketing strategy. At the end of the day, what we really look at is the founders and team we can work very closely with. We provide them with various insights for value addition.
Any new deals that you are closing?
We recently announced our second investment in supply chain finance. We are looking at two or three different tech spaces, especially in the alternate wealth management space, and we are looking at two deals in the education sector as well. In particular, in the education sector, we are looking at a couple of companies at the right valuation. From an announcement point of view, it will take a couple of months.
To choose an investor is to choose a life partner. To what extent do you agree with this? What is the midway point when founders and investors are not on the same page?
We need to work closely with the founder, respect the founder, but at the same time, we have to guide the founders if needed. Help them, support them, and sometimes we have to push the founders beyond the boundaries. And because we are providing more of this value, we work very closely with the founders. We are very specific when it comes to the founders we work with. In the midway, there could be some challenges, such as a difference of opinion between founders and investors. In my overall experience, I have seen that beyond the investor’s ego and the founder’s ego, there is a company and employees, and most importantly, the company. Both sides have to be understanding, compromising, and flexible. Both sides should think of the best decision given the current situation. The solution should be short-term as well as long-term. There is a very thin line, and we are very cautious about it.
Is exit strategy as important as venturing into a company? What tends a VC to exit before the stipulated time?
We prefer to exit between 4 and 6 years, but there are many many factors upon which it depends. There is a market opportunity; liquidity of shares. We have to asses the situation of the market; is it prepared enough to absorb the exit? What we can control is creating a top company with good value in it, with good cashflow and profitability. Valuation and other factors are very market dependent, and we have to be open from situation to situation and navigate and act accordingly. Rather than focusing on valuation and exit, which are equally important, focus on creating value because if there is good value created, then there is always an exit opportunity and it’s a win-win situation for all.
The world economy is going through turbulence, amid inflation and instability in the market. How can startups win the confidence of investors?
Startups are cutting down the cost by trying to create sustainable businesses, not unsuitable ones, by focusing on growth but not the bottomline, which is profit, cashflow, and all that. What I have seen is that good startups which could survive are startups that are clear about their strategy, which is truly trying to solve the problems, at the same time being very cautious about cashflow and profitability. These are the few things that need to be taken care of. Following these things, startups will garner investors' attention, not today but tomorrow for sure.
What exactly differentiates one VC from the next? How does this make a difference to startups?
As we discussed, the relationship between investors and founders is like that of life-long partners. I think startups have to look at it with a similar lens and eyes. If we only talk about venture capital (VC) funds and money, the startups have to look at whether they are partnering with a VC they can relate to. Are you partnering with the VC you are in sync with? If so, then they will support you both in good and bad times for the company. It's also about guiding a startup and recommending the best solution available to satisfy stakeholders when things aren't going well; guiding them on what they should not do while scaling the business; flagging the decisions that could hamper the business. These are some of the areas I believe investors and founders have to be aligned. Founders can learn a lot from investors' experience.
