home Marketing, Technology Don’t fly high on VC Money

Don’t fly high on VC Money

Off late much has been spoken about the failure of startups in India and there are a number of media houses who have left no stone unturned in blaming the founders of the food delivery startup named Tinyowl. I, personally don’t have any interest in  Tinyowl, neither do I have any grudges against the media persons. But, the point is, one should always look at the larger picture and then should derive a conclusion.

There are several questions that need to be answered like who is at fault?? Why politicians had to enter to resolve the issue in the case of Tinyowl? Why did the employees acted so harshly? What made Tinyowl to resort to mass firing at such a large scale? Why employees lost hope and even tried to man-handle the founders?

I don’t advocate what the founders of Tinyowl did, nor am I in favor of the employees. This particular write-up is just about what is going on in the Indian startup ecosystem and what are the things that are preventing the budding entrepreneurs to sustain in business. you must have gone through various articles on reputed sites that tell us ‘ 8 things required to be an entrepreneur’, ‘how an entrepreneur can become more productive’, ‘how to get funds easily’ and so on. But the root cause still remains unresolved.

I have tried to highlight a few concerns that Indian startup ecosystem and entrepreneurs face in the current scenario.

Hiring and firing is common in startups and there is no point creating such hue and cry about the same. It’s all part of game. Investors place a bet on new entrants and just go by the name of reputed colleges and universities. All that a VC knows is, the founder has to be from a reputed educational institute and should have a business idea (most of the ideas are just the replication of established startups). The basic problem here is how reliable these people are on whom VC’s are ready to bet millions of dollars. Young college grads have big dreams in their eyes and big ideas in their mind. But the biggest misconception that these young chaps have is: VC funding is a must to stay in business and their first and the only aim in initial phase is to raise funds. Of course, capital works as oxygen for any business, but it should be not be the sole aim during the starting phase.

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Let’s assume a hypothetical situation. I am an M.B.A from a reputed institute and like the most of my counterparts; I have declined job offers and have joined the startup wagon. I have raised a good amount of funds from investors (which everyone is doing) and obviously the first thing what my investors tell is get a good office. I enquire about a couple of offices in prime locations of the city and land myself in an opulent office. My next step is to hire as any people as I can and pay them whatever they demand. I do the same without using my mind that what would happen if I don’t generate considerable amount of revenue in next 1 year.

Next comes the marketing of my product. Instead of doing cost analysis, I straight away call a leading daily and order a page long newspaper advertisement which cost me a fortune. As far as digital promotion is concerned, I run multiple social media campaigns that have burned a hole in my pocket (investor’s pocket). After a year I realize that, I don’t have revenues to pay my over- expensive employees and to bear other expenses. Now what??? I recall my past 1 year. I recall my hiring decisions, lavish parties, my luxurious workplace and all the unnecessary expenses. I can’t do anything rather than repenting but there is no use of ‘crying over spilled milk’.

The above mentioned example was just to justify my point of concern. The situation is not true for every startup, but at the same time, it can’t be denied that occurrence of these type of circumstances have become common these days. Investors from the day 1 insist on expansion and budding entrepreneurs start spending extravagantly. Founders should learn to make the optimum use of resources rather than relying on VCs. At the end of day, it’s always the young founders who suffer the most when they receive a setback in business.

To conclude, startup founders these days fly high on VC money and spend lavishly often without weighing the pros and cons of those expenses. It is worth noting that successful startups like  Github, Litmus and many more were bootstrapped and therefore these young entrepreneurs shouldn’t run behind VC funding. Until and unless, we don’t stop glorifying VC money as a business objective, we won’t be able to balance speed & sustainability. You just need a good idea, a team of honest and dedicated people and the spark to do something in order to achieve success.