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Why Do Investors Invest in Startups? Here’s How Investors Add Value to Startups and Help Entrepreneurs

For any business to flourish, there needs to be good investment and planning that will help the firm reach its target audience and go beyond! Here’s where the role of an investor comes into picture. An investor puts capital to use for long-term gains, while an entrepreneur seeks to generate profits by using those funds. Thus an investor is a crucial aspect for any startup, who typically generates returns by deploying capital. Investing in startups is a risky proposition. However, the low requirement for overhead capital along with high upside potential, makes it lucrative for the investors to put their bets on startups.

Basically, an investor is a person that allocates capital with the expectation of a future financial return or to gain an advantage. An investor can choose to invest in-equity, debt securities, real estate, currency, commodity, token, derivatives such as put and call options, futures, etc.

According to the official website of Startup India- startupindia.gov.in, investors particularly venture capitalists (VCs) add value to startups in a lot of ways. Some of them are listed below:

Stakeholder Management: The investors are the ones who manage the company board and leadership to facilitate smooth operations of the startup. Moreover, their functional experience and domain knowledge of working and investing with startups imparts vision and direction to the company.
Raise Funds: Investors are best guides for the startup as they help to raise subsequent rounds of funding on the basis of stage, maturity, sector focus etc. The investors aid in networking and connection for the founders to pitch their business to other investors.
Recruiting The Best to Achieve Business Goals: Finding great talent and best-fit human capital is critical for startups, especially when it comes to recruiting senior executives to manage and drive business goals. The venture capitalists, with their extensive network can help bridge the talent gap by recruiting the right set of people at the right time.
Proper Marketing of the product: The venture capitalists (VCs) assist with marketing strategy for your product/service.
Merger and Acquisition (M&A) Activity: VCs have their eyes and ears open to merger and acquisition opportunities in the local entrepreneurial ecosystem to enable greater value addition to the business through inorganic growth.
Organizational Restructuring:As a young startup grows to an established company, they help with the right organizational structuring and introduce processes to increase capital efficiency, lower costs and scale efficiently.

How Can Startups Overcome the COVID DownTurn

Top 5 things startups must do to overcome Corona downturn

Most of the startups were not prepared for this tough period and are now fighting it hard to find ways to survive and remain afloat. Raising capital has become tougher than ever before and the buying sentiment of the consumer is at an all-time low.

COVID-19 is a global emergency with every industry being hit. Retail chains are shutting down, companies are filing for bankruptcy and unemployment is at its highest. Work from home has become the new normal. The situation is very grim for small entrepreneurs who have fewer cash reserves to manage the sudden lockdown and the impact the downturn it has created. These effects of closure will also have a huge impact on our economy.

Here are 5 things that a startup must do to overcome this downturn:-

1. Runway and burn rate

Make a plan for the next 3 months, 1 year and 3 years of survival as the economy will take some time to get back on track.
Take all the stock of your current gross burn rate and calculate how much cash you are spending every month? How much-fixed expenses do you have? And how much money goes into variable expenses?
Take a look at your actual revenues, Make sure you don’t forecast, have real numbers.
To get the net burn rate, subtract your monthly gross burn rate from your revenue.
Check all your accounts and see how many months your company can survive in corona downturn
Calculate your runway to last until you raise your next round of capital.

2. Diversify your business

It is a good idea to diversify your business in this tough time.
It is always good to have different sources of revenue so that you can save your existing business and pay your employees too.
Go digital, take your products and services online. Since you already have a set backend, building on new functions like delivery, online payment, etc. should not be such a difficult task.
You can start an online service like; a paid webinar, online coaching, can make viral videos. You can also try your hand in food retail or can partner with some healthcare company.

3. Line of credit

Taking a line of credit can be very useful for your business. Line of credit is a business loan where the moneylender fixes the upper limit and the borrower can take any amount within the upper limit at any time. The interest will be charged on the amount that the borrower uses. This service can help you in securing your business.
Try and take a line of credit as soon as possible as post lockdown financial institutions might be strict on providing loans easily.

4. Employee safety is paramount

For the entrepreneurs, it is your priority to keep your employees and customers safe
Start with changing the employee policy based on the situation.
Let them know that the company cares for them and they are safe.
Try to engage them in multiple functions. You may not know about the hidden talent of your employees.
Try to motivate them and ask for their support.
Keep a daily track report of their work and analyze their potential.
Ask your team to share creative and innovative ideas on a regular basis.

5. Be proactive and focused on profitability

Raising money is easy when the economy is strong but in recession, it can get worse.
Try to eliminate side projects, new ventures or any underperformance unit.
Focus on your employee performance at the top to contribute to the company.
It is important to understand whether they are default alive or default dead. It is also a good way to measure the health of your company.
Try and cut down on all your extra costs if your office is on rent either request the landlord to reduce it or try and shift to a cheaper office space

As the future is uncertain, it is always better to be prepared for the worst. One thing startups must do is to be flexible and move with the tide. Innovative processes increased productivity can change the tide for you once normalcy returns. Recessions are cyclical by nature and entrepreneurs can make up for lost value once the economy improves.

Whether or not a recession happens, it is likely that the virus will affect your business directly or indirectly. The best way to handle the impact is to be prepared for it, both within your business and beyond. Discuss the impact with your employees. This is not the time to panic, but rather prepare for the challenges and opportunities that will be thrown at you.