29 Jun 7 Steps to Sell Your Start-up

Talk organized by Renous consulting on June 27th, 2020 between Rishiraj Shrawat, Cofounder Qunami and Varun Dhingra, CEO Renous Consulting.

In 2016, when Reliance Jio launched, adoption of smartphones with internet capabilities surged. Until 2016, real money gaming was a niche market dominated by various poker sites, rummy sites and fantasy gaming. Rishiraj Shrawat and his co-founder detected a trend, that with Jio, real money gaming for masses is on upward trajectory. They envisioned that in another 5-10 years it was going to become big and started their company Sports Unity. Their first product was sports engagement platform by the same name “Sports Unity”, then they pivoted to sports quizzing platform and eventually to general knowledge quizzing platform called “Qunami” which proved to be their flagship product.

First step, for a successful start-up, is to detect and envision the early opportunity. Also, not only ideation execution of the idea is equally important. If you identify opportunity early, it allows setting base. It gives you the advantage of position and allows some time to make a few mistakes.

Second step is the selection of right team with the right attitude. Technical skillset can be learned with time however, the team should be supportive and power through lows a start-up faces from time to time.

Third critical step pointed by Rishiraj is, the founder should try to build the minimum viable product and solve the real problem. Example, if someone is trying to build B2C product, to demonstrate quickly, try to build a minimum viable product, concentrate on adding few features. While building a product/service be sure that some real problem is solved or purpose is addressed.

Accelerators are important for young, fresh out of colleges entrepreneurs as they provide a protected environment where founders are allowed to learn the basics of building product/service, building minimum viable product, understanding market size and validity of market.

Fourth step to build a successful start-up is to be calm and composed when things are going in the wrong direction. The founder, who carries the responsibility of the team, should accept when something is going negative. The entrepreneur should try to be objective and set his/her feeling aside.

Fifth step for a start-up is having the right co-founder. Co-founder should have complementary skills and should fill the gap that exists in the other person skillset. Rishiraj said, “I have a more structured thought process while my cofounder thinks more out of the box.”

This majorly helps in building product, scaling it and raising money. It is important to understand co-founders may have conflicting views, but the opposing views should be taken objectively not personally. The co-founders should be open to the idea that they may be wrong.

Age is just a number while selecting a co-founder, maturity level and their temperament is more important. As an entrepreneur there are going to be multiple avenues of risk exposure. If a person has a certain question mark over cofounder, he/she should analyse whether the same is in his/her accepted level of risk.

Sixth step is to reach a fair valuation of the start-up. It is important to set the realistic and justified value to products. It should not be too much ballooned or too small. Valuation also depends on the stage of start-up at which equity is sold and also whether the founder is diluting or selling outwardly.

Investors understand the principle that if they dilute founders’ stake to a large extent then there is no motivation for the founder to multiply value. Varun Dhingra, CEO of Renous consulting, added, “We see as an advisory firm for any fund-raising discussion that at what stage the promoter, original founder of the company will fall below 50% and below 26%. These are the 2 critical numbers which we look at. If the founder is falling below 26% at say Series A or series B, we avoid those kinds of investment discussion because mostly the company is owned by the investors, and the founders don’t have say in the company legally. So, there are 3 controlling stages of a company which is 74% or 75%, then 50% and then 26%.” The moment the control gets loosened for the founders at initial stage than later stages, investors lose faith in the company. In initial stages stake of founders should not fall below 50%.

When reaching out to investors, the two things that founders should have understanding is the market and the business inside out. The market covers knowing your customers, competitors, fundraising done by competitors, growth trajectory forecast in next 5 years, amount of money to be raised and how to justify the money requirement, avenues for spending money. Business covers the understanding of business matrix inside out example, cost of customer acquisition, a retention matrix, amount of lifetime revenue that can be generated from each customer. The founder should know these numbers inside out.

At the time Qunami went for fundraising from investors, Dream 11 was already an established brand. There were some big established players in a niche market- poker, rummy and fantasy gaming. The challenge Qunami founders have to face is that they were trying to raise money for a mass product, however, they demonstrated sustainable growth over a certain period of 6 months and also, with a clear vision on how the market will be moving forward they were able to gain investors’ confidence and raised funds.

The key to fundraising is that the founder should have clarity of thought, clarity of mission. The founder should be aware of its customers, market size, and the problem he/she is trying to address. If he/she can show growth trajectory which validates economic viability that helps a long way in raising funds from investors.

Seventh step is to find buyers. As a founder, it is very important to keep networking with people in the same industry, investors and start-up ecosystem. Networking helps in building teams, poaching partnerships, and also opening opportunities. Two out of ten connections will show interest in your idea, start-up and you may find buyers within those people.

If you are planning to switch from professional to entrepreneurial life, it is important to understand the reason for the same and talk to various entrepreneurs to understand the challenges they face, their daily life. Be more aware and more prepared to enter the area of entrepreneurship.