Raising funds during a funding winter

Recently, I was speaking with a friend of mine who is looking at launching an online reseller marketplace. His model is similar to that of Meesho albeit with a few changes. The model was an interesting one and the product built was fairly robust. Having taken several months to build and all expenses paid out of pocket, my friend, like most others, is on the lookout for investors.

However, the funding winter has put a damper on his proceedings. Having spent a good amount of money on building the product, growth seems to be the problem he needs to solve. During our conversation, he outlined the following reasons for his need for funds:

1. Building a team for product development. This would mean ‘continual’ development where the product continues to get better.
2. Building a marketing/growth team that would help him market the product to tens of thousands of sellers.
3. Negotiate with buyers and sellers. Building inventory might not be part of his model, but building a robust drop shipping model is indeed something the brand would need funds for.

This leaves us with a conundrum. In a funding winter/bubble burst it is very unlikely that someone with a simple product would be able to raise funds. Therefore, the problem statement now looks a little different.

What the company currently has:

1. A product with very minimal users
2. Some funds to complete the product beta
3. A sizeable network that can onboard initial sellers onto the platform

What needs to be done:

1. Testing to start ASAP (like yesterday)
2. Initial marketing — to get the first set of users onto the platform
3. Building the initial team — A good founding team

Raising in a funding winter

Based on all this, the need for investment seems quite clear. But, raising during a funding bubble burst means that he would need to do something different. The companies currently raising investment are ones that are either bridge/follow-on investments or founders who have been successful in the past.

The question now becomes, how can my friend raise money? What does he need to do to raise money to get his app off the ground? Well, the first immutable fact is that he needs to get users. And fast. Here are two ways (according to me) he can go about raising money immediately.

Primary research — I continue to harp on this because it is super important. Any startup in its early stage has to do this before building a product. There are four ways of doing this — interviews, surveys, focus groups, and observations. A hypothesis should be made first. This is generally known as secondary research or RRL (Review of Related Literature). Observations and patterns should be recorded first before diving into questionnaires or focus groups. If primary research is done properly, getting meetings with investors is a lot easier. I have covered this on Medium previously.

Airtight P&L Statement — A P&L statement typically involves a DCF valuation to be done, Building this model requires several assumptions to be made in terms of projections. These assumptions need to be articulated clearly and in a concise manner. Should these aspects be articulated well, a VC or a series of angels would be willing to show interest.