Heaptalk, Jakarta – Since the beginning of the year, a handful of Indonesian startups were highlighted after having a fantastic amount of fresh funding. The fund also comes from the most credible venture capitals around the world – such as Sequoia Capital India, East Ventures, Tiger Global Management, etc. – that are assumed will back the startup growth into the right path in running their business.
Behind the success story, storms have certainly attacked the startups in emerging their potential to the surface to impress and convince the stakeholders and people around the startup actors. The challenge also will be more immense for them that just hit the road. Joshua Agusta, the Director of Mandiri Capital Indonesia, stated that as an entrepreneur, a person should be ready to walk on a lonely journey. However, he said that if the business grows significantly, the return will be worth.
In the journey to expand the business aggressively, some startups have several options to receive capital, one of which is fundraising. However, before deciding to take this path, the Entity should understand the rule and consequences.
Joshua stated that attaining fundraising does not reflect a startup’s success in business, it even signs more liabilities that should be borne. So through that investment, the pressure to achieve higher valuation for an entity will drastically increase, and a firm should prepare for these consequences.
Additionally, a startup should comprehend Venture Capital (VC)’s business model. In general, plenty of startups believe that their VC will assist them in their move and deliver help when their business is miserable. In fact, only a small number of VCs conduct this action. For VCs, the collapse of the startup they invested is common and becomes part of occupational hazard. VC intentionally invests in thousand of startups only to obtain the most outstanding ones.
Read also: William Gozali Shares Secrets Behind Startup Funding
Aside from the consideration above, a startup should carefully count for the cost of funds required by VC. Instead of debt cost, VC’s reciprocity will be much higher since it demands equity. The number will be in line with the risk carried. Moreover, VC often files for terms of protection regarding the liquidation preference. VCs truly know that startup’s business has a high possibility to shut down, therefore they will require a term that will reduce or save them from a big loss.
Further, based on his experience, the entrepreneur that were listed in Forbes 30 under 30 also mentioned that certain VCs apply terms that obligate startup to restore a hundred percent of their capital if the business falls down. Some budding startups are forced to agree to this term due to their bargaining power is diminutive. As the solution, startups should clearly define their place in the investor’s eyes, show off their potential will give them authority to be a business partner, not be a beggar.
Looking forward, once VCs claimed that they have passion in a startup, the statement does not always mean that the Corporate is into the business. The VC’s utterance signals that the startup has a value that can be developed and potentially provide earnings in the next few years. (WLN)
