The need of the hour in a fast-paced startup environment where innovation meets aspiration is not advice & solutions from an army of consultants and investment bankers like never before. We are counselors at the front of the battlefield, traveling with entrepreneurs as they navigate their way through funding and growth. But the question remains: are we truly providing effective startup consulting with strategic, if not operational guidance, or simply skin-deep makeover in your pitch decks and valuation spreadsheets? We need to take another look around.
The path to investment banking is typically long and challenging. Investors and founders are required to invest prudently, which is what we expect them to do in the first place. We need to be more than just a conduit for raising money and try to maintain a closer working relationship with each of the startups we support. It requires boundless reading, counterintuitive critics, and steadfast dedication to stats and unparalleled business constructs.
And if we do want this transformation to really happen, we need to push ourselves to spend time and try to get a complete sense of our clients’ businesses. In turn, if we are properly aligned with where the founders live today and aspire to be in the future, it makes for a more aggressive ecosystem built around actual frameworks of success which will come not just by securing investment but also by building companies that can eventually grow, scale, sustain. In the sections to follow, we flesh out key learnings that can restructure the way consultants interact with startups; which in turn leads to a more contributive relationship.
Are You As A Consultant Providing The Right Direction To Startups?
The investment banking exercise is tedious and has a long gestation life. The closest to the founders are their consultants and investment bankers. We have the onus to deal with startups more responsibly and not waste time and efforts of investors and ourselves. Consultants need to be strategy partners for clients than merely try getting funds for the company. Most of the consultants take up an assignment and start deliberating on fancy pitchbooks and valuation models. This needs a transformation. Do a homework and lot of research on the business model, meet the management at least 2-3 times before taking up an assignment, make them aware of their success ratio of getting funds, and make the founders realize the business model lacks uniqueness (no client would like to listen to this, however, trust me they would still be happy to get insights and push themselves to make it different). Do you challenge the founders? As consultants, try taking up this useful exercise. Below are relevant observations and justifications.
Founder’s / Management’s Full-Time Role And Involvement In The Company
In case it’s a part-time business for the founders and there are no stakes involved for them to grow and flourish the business.
Looking from the Investor’s Eye: The owner has to be hungry; needs to eat, drink, and sleep to take the business to the next level. Put your bet on the company or idea which is striving to make the business model profitable. In case the founders merely talk about “When can we get funds?” are the ones you need to filter out.
Monetization Of Business
Cash-burn businesses used to be the focus of the investors a couple of months ago. The investors today are more learned and cautious to invest merely based on the cash burn ratio.
Looking from Investor’s Eye: As Consultant, segregate and analyse the cash burn based on client acquisition (this is a plus), extensive marketing (this is a minus as startups do not need expensive marketing, rather word of mouth, and social media marketing will be good to start with).
Background Research About The Business Model
When management is deep inside the business models, it is assumed that they would have researched about the business in depth.
Looking from Investor’s Eye: Investors are keen to compare businesses so to analyze the scalability and replicability. An in-depth research of business models, revenue streams, international best practices, and domestic peer groups is a must. Founders need to be aware of pin to plane about all these aspects apart from evaluating the need and necessity of the business model.
Technology Intervention
How manual is the idea? Would it bring a disruption? Does the founder belong to the same/similar line of business?
Looking from the Investor’s Eye: In case, the founders are not related, they might need a strategy partner or board of advisors from a similar line of business. After which one might explore technology intervention which could possibly transform the process.
Vision Of The Management
Spend 1-2 hours to understand the vision of the management. The shortcut is before meeting ask them the vision to be written in 5 sentences with maximum 6-7 words.
Looking from Investor’s Eye: The clarity, scalability and reliability in the vision statement is must for investors.
International Best Practices And Practical Adoption Of The Business In The Country Where It Is Located
How international peer group is working, are their best practices which could be replicable in your current business?
Looking from Investor’s Eye: Investors are largely driven by precedence as they are able to compare and envision the future.
Uniqueness In The Idea
What is the problem statement, and how unique is the idea?
Looking from Investor’s Eye: In case, investors feel there are ample such business models, they might uprightly reject the idea. There might be an instance where the business idea is unique however, the way it is positioned it does not appear TO LOOK UNIQUE.
Collateral And Stakes
Ask your clients what assets they or their family own. Would they like to mortgage those assets and get funding?
Looking from the Investor’s Eye: Investors want to see promoters’ skin in the game. In case they are reluctant to invest their own money, why would you expect a 3rd party equity investor to take a risk? Investors like to see the confidence of the founder in the idea.
Last is would you as a consultant invest in the business leaving your fee aside
This shall serve as a hypothetical and practical analysis – Would you as investment bankers and consultants pledge your money and advisory fee to make it successful? If the answer is yes, then strive hard to make it successful.
Most founders today start business out of lure of getting high valuations, to get name and fame, to be independent, to showcase the world and relatives that they are doing something different. However, the truth is far from reality. The valuation is merely an illusion, its just a number.
One suggestion to founders: Don’t start burning cash and make it big by thinking equity money is free money. There are no free lunches. Empathize with the money you borrow. Consultants need to provide genuine and straightforward advice to clients than providing them false hope of deal closure.
Also Read: Investment Memorandum Guide for startup
