Startup Funding Trends

At the bottom of great startups lay good business models; Getting the business model right has a profound impact On the chances of getting early investments

What is a right incubation deal

One that helps you get your business model working right and not one that gets you more money

Working on the business model is one of the most Important tasks that incubators undertake Its more important than the funding incubators give

Getting the business Model right is often a tricky process.

What kind of questions need to be answered?

Often wrong questions are asked

#What Matters for investors? #Should I focus on users or

Margins initially?

Lets findout!

(A) Low Margin – High

Volume

(C) Low Margin –

Low Volume

(D) High Margin –

Low Volume

(B) High Margin –

High Volume

Four Types of Startups

Margins

Vo

lum

es

Some startups in 2011

Data: 2011

(A) (B)

(D) (C)

How they eventually did

2011 2013 – Eventual Funding

Groupon B 1140 Mn

Spotify A 188 Mn

Air BNB D 120 Mn

Quirky D 91 Mn

Kickstarter C 10 Mn

Flattr C 2 Mn

Humble Bundle C 4.4 Mn

A Quadrant startups – Between high margins and High

users/Volumes, the higher volume is preferred; Google acquired Spotify. The only of

these companies to be acquired by Google

B Quadrant startups – High Margins, High Volumes is best; Groupon went to be the only

company going till the IPO stage

C Quadrant startups – Ofcourse the worst quadrant to be in but that doesn’t mean that these

startups don’t survive; They do but with lesser investor

confidence; Startups like Kickstarter are changing the

world

D Quadrant startups – AirBNB and Quirky have raised

impressive round of funding; better than their C quadrant

peers but less than their A or B quadrant peers

The hierarchy of Business Model funding

#1 #2

#3 #4

(B)

(D) (C)

(A)

Revisiting the questions we asked initially

Q. What matters for investors?

A: Users

Q. Should I focus on users or Margins initially?

A: Users

Infact “What matters for investors?” is not an useful question initially; More useful question is “What matters for users?”

Startup Deal space in India: What brewing for incubators?

We’re beginning to do awesome!

2012; Year of action + traction

Saw 200+ deals and $700+ million flowing into the venture funding

The best part was avg. deal size was $3.5 million and there were plenty of deals

This better than past years when just a handful of ecommerce deals accounted for most of the dealflow

>Close to 50% of the deals were at

seed stage in 2012

>Signs of good ecosystem emerging

Early/Incubation stage funding gaining traction

Healthcare displaced the e-commerce sector as the most invested sector

Healthcare

Consumer Web Education

E-commerce

Top four sectors for investors

Large number of deals have happened unlike previous years when only e-commerce saw traction Sector spread is growing too Incubators would do well to spread the portfolio across sectors and business models. Niche incubators can focus on sectoral spread for more investor interest

Growing Investor confidence in diversity

> End