HotORNot Approach vs Deliberation

I read this very interesting blog this Sunday about why startups should stop chasing angels and move to work with VCs and try to raise only institutional investments.

For the time being I will assume the VCs have no personal agenda here. I will also assume that the VC markets in India are at an almost level playing field as that of the valley.

The fact of the matter still remains that the time spent on trying to raise institutional investment is far greater than an accept/reject decision at lunch with a HNI. Often this 'deliberation time', i.e the time from the first presentation to funds transfer, results in an opportunity loss. Especially in case of niche services or lateral technologies, where the founders don't really want to step out of their labs/sales offices and keep doing lunches or dinners with portfolio managers to negotiate term sheets and time lines.

This time lost can not be gained back and if the product or service is already beginning to pick up traction, the founders may not really have the bandwidth for such 'deliberation time'.

This 'time' is more apparent in Small to Medium service companies who need the money only to scale. Infrastructure, skill sets, technology and marketing. The know how much they want, how they want it dispersed and where and what are the returns like. This accuracy of investment often pushes them to opt for debt and especially in countries like India, debt financing is a very popular choice due to the short funding cycle and the speed with which the money comes into the bank.

Another reason why markets like India can work very well with angels is because of the lower valuations. A VC wants its floor investment to be $5M. Startups in India find it difficult to match these valuations in their first year of business. So unless they build cash flows touching $1M in the very first year or put in their own USD 500K to develop a technology , VC funding is pretty much out of the picture. And this is almost certainly impossible to see in startups being founded by young entrepreneurs below the age of 30. For technology startups this is all together a much bigger issue due to the bloating salary structures that defy logic and sense.