Tips to avoid failure in startups

Investment or mentoring - Which should be first?

In 2016 and H1 2017, over 200 visible startups in India failed. It is not that all of them failed due to non-availability of funds, but infact otherwise.

On analyzing the invested startups, we can draw conclusion that many startups failed either because they got more money they could chew or they were starved off the funds. let me explain.

Many Hyperlocal companies like PepperTap, LocalBanya, GrocShop shut their shop in 2016 and 2017, due to splurge in customer acquisition, to the extent customer acquisition costs were higher than lifetime value of the customer!

PepperTap got $50m including $36 from SnapDeal and they continued their operations on negative transaction cost over a long period, inviting it attracting for local grocer to make a purchase, pocketing a discount of 20% (offered in the name of new user discount) and sold to his customers as otherwise he would have. Operations were not reviewed and trends not seems to have been analysed. This problem occurs when money is available in plenty and our desire is to scale fast, even fulfilling artificial KPIs.

On the other hand, food delivery startups, who started with promise as last mile delivery is still a issue to be resolved efficiently, TinyOwl, ZuperMeal, iTiffin, BiteClub all folded up, as money which was easily available last year, isn't available this year that easily, as investors have tied their purse, witnessing bloodshed at the marketplace. Scale of these startups needed, as per design, higher infusion of capital and that was not available this year.

In both of these situations, somehow, the trust between founder and investor got broken.

I am of the believe, before investing, due diligence should happen over a period of time when founders should understand the investors and like wise the reverse. This can happen when mentoring happens before the investment in the venture.

With this view, we have structured our next accelerator program, different from the market offerings. Accelerators generally give money first and then mentoring take place. The Startup Board is coming up with a accelerator program in which about 15 founders and over 30 top industry CXOs will meet every Saturday for 16 weeks, and virtually thereafter for over a year, to not only expose connections, guide as board of directors guide the management team, but also hand-hold on strategic direction and resolution of strategic issues. This approach will be better to build trust and consequent investment, when maximum weight investors have started giving on the execution capability and value system of the founders.

I would love to get your views.

Cheers! Ashish Jain