Recently got involved in a business plan competition that had some amazing new ideas.
Some of the ideas were really good. Did not require much money. Made a great impact. Good value proposition. Good team etc.
However, one of the parameters to judge was "Is this idea investment-worthy?". No. It was not. But it was heck of a lot better than many of the other ideas we had seen that day.
And that got me thinking.
Should I focus on building a "fundable" business? or a good business? Are they the same?
Firstly, in most cases, fundable implies the funding is from an angel/ VC/PE fund. And this class of capital is what is forcing a distinction between fundable businesses and good businesses.
From an investor perspective, given the class of capital it accesses for setting up a VC/PE fund, they have to play a high-risk, high-return game. And hence, they will have to screen out ideas that do not meet their criteria.
All fundable businesses need not be good businesses. They are fundable because there is a "mystery" (a word that one of my friends from the PE industry used); there is a possibility of significant and more importantly, rapid scale - apart from the usual points about large markets, good team, value proposition etc.
All good businesses are not fundable businesses. They are "good" because they are predictable, profitable, repeatable. Scalable - yes. Rapidly scalable - maybe. But very often, not so.
Some fundable businesses evolve to become good businesses. In most cases, the good businesses do not have the "mystery". The model is stable. The value proposition is defined. It is all about execution. The new girlfriend fixation that I referred to in one of my earlier posts.
The focus on funding can lead to a very different path from the focus on building a good business. Do you find new, exciting growth opportunities - that make the business "fundable"? or do you focus on building on a good business that is solid and has a huge opportunity - but not fundable?
The high-risk funds were required to build a good business from just an idea. Once the business is built, the same source of funds might not work as the nature of the venture has changed signficantly.
Maybe it is better to focus on building a good business and then let the business define the class of capital it can attract. Maybe debt. Maybe angels from the industry. Maybe individuals - in a quasi public issue. Maybe no capital at all.
But at least, ensure that the focus is on building a good, old-fashioned business first. And a fundable business second.
Some of the ideas were really good. Did not require much money. Made a great impact. Good value proposition. Good team etc.
However, one of the parameters to judge was "Is this idea investment-worthy?". No. It was not. But it was heck of a lot better than many of the other ideas we had seen that day.
And that got me thinking.
Should I focus on building a "fundable" business? or a good business? Are they the same?
Firstly, in most cases, fundable implies the funding is from an angel/ VC/PE fund. And this class of capital is what is forcing a distinction between fundable businesses and good businesses.
From an investor perspective, given the class of capital it accesses for setting up a VC/PE fund, they have to play a high-risk, high-return game. And hence, they will have to screen out ideas that do not meet their criteria.
All good businesses are not fundable businesses. They are "good" because they are predictable, profitable, repeatable. Scalable - yes. Rapidly scalable - maybe. But very often, not so.
Some fundable businesses evolve to become good businesses. In most cases, the good businesses do not have the "mystery". The model is stable. The value proposition is defined. It is all about execution. The new girlfriend fixation that I referred to in one of my earlier posts.
The focus on funding can lead to a very different path from the focus on building a good business. Do you find new, exciting growth opportunities - that make the business "fundable"? or do you focus on building on a good business that is solid and has a huge opportunity - but not fundable?
The high-risk funds were required to build a good business from just an idea. Once the business is built, the same source of funds might not work as the nature of the venture has changed signficantly.
Maybe it is better to focus on building a good business and then let the business define the class of capital it can attract. Maybe debt. Maybe angels from the industry. Maybe individuals - in a quasi public issue. Maybe no capital at all.
But at least, ensure that the focus is on building a good, old-fashioned business first. And a fundable business second.
