From Seed to Series A Funding: An insightful AMA Session

Munem Shahriar Islam Shamonto

On Wednesday 27 May 2020, an AMA session took place with Rajan Anandan, Managing Director of Sequoia Capital India and Surge about “All aspects of Company Building and Fundraising from Seed to Series A”. The session was moderated by Sonia Bashir Kabir, Founder of SBK Tech Ventures.

The topics that were covered in the conversation are as follows:

What are the survival tips for startups in a situation like this?

Even with the lockdown getting put off in a couple of months, the situation is likely to stay here for 12-24 months to get as better as  pre-covid. 

According to Rajan, the first thing startups should do is come up with different scenarios. One is where the product demand will stay soft for 2 years. Another one is where the demand will stay soft for up to 5 months and will then slowly pick up. And the final scenario would be where the demand will start picking up in a couple of months by the early 2021. Setting up the scenarios will depend a lot on the industry the startups will be in.

 He further added that, the next thing startups should do is ‘Survive’. Assuming the worst-case scenario, they should come up with a plan to survive, which in most cases he referred to plans to extend the cash runway at least up to 12 months. 

Moreover, in the to-do list, the startups should go back to their drawing boards and take into consideration every assumption and plan they came up with (e.g.- how do they go to their market, who are their customers, how they’ll build a product, how they’ll sell) and when they get comfortable with their survival plan, they should proceed towards reimagining their business plan .

When you reimagine your purpose as a startup, how true to your core must you be, and what are the verticals you’re seeing from your lenses in Surge that you’d be interested in looking in a marketplace like Bangladesh?

Reimagining the purpose totally depends on the type of industry the startups are in. As Rajan mentioned there would be three categories: 

   1. Deeply impacted industries such a movie theatre, travel agencies, sports events. 

   2. Industries having headroom like online education, tech, health and hygiene, digital health, remote work, online grocery, automation.

   3. Industries that fall in the middle; where the impact isn’t even zero or have a tailwind.

Reimagining the business also relies on factors such as whether it’s an early-stage company or a company with fundamentals established for a fair amount of time where all the machinery and employees are settled followed by the cash runway they have. 

How do e-commerce startups manage their burn and also manage to reach  mass people?

In response, Rajan discouraged such growth where the startups lose money in every order with zero positive unit economics. 

During lockdown, a lot of e-commerce companies’ burnout rate reduced as revenue rate went to zero of not getting any order. What they’ll eventually have to do is figure out a way to get positive unit economics and find out the categories where they can build a viable business, Rajan added. Even if the companies have a gross margin with zero positive unit economics, Rajan suggested that they go back to their drawing boards and create some paths to profitability and build a product the consumers will actually love. 

What are you seeing in Bangladesh and what you’d like startups to do to reach out to surge and apply for funding?

Bangladesh; with its large population, lack of digital and physical infrastructure, lots of unmet needs, rising incomes, and an uprising GDP growth – is a very interesting country to invest in, according to Rajan. Moreover, he’s seen the caliber of Bangladeshi talents along with technical and entrepreneurial talents; which he thinks are the core elements for targeting a larger market as a company and actually pulling off the job. Having these in mind Surge would like to see many more Bangladeshi startups applying to Surge. 

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What is Seed to Series A? In number clarification. 

The definition varies by country, as Rajan mentioned. In India, a friends and family round might be 100-200 thousand dollars, an angel round would be 200 thousand to a million dollars, a seed round is 1-2 million dollars and a series A round would be 5-7 million dollars. But for Bangladesh, a 1-2-million-dollar round may call a series A round but  at Surge they would consider that as a seed round. 

For Bangladeshi companies how do they network and reach out to VC’s (Venture Capital) / What are you looking for in startups in case of  post COVID funding?

 Rajan emphasized on building a company that stands out in the first place with awesome products along with amazing founding teams. And if the startups have already launched and built a product that consumers love, the investors look for a very good insight on how they’re going to crack the market. 

After the establishment is done then they should research who are the VC’s outside Bangladesh that might be interested and approach with persistence. 

How do you weigh the age of the companies while considering their applications?

Surge is only interested in large companies, by large Rajan meant companies that’ll have several hundred million dollars of real revenue and several billion dollars after 10/15 years along with a purpose that’s inspiring and may deeply impact society. Age of the company comes to little consideration in comparison to the founding team.

If the startup thinks that with the right capital and support, they can end up building a very large company, Surge would be very interested in hearing them out. 

If a company is old enough and needs more than 2 million dollars in investment, what will Surge do?

Surge only does investment up to 2 million but also co-invest with other cohort investors from Surge and help meet the requirements of the startups. 

What is happening globally in Agri-Tech verticals?

There’s massive inefficiency in both the input side and output side. And demand creates opportunities where a lot of investors are investing including Sequoia. Rajan added that, as there’s a lot of need to fulfil there’s a number of things to take into consideration such as, which need to focus , how to build a product that really meets the need and the way to monetize . The startups will have to find innovative financial models, revenue models and then approach for finding investments. 

What are the due diligence points to take into consideration while applying for surge?

If the applicant company is pre launched then Surge will do a lot of research from its partner companies asking for recommendations and will dig deep on its probable market. If the applicant company hasn’t launched yet, then Surge will go through the application and will evaluate the projectile the company is claiming to have and urges not to make things up as the investors will eventually find out and the startups will lose credibility.

What can a founder  expect to have left for him after a three series big rounds have been raised?

Rajan summarized that the more money they’ll raise the less equity they’re going to have. And one point to note is the startups should focus on raising money from the customers rather than totally depending on the VCs.

What should the startups do for the customers to actually satisfy their acquisition of what’s in it for them?

Simply making a product that the consumers love will solve the problem because losing money on every order or paying the customers to use the product is not an option. 

What does surge look in technology play when the startups apply for funding?

Proper understanding of who the user is, what is the need that the product is trying to meet and why a consumer will use this product and will keep using not once or twice but on a regular basis. Deep tech applied to a very real problem of a consumer definitely interests Surge, as Rajan mentioned. 

How do you convince your consumers to actually buy your product? 

When it’s for convincing consumers, the marketing team has to play the role. The storytelling is what will make people realize that they have this need. It always comes down to those first hundred or thousand customers whose experiences.

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