BY SHABIR AHMED HANDOO
In our geography Angel Finance is often mistaken for an equity broking service when the two are entirely different in nature and operations. This indicates a generally low level of financial literacy even in the present era of information explosion.
Literally speaking Angel Finance is about angelic investors who are ready to finance a dream with the hope of earning big if that dream fructifies, but also ready to face loss of capital knowing well that all dreams do not come true. Where nobody dares to play with their capital, angel investors show the way.
Angel finance is a happening phenomenon across the world being an advanced area of alternative finance which nowadays forms the backbone of startup economy. The conventional debt-based finance is more suited to established businesses and industrial setups.
Startups usually begin with pocket money which are so limited that they burn within the first small steps of the formation of a startup. Such initial funds, typically very small in quantity, are called bootstrap funds that are utilised for setting up the startup which ordinarily means business structuring and paperwork.
This is the stage when angel investors step in to invest, provided they get attracted to the disruptive business idea and sniff significant growth. While this is happening laterally, the startup in its core business journey is to go through the rigorous motions to convert a promising business idea into a working business model. This journey is arduous yet entertaining and enthusing for the very adventurous promoter.
When you deconstruct any established business, you will realise that it actually solves a problem in a conventional supply chain, or a technological blockchain, or a digital intervention or in plugging a gap which increases efficiency.
For a startup, a business idea is born when that problem or a gap is identified. However, this is not enough; such problem or gap needs to be quantified in financial terms after researching into the market and the quantum of disruption that the intervention is supposed to cause.
All new ideas commence with a claim that the commensurate solution is embedded within it. However, all successful startups while providing the disruptive services or products on ground must enhance the quality of life in one way or the other. If that is the case, the startup lives up to its promise.
Howsoever an idea is promising and appreciable, it won’t find takers if the business model does not address the right kind of customers. This implies that viability of the product or services is to be tested in relation to the class or classes of people who will be directly affected by it.
All people don’t face all the problems. That is the maxim to be followed. Even in homogenous groups the business problem would affect only some of them and not all.
How large is that specific group of people will determine the quantum and size of the market that the startup can cater to and the subsequent numbers that the promoter will look at.
At this stage the promoter might like to talk about his idea with friends and mentors who can validate the idea by weighing it against the market dynamics.
A validated idea can attract experts and business leaders whose support would be crucial in building the right kind of team for the enterprise. The ideal team members are those who are equally passionate about the business idea as the promoter is.
Now is the time to focus on financial strategies. The business idea needs to be tested for its financial viability through a structured model. For new businesses and budding ideas which want to disrupt markets through intervention in a planned manner, a top-down analysis is best suited.
It starts with a market analysis, measurement of its size followed up by narrowing down to identify and quantify the gap that the new business idea wants to fit in.
This creates accurate models for strategising and provides a more optimistic outlook which in turn attracts investors with a positive forecast of the business.
These findings help promoters to also build a Unique Selling Proposition, USP for short, and construct a viable business model around that proposition. More the clarity about the uniqueness of the product or services, more are the chances of its success and acceptance by the targeted customers.
A startup demands much more than just a great idea. Time, discipline, dedication, and most importantly, funding is the fuel that sustains the idea. The business idea needs capital to move which is the most critical element of the whole project.
Raising the required capital is another major challenge for a budding enterprise. In its initial stages, the startup needs setting up costs and operational costs for the initial few months till the right kind of angel finance comes into play.
Till the inflow of external capital, the promoter needs to maintain a positive attitude which is required to sail through the financial challenges at various levels.
Since there is no income at this stage, the promoter needs to garner resources from his own savings and support from close relatives and friends for his own sustenance alongside keeping the startup moving ahead as well as paying salaries to the team. In the business ecosystem of J&K, debt funding is the main source of funds for the businesses.
However recent push for building startup economy through innovative strategies has led to an awareness of alternate funding solutions which is where the Angel finance is making inroads.
The Angel investors provide the seed capital in a startup during the nascent stages in exchange for equity in the company. The outstanding benefit of Angel finance is that it comes without asking for guarantees or collaterals and provides quick access to larger amounts of capital, allowing the startup to sow seeds to grow.
The anticipated growth is, however, dependent upon the viability of the product in the chosen market. To test the product, a MVP, or minimal viable product representing the prototype of the product or services is created to obtain the market feedback before going whole hog. The prototype is a sort of pilot project for the startup.
The pilot is launched for a definite length of time on a chosen testing group and with a plan for on-boarding the stakeholders. What you get is the necessary feedback for addressing challenges and shortcomings noted by the testing group.
After all, the customers are the masters who will give their stamp of approval to the product that is about to be launched on commercial scales. The feedback that is collected through launch of the pilot is essential to improve the quality and strategy around the main launch of the product of services. This helps in finding the pivot of the business model and necessary tweaking that the feedback leads indicate.
However, scaling up from here is largely dependent upon the team around which the business is built. The disruptive business idea, timely finance, the right kind of marketing strategy can lead to success but not without the most vital element of the project which is the quality and dedication of the team members and their capacity to correctly grasp the goals and the modus operandi adopted by the core management team. If all this is at the right place, a successful journey of the startup has begun.
Shabir Ahmed Handoo, former Assistant Commissioner Department of Income Tax, is the MD Kashmir Angel Network.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.