By Chirag Mehta, Mentor at Espark-Viridian, India
“I have probably revised this investor deck 20 times” a founder told me recently.
The startup had to meet more than 100 odd investors before they closed a small angel round. This experience, however, is not unusual. Entrepreneurs spend hundreds of hours raising funds from angel investors. No doubt fund raising is important, but what is also important for the long term health of the company is to have good advisors and mentors.
If you are an early stage company reading this blog, ask yourself, how much time did you spend trying to identify a good mentor and how much time have you spend working with him to help answer critical business problems of your company. The need for a mentor and its benefits are well documented and hence I won’t spend more time discussing the same; rather what I would share are my views on why every startup needs a finance mentor and the specific areas where they can contribute to the success of a startup.
Legal Documentation like- Term Sheet and SHA
Areas such as finance, legal, accounting are areas where mentors with this particular background can be very helpful to entrepreneurs. These are areas where one needs specific education and training to develop knowledge. I have worked with numerous startups and one observation seems to be consistent among all startups; they do not completely understand the term sheets and SHA they are signing with an investor! It is such a critical document. Once you sign a term sheet you are giving away irrevocable (in most cases) rights in your company to an external investor. Hence, it’s very important to ensure that you have mentors or advisors with whom you can bounce off such legal documents before signing them.
Another common phenomenon that I have noticed often is that, even if the startup was registered as of yesterday, the founders believe they deserve a multi-crore valuation and should be raising Crores of Rupees! And if you think that is ridiculous, try listening to the responses you receive when you ask them on how they intend to spend that money!
Startups need to respect the time and intelligence of an investor and be realistic with their valuations. Also, they need to take the effort of developing a proper financial model or a business plan that captures the cash flow mismatch of their operations and hence the funds needed to be raised adequately. Involve your mentor in developing such plans in case you are at a loss in terms of how to do it. Again, it’s a technical skill with much detail involved and just making a slick presentation won’t cut it. Moreover, one of the sweet side effects of such an exercise is you end up developing a better understanding of your own business. It also enables an external “viewer” i.e. the mentor to ask difficult questions about the business plan. It is so much better if the mentor asks these questions in the comfort of his living room, as compared to the investor asking these questions in the heat of his conference room!
Opening Doors- Investor Meetings
Perhaps one of the most vital elements of mentorship for early stage ventures is the ability of the mentor to open doors for the new company. Most mentors with entrepreneurial experience would meet with investors and funds on a regular basis. Recommendation from such mentors for a company, which they are advising is the best way to get that first meeting with the investor. Going back to where I had started this blog from, if the startup in discussion had invested enough time with a good mentor, perhaps they would have spent less time pitching to investors. Being an entrepreneur is all about working smarter not harder. So, get out there and connect with others who can help make your journey a lot easier! There is absolutely no reason to re-invent the wheel and become expert in unrelated areas when you start a business. Don’t struggle when you do not have to!