Fortune at the bottom of the pyramid
The startup scene in India has been much talked about, some of it surely motivated us to begin ScoutMyTrip, almost 7 months ago. While the slowdown and lack of funding etc. are being discussed till the cows come home, there are some very apparent pitfalls that every new entrepreneur needs to be wary of!
We met a gentleman in the very beginning of ScoutMyTrip. I do not wish to name this person, but I am glad we met him at an early stage. So here is how it went.
Him: I have over zillion contacts and I will promote your venture to each one of them because I meet them personally every day because my work involves a lot of travel. All I need are visiting cards, and you will see how business grows because all of them are HNIs.
Him: And I am not a money minded person. I don’t expect money from you. A 26% stake in the company and we can work out the modalities later should be good to begin with.
Us: totally zoned out.
He went on for another hour, and the two hours we spend at his office were never coming back. The thing is, there are artists like him everywhere. And there is an entire industry which looks at just making money off startups. The scene is pretty bad. And bootstrapped startups are the leanest of them all – the bottom of the pyramid. So whoever was a big fan of Gurcharan Das, decided to apply the same principles here.
Only startups aren’t buying 3 rupee sachets. They are either letting go off equity in their company, or paying big money to set up stalls in startup events with the hope of investors noticing them, to selling their kidneys to gain traction from early adopters.
Our discussion with the said gentleman was no rocket science. But I know a lot of startups which might even do this; because all said and done traction is one of the most crucial pieces for any startup. Great products don’t succeed because of lack of traction. But if we had decided to part foolishly with the 26% we would have lost the majority control in the company to pass any special resolution*. And that means a lot in the initial stages of the company.
There are plenty of such schemes around, equity for work spaces, for expert advice, for getting introduced to “future Investors” etc. My advice to the startups, treat equity as cash! Don’t let go of your equity easily. A lot of these are genuine and will help your specific startup. For E.g. the tech startup that insources will need an office space, but don’t throw away a large chunk of the equity that you hold, negotiate hard and make sure you get your bang for the buck.
Understand that nobody invests unless and until they think that your company or your idea has potential and that your team has the potential to turn that idea into a success.
Till then stay safe and hold on to your money!
*To pass special resolutions, there needs to be a majority of 75% of all shareholders to vote in favor.
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