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Funding is not a solution to every business problem

Ajeet Khurana

Ajeet Khurana

Startups need to curtail overspending. High cash burn rate is acceptable only for a short term. Startups need to be creative in their pursuit of getting more customers. Over-dependence on advertising (to get more users) depicts a lack of creativity and imagination on the founders’ part. Investors need to re-calibrate their approach towards senseless spenders. A change in management might just help achieve greater success at lower costs.

Market size of the opportunity

One of the first things to attract me is the market size of the opportunity a startup is chasing. Large markets help entrepreneurs achieve remarkable success. The team is equally important. I keenly observe and analyse the team to figure out if they understand the entrepreneurial path. Since I enter at an early stage, I only look at businesses where I can add value to the entrepreneur. In addition to these “rational” criteria, I do admit that intuition and gut feeling play a significant role in every investment decision.

Purchasing customers and cash burn

Customer acquisition is always an expensive proposition. Yet, startups should refrain from falling prey to the tendency of “purchasing” customers at any cost. Unfortunately, funding makes many founders unimaginative. They use the lazy approach of spending millions on advertising to gain customers. Investors need to ring in top management changes at such startups.

Cash burn, even high cash burn, is okay as long as it is for a short period. What bothers me is sustained periods of overspending. Of course, nothing is more repulsive than dealing with a startup that consistently sells at a price lower than its marginal cost of acquisition/creation. If you think that throwing money can solve all business problems, you are not creative enough to be an entrepreneur.

Leadership development

A common mistake is that entrepreneurs do not spend enough time and effort in developing leadership within the organisation. It’s true that a startup grows fast as long as the founder directly runs the show. However, when the company grows beyond a certain size, the organisation can implode in the absence of a second line of leadership.

Numbers speak louder than presentations

Startups often want to raise money at the idea stage itself but few succeed in doing that. Eventually, only the A+ startups will survive. However, at the seed stage, it is difficult to separate the wheat from the chaff. As a result, even B- or C-grade ventures may get funded. Soon, their true worth becomes apparent as real numbers speak louder than PowerPoint forecasts.

The challenge of exits

India is increasingly adopting the Silicon Valley model of entrepreneurship and funding, which has its pros and cons. On the positive side, there’s more capital available to fund ideas as investors now have a higher risk appetite. However, the rest of the business world has not kept pace with the changes in India. Therefore, exits won’t happen easily.

Are most startups overvalued?

In many cases, later-stage investments take place at valuations that are much more reasonable than early-stage levels. At present, Flipkart is valued at two to three times revenue, if not lower. Not too long ago, it was valued at 20 times. This indicates that the present boom is different from the dotcom bubble of the late 1990s. In the long run, sanity does set in. Early-stage valuations are bloated because there’s just too much money chasing Indian startups. However, there’s still enough value to be found.


Many startups get investors on the mere basis of their founders’ education qualifications. Then there are firms that get funding without doing anything of value. But I see these as aberrations, and I am quite comfortable with the overall picture. I don’t think we are in a bubble yet.

Ajeet Khurana is an entrepreneur-turned-angel investor. He mostly invests in early-stage ventures but not at the idea stage. A University of Texas alumnus, Khurana had founded Corpus Collosum Learning Pvt Ltd and KITS (Khurana Information and Training Systems Pvt Ltd). He had a short stint with IIT Bombay’s Society for Innovation and Entrepreneurship as CEO. Khurana has invested in companies including StitchWood, Koonk Technologies, GodCast, Rolocule Games, United Mobile Apps, Karmic Lifesciences and Carve Niche Technologies.

As told to Principal Correspondent Binu Paul.


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Roshan October 21, 2015 18:30

Writely put.

guruprasad.kn October 22, 2015 12:51

I Agree with Ajeet. I had the opportunity to work with one of the start up. all their energy and zeal was towards funding. most the present start ups are surviving on funding. you need to develop a sustainable model which has to run on its own. funding may be for development of portal / app. bringing users and sellers merchants on your platform should be the business model / solution your are providing.

S. Ganesan October 22, 2015 14:46

You have put the issues in the correct perspective. It is not wrong or harmful for people with any educational background to enter a commercial venture. But each one should know his strengths and weakness.

Adventurism to a certain extent can be termed as “Ability to take risk’. Beyond the same it becomes gambling. Again gambling is ok as long as it is with your money and not with borrowed money. “Copycat” & “Herd Mentality” in entering a business is also not advisable.

The “Theory” of incurring loss during first few years by under-cutting, beat competition with financial muscle, create a monopolistic situation and then go for a “kill” to make super profit is no more valid as the Investors are also expecting a “RETURN” within a reasonable period