Why is it important for companies and investors to monitor and identify risk assessment?

The startup environment in India is brimming with concepts. Any successful startup starts with a solid idea, but that alone isn’t always enough. Despite the best efforts of entrepreneurs and investors. A mini case study by ‘Hello meets’ states that companies that went down due to debt or any sort of crisis went for local investors rather than looking for the right investors. Although it may sound inappropriate, choosing an investor is comparable to picking a partner or marriage. Many entrepreneurs are unable to execute their fundraising round at the right time due to the inability to choose the right group of investors, which leads to yet another downfall for startups.  Mr. Murali Loganathan, Director Research, privatecircle , shares more insights on the same.

Q1. What to keep in mind while choosing your investors during the time of startup funding?

When choosing your investors, it is important to consider a few key factors. The first is the size of investment you are looking for. Seed-Early-Bridge-Growth-Late stage investing comes with different ranges on both the investment and the entry valuations that investors prefer. Next, it’s important to assess your company’s stage. Sometimes companies move from one stage to another over time and require different levels of financing depending on their current situation. And founders may prefer to keep the number of investors small, so they will have a cleaner cap table and lesser reporting requirements. Finally, evaluate the investors and see if they align with your business plans. Some investors are more prepared and willing to help you beyond fundraising and this may be important at a given stage of the company.

Q2. Why is risk assessment important for both investors and companies?

Startup and investor risk assessment is important during fund raising because it allows you to identify potential risks early on so that you can mitigate them before they become major issues. By doing this, you can increase the chances of successfully closing a funding round without compromising your company’s future, and leaving investors confident seeing their investment grow in value as the business grows. Founders should have clarity on who the investors are, what is the source of money, how is their track record/reputation, what happens when the company hits a rough patch, how has the investor’s past behaviour been in such circumstances. Similarly, investors as part of their diligence should consider the founder’s track record and the team’s capability, in addition to looking at financials and growth projections.

Several sources of risks exist, these may include both internal / external risks. For example,

• Market related risks like competition, saturation, commodification of the products/services making it hard to sustain growth/margins, product-market fit.
• Regulation/legal risks like how Fintech startups are now seeing and responding to changes from an active central bank. Fraud is another category in itself.
• Talent related risks when key team members leave or environment does not support acquisition/maintenance of talent within the company.

Q3. How does PrivateCircle bridge the gap between investors and capital buyers on one platform?

PrivateCircle Markets is the only provider in the market to match companies to investors and investors to companies based on intelligence. Today companies do fundraising through a tedious

Process of shortlisting investors, establishing connections, pitching and then going through several meetings finding suitable willing investors. PrivateCircle Markets suggest high probability investors and allows companies to establish connections directly from the platform. Because the platform relies on massive private market intelligence, it suggests right investors for the companies instantly. Similarly investors get a relevant deal flow based on their preferences and active mandates on areas/ticket sizes/entry valuation that they are interested in. Investors can see company financials/cap-table even before they are pitched. This allows both sides to find what they are looking for without having to search multiple platforms or building networks. PrivateCircle Markets takes companies from shortlisting right investors to commits and agreements under one platform.

Q4. What are the types of risks companies and investors can face for the wrong choice?

Investors face the risk of losing capital and companies face the risk of not being adequately capitalized to sustain and grow, this is common in any investment, in public or private markets. Damaged reputation, strategy failure, inability to grow the company or provide returns to investors, regulatory uncertainty and fraud are some risks. Investors and companies should consider doing proper homework to research by relying on data and intelligence for making informed decisions.