In a landscape where startup funding seems as scarce as warmth in winter, join us for a chat with Bhavik Vasa, the founder & CEO of GetVantage.
In this episode, we delve into the strategies and insights that can help early-stage founders navigate the challenges of the 2024 funding winter. Discover actionable tips to thrive amidst uncertainty, fine-tune your pitch to stand out, and understand the changing dynamics of investor behavior. If you're a founder seeking to turn the funding frost into a fruitful journey, this episode is your guide to achieving success against all odds.
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Saikat Pyne: Welcome back to another exciting season of the thrifty Titans podcast,
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Saikat Pyne: where we dive deep into the world of startups. Media
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Saikat Pyne: A I and Innovation.
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Saikat Pyne: A guest for Season three Episode one is Bhavik Vasa is
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Saikat Pyne: a season fintech entrepreneur. He's here to share his insights, Um,
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Saikat Pyne: with aspiring founders about how to survive the ongoing funding winter.
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Saikat Pyne: This episode is going to be packed with really invaluable
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Saikat Pyne: insights for founders facing the storm. So if you're ready
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Saikat Pyne: to conquer the challenges of the ongoing funding winter, stay
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Saikat Pyne: tuned because Bhavik's insights are about to warm things up. Welcome
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Saikat Pyne: to the Thrifty Titans podcast, your ultimate destination for razor
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Saikat Pyne: sharp brand building and media insights.
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Saikat Pyne: We bring you the wisdom of the most bad ass founders,
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Saikat Pyne: media ,avericks, indie hackers and content creators in the whole
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Saikat Pyne: wide world and help you grow your business and your
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Saikat Pyne: audience without losing your mind or breaking the bank.
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Saikat Pyne: Join the ranks of the Thrifty Titans and together, let's
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Saikat Pyne: build something extraordinary.
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Saikat Pyne: Let's start with the numbers. Between January and July 23
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Saikat Pyne: funding fell by around 77% to close to 4.4 billion,
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Saikat Pyne: right from close to 20 billion during the same period
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Saikat Pyne: last year.
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Saikat Pyne: So what are really the factors contributing to this funding winter?
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Bhavik Vasa: These funding cycles are cyclical.
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Bhavik Vasa: Having seen a few such cycles, I can only share that.
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Bhavik Vasa: I really look at this as nothing but just a
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Bhavik Vasa: small correction cycle.
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Bhavik Vasa: But I grew up macroeconomic perspective, right? I think all
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Bhavik Vasa: things align to a very optimistic upside. I think going
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Bhavik Vasa: by numbers there's close to about 5 to 7 billion
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Bhavik Vasa: that ventures have raised in terms of corpuses that needs
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Bhavik Vasa: to be deployed in the Indian market.
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Bhavik Vasa: So we have bought simple air. Just see this cycle through.
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Bhavik Vasa: It's considered to be a funding winter when it comes
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Bhavik Vasa: to some amount of correction in the kind of capital
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Bhavik Vasa: going into all businesses. From an equity perspective, what
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Saikat Pyne: are some of these alternate funding sources that you would
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Saikat Pyne: recommend founders look at You
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Bhavik Vasa: have different sources of family offices, Angel investments. You have
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Bhavik Vasa: venture capitalists and institutional investors. That's on the equity side.
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Bhavik Vasa: And then there is this whole area around quasi equity
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Bhavik Vasa: from traditional bank loans, which might not be very easy
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Bhavik Vasa: for startups to access right, because banks or traditional lenders
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Bhavik Vasa: will still ask for your collateral piece of land, though.
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Bhavik Vasa: Does your business have assets that I can take as collateral?
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Bhavik Vasa: Or does the business have three years of profitability? So, yes,
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Bhavik Vasa: these are some difficult items, but I think a few
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Bhavik Vasa: businesses still qualify for it,
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Bhavik Vasa: right. So you also have these traditional bank lines of
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Bhavik Vasa: credit or bank term loans, et cetera. Then you have
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Bhavik Vasa: venture debt and then revenue based financing right, which is
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Bhavik Vasa: cash flow based funding.
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Bhavik Vasa: And really, what we are talking about here is, can
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Bhavik Vasa: a business truly take its last 68, 12 months of
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Bhavik Vasa: performance of its revenue performance of its growth trajectory of
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Bhavik Vasa: cash flow performance? And can we use those matrices
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Bhavik Vasa: to be able to give some sort of a boost
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Bhavik Vasa: of capital or a growth capital that's non dilutive? So again,
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Bhavik Vasa: no collateral, no warrants, no equity, no convertibles, right? It's
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Bhavik Vasa: pure and simple. Based on your revenue. Can a business
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Bhavik Vasa: take some growth capital that its future growth and its
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Bhavik Vasa: future revenues can vary seamlessly and in a disciplined manner,
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Bhavik Vasa: repay
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Bhavik Vasa: So truly what a business does is gets from X
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Bhavik Vasa: revenue to its next milestone of two X, or three
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Bhavik Vasa: X revenue I. I don't tell founders to be expert
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Bhavik Vasa: in finance,
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Bhavik Vasa: right? That's not their job to be an expert in
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Bhavik Vasa: any one particular area. But I think
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Bhavik Vasa: truly being aware that beyond the glam and that sexiness
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Bhavik Vasa: her startup founder, right, What is my next big valuation?
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Bhavik Vasa: How much big equity money do I raise? But we
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Bhavik Vasa: forget
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Bhavik Vasa: then equity is the most expensive cost of capital
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Bhavik Vasa: and that behind just trying to chase valuation and going
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Bhavik Vasa: from one equity round to the other. If you can
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Bhavik Vasa: focus on true fundamentals
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Bhavik Vasa: of growing your revenues of just getting to the next
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Bhavik Vasa: milestone and be able to take some sort of growth capital,
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Bhavik Vasa: you know you need money for what? Inventory digital marketing,
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Bhavik Vasa: right for all these working capital items for a business,
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Bhavik Vasa: there are, um, amount of alternatives available now, and a
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Bhavik Vasa: founder should exploit and have all these options in its
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Bhavik Vasa: financial tools. How do
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Saikat Pyne: you come up with a number whether you're exploring
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Saikat Pyne: venture debt, whether you are exploring revenue based financing
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Bhavik Vasa: and both are difficult LA
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Bhavik Vasa: you don't have to be a finance genius or a
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Bhavik Vasa: chartered accountant as a founder to to know How do
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Bhavik Vasa: you understand that every startup that goes to fundraise
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Bhavik Vasa: has that as part of that, we both fancy, uh, slide, right.
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Bhavik Vasa: I'm raising so much money. And for what? And there's
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Bhavik Vasa: a nice pie chart, right? I'm sure you've seen it.
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Bhavik Vasa: Everyone is listening. And I seen it right. And in
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Bhavik Vasa: the pie chart, what do we talk about? I'm raising
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Bhavik Vasa: this money
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Bhavik Vasa: either for R and D, either for technology and platform,
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Bhavik Vasa: either for employees and then the remaining part of the
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Bhavik Vasa: pie charts are digital marketing inventory, different growth capital items
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Bhavik Vasa: or direct expense items. Right. So everybody has that answer
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Bhavik Vasa: to a You have to just open up your own
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Bhavik Vasa: M I
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Bhavik Vasa: and what you see as your direct expense items. Leave
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Bhavik Vasa: aside your fixed cost items, the indirect expense items in
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Bhavik Vasa: your PNL, right?
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Bhavik Vasa: Rent, right, R and B, A new product development. All
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Bhavik Vasa: of those absolutely need a more experimental or risk capital
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Bhavik Vasa: is what I say.
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Bhavik Vasa: But everything on the on the top end of your
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Bhavik Vasa: PNL of your MIS, right? The direct expense items, the
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Bhavik Vasa: cost of goods inventory, digital marketing was CM one CM
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Bhavik Vasa: two level KBI items there, right you absolutely know some
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Bhavik Vasa: correlation that the more capital I fuel on my inventory.
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Bhavik Vasa: What is my revenue and growth going to be
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Bhavik Vasa: when I change the elasticity or performance of my digital market?
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Bhavik Vasa: New upside will be so yes, the predictable expenses right?
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Bhavik Vasa: And there is a clear correlation to your revenue. And
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Bhavik Vasa: if you take non di capital for those direct expense
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Bhavik Vasa: items and working capital items, you will know exactly how
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Bhavik Vasa: much to raise in equity and how much to raise
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Bhavik Vasa: in
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Bhavik Vasa: non dilutive capital.
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Saikat Pyne: Let's say I'm raising my first funding round, right?
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Saikat Pyne: Should I look at the one year horizon? Two year horizon?
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Saikat Pyne: Three year horizon? You rightly
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Bhavik Vasa: said for a very early stage or seed, Absolutely. You
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Bhavik Vasa: need some form of, uh, equity capital, some sort of
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Bhavik Vasa: very high risk capital. Because you're building a product, you're
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Bhavik Vasa: understanding your product market. But once you've got a little
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Bhavik Vasa: bit of that traction going
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Bhavik Vasa: right, look at your revenue. Look at your own business
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Bhavik Vasa: model and matrix.
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Bhavik Vasa: You should be able to have both types of capital
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Bhavik Vasa: if you are still in very early stages of traction
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Bhavik Vasa: and revenue.
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Bhavik Vasa: Just raise very short term capital of six months, 12 months,
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Bhavik Vasa: few in a very disciplined fashion. So if we forget
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Bhavik Vasa: very quickly
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Bhavik Vasa: that
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Bhavik Vasa: the beauty is that no capital is good or bad,
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Bhavik Vasa: if you as a business are ensuring that you are
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Bhavik Vasa: doing your repayments, or you are making sure you're fulfilling
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Bhavik Vasa: those liabilities in a very disciplined fashion. So if you're
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Bhavik Vasa: very unsure, but you have initial traction, take six or
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Bhavik Vasa: 12 months of quick revenue based and cash flow based
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Bhavik Vasa: funding and let your quick revenues in the next six
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Bhavik Vasa: months repay that out of your growth in revenue itself
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Bhavik Vasa: and take a repeat wrong. Take a repeat wrong
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Bhavik Vasa: as you get to a little bit more traction,
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Bhavik Vasa: have a combination of both.
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Bhavik Vasa: Take some short term capital, which is for 6 to
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Bhavik Vasa: 12 months,
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Bhavik Vasa: which is in the form of a rotating line and
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Bhavik Vasa: for some amount of
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Bhavik Vasa: inventory of some amount of right. Take a longer tenure
00:09:00
Bhavik Vasa: or two years or three years capital.
00:09:39
Bhavik Vasa: Now, if you're a product business capital right up
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Bhavik Vasa: every three months, you want to first bulk up every quarter.
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Bhavik Vasa: You want to bulk up on inventory
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Bhavik Vasa: right up. You have to rebuy your inventory whether you
00:09:53
Bhavik Vasa: are importing from anywhere else in the world. Whether you
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Bhavik Vasa: are manufacturing in India up, take money. One quarter to
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Bhavik Vasa: up your inventory,
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Bhavik Vasa: right. Fuel your digital marketing. Repay that very quickly. Take
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Bhavik Vasa: another round of capital to up your
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Bhavik Vasa: next level of growth with digital marketing on the other side,
00:10:13
Bhavik Vasa: you services business like travel bookings. You are a, you know,
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Bhavik Vasa: product business that has seasonality. You will take money literally
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Bhavik Vasa: for your season time.
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Bhavik Vasa: And make sure that you bulk up on your raw
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Bhavik Vasa: material as soon as you're hitting a season time. So
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Bhavik Vasa: sometimes founders forget
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Bhavik Vasa: that not only what I need the money for
00:10:35
Bhavik Vasa: this fluctuation not only to raise equity, but this infatuation
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Bhavik Vasa: to raise long term capital. Yeah. May I get debt venture? Deb,
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Bhavik Vasa: I want 35 years. What they don't calculate is your
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Bhavik Vasa: cost of capital is far more. If you take longer
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Bhavik Vasa: term debt, you might need money for 34 months. Yeah.
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Bhavik Vasa: Last 20 years, history of India export was a very
00:11:00
Bhavik Vasa: big item. Right? And then there you had short term capital.
00:11:04
Bhavik Vasa: You had export credit. You had L CS. So why
00:11:07
Bhavik Vasa: Founders should not think of themselves as businessmen and understand business.
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Bhavik Vasa: In fact, be the word dead socket has a very
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Bhavik Vasa: bad connotation
00:11:23
Bhavik Vasa: because sometimes you see that debt that gets deflated.
00:11:26
Bhavik Vasa: Yeah,
00:11:28
Bhavik Vasa: because you've taken long term debt of 35 years. You're
00:11:32
Bhavik Vasa: doing a bullet payment after 35 years, and that's where
00:11:35
Bhavik Vasa: you get into a negative cycle. But if you do
00:11:38
Bhavik Vasa: working capital requirement and you take capital advances in a
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Bhavik Vasa: very disciplined way and keep repaying that,
00:11:46
Bhavik Vasa: it's a far more efficient way to keep growing your business.
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Bhavik Vasa: So to your question, I put it back that every
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Bhavik Vasa: founder should just take that 10 minutes extra to question it.
00:12:05
Bhavik Vasa: And if that is going to immediately give me a
00:12:07
Bhavik Vasa: revenue upside, and there is predictability of what I go
00:12:12
Bhavik Vasa: as an input to what I get as an output
00:12:15
Bhavik Vasa: absolutely raise the cheapest form of capital and most short
00:12:18
Bhavik Vasa: term capital.
00:12:20
Bhavik Vasa: Now,
00:12:22
Bhavik Vasa: leaving all of this aside, the last piece to leave
00:12:26
Bhavik Vasa: every founder with is
00:12:29
Bhavik Vasa: raise different forms of capital at different phases of your lifestyle.
00:12:34
Bhavik Vasa: Every startup and business has a different phase in their
00:12:39
Bhavik Vasa: journey of growth,
00:12:40
Bhavik Vasa: you know, Founders, kil town, great businesses,
00:12:44
Bhavik Vasa: really good idea. Really good growth tragically and we sometimes forget.
00:12:51
Bhavik Vasa: How is it that a business is raising 23 rounds
00:12:54
Bhavik Vasa: of large equity capital in the same financial year? Yet
00:12:59
Bhavik Vasa: business growth can make a time Camila.
00:13:02
Bhavik Vasa: You know, it's very it's something very unpopular that I'm
00:13:04
Bhavik Vasa: saying today on your on on your channel. But I
00:13:08
Bhavik Vasa: want founders to understand We've yeah, we've seen enough examples
00:13:12
Bhavik Vasa: that that hockey stick curve, that growth that all means
00:13:16
Bhavik Vasa: is not played out well, and especially in markets like India, right?
00:13:21
Bhavik Vasa: India is not a market of one winner. Take it all.
00:13:23
Bhavik Vasa: India is not a market of growth super fast that
00:13:27
Bhavik Vasa: you break things.
00:13:29
Bhavik Vasa: We have 30 sustainability. Now take one run, one round, fix, build,
00:13:34
Bhavik Vasa: get to another milestone. And I think there are. There
00:13:36
Bhavik Vasa: is umpteen new rhetoric coming across the globe, right? Listen
00:13:40
Bhavik Vasa: to some of the very nice old venture capitalists in
00:13:43
Bhavik Vasa: the Valley as well. They will tell you there is
00:13:46
Bhavik Vasa: a specific reason that seed series a series B series
00:13:51
Bhavik Vasa: C are defined. But today we hear startups
00:13:55
Bhavik Vasa: doing a series a B and C in the same
00:13:57
Bhavik Vasa: financial year. How is that even meaningfully possible? Yeah,
00:14:01
Bhavik Vasa: true
00:14:03
Saikat Pyne: to sustainability. How do you build sustainability into your daily operations?
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Bhavik Vasa: It only comes from
00:14:15
Bhavik Vasa: this very, very simplified understanding that I have from my
00:14:22
Bhavik Vasa: own
00:14:23
Bhavik Vasa: foundation that was created in a business family. So every private,
00:14:28
Bhavik Vasa: limited company or a public limited company has the same
00:14:31
Bhavik Vasa: format and structure of balance sheet and PNL business models
00:14:35
Bhavik Vasa: have changed.
00:14:36
Bhavik Vasa: The world around us has changed. Technology has changed. But
00:14:40
Bhavik Vasa: how is it that our financial reporting is still in
00:14:43
Bhavik Vasa: a simple straight format of balance sheet and P and L,
00:14:47
Bhavik Vasa: which still holds true till date?
00:14:51
Bhavik Vasa: So what does that tell us? My businessman or learning? Uh,
00:14:55
Bhavik Vasa: taught me the simple thing that the fundamentals lie in
00:14:59
Bhavik Vasa: your balance sheet. What is your revenue? What is your
00:15:02
Bhavik Vasa: gross margin?
00:15:03
Bhavik Vasa: What is your cost of business? You thief for a fundamental,
00:15:06
Bhavik Vasa: though
00:15:08
Bhavik Vasa: are tried and tested right decades have gone by, but
00:15:11
Bhavik Vasa: these fundamentals haven't changed.
00:15:16
Bhavik Vasa: So whether you are a startup, whether you are a
00:15:20
Bhavik Vasa: business head at an MNC, you are answerable to 23
00:15:25
Bhavik Vasa: key matrix and your contribution to balance sheet and PNL.
00:15:29
Bhavik Vasa: So your question on sustainability comes as saying you can
00:15:33
Bhavik Vasa: create as fancy and MIS as possible.
00:15:36
Bhavik Vasa: Right Number of active users GMVG TV Come up with
00:15:41
Bhavik Vasa: all these jargon but balance sheet or am I has
00:15:44
Bhavik Vasa: to change.
00:15:48
Bhavik Vasa: And what the balance sheet and M I should tell
00:15:51
Bhavik Vasa: you is look, yes, I am not saying every business
00:15:54
Bhavik Vasa: has to be profitable at bottom line from day one,
00:15:57
Bhavik Vasa: when you're innovating, you absolutely have to invest in innovation
00:16:02
Bhavik Vasa: in the olden times as well. When you look at
00:16:04
Bhavik Vasa: a traditional manufacturing setup, you invest money in K in
00:16:07
Bhavik Vasa: putting a factory machinery, and then you start seeing production
00:16:10
Bhavik Vasa: revenues and profitability.
00:16:12
Bhavik Vasa: So investing is not wrong.
00:16:16
Bhavik Vasa: But yeah, at least as a founder, have the discipline
00:16:19
Bhavik Vasa: and the majority to look at a real time half
00:16:23
Bhavik Vasa: yearly or an annual look at your balance sheet and
00:16:27
Bhavik Vasa: look at what your actual revenues are. Look at what
00:16:31
Bhavik Vasa: your unit economics are. Profitability is not important, but the
00:16:34
Bhavik Vasa: sustainability words comes from that, even if your business grows
00:16:38
Bhavik Vasa: Tenex from here, If you're unit economic positive
00:16:42
Bhavik Vasa: and your fixed costs
00:16:44
Bhavik Vasa: will plateau out or iron out at one time, then
00:16:48
Bhavik Vasa: at least you should have showcased the path of profitability
00:16:51
Bhavik Vasa: and yeah, funding. Winter rolls of every few years, right investors,
00:16:58
Bhavik Vasa: revenue, the cow profitability, the cow. And this has certainly
00:17:01
Bhavik Vasa: will be an investment cycle. As a founder, I should
00:17:06
Bhavik Vasa: have the discipline in the majority to not get carried
00:17:09
Bhavik Vasa: away from an upcycle
00:17:13
Bhavik Vasa: and just to a reflection on my own PNL and
00:17:16
Bhavik Vasa: business statements
00:17:19
Bhavik Vasa: to gauge the sustainability of my business model. And every
00:17:22
Bhavik Vasa: founder has and knows it.
00:17:24
Bhavik Vasa: Every business head, even in a large corporation, knows it.
00:17:27
Bhavik Vasa: That is his business sustainable at a unit, economic level
00:17:31
Bhavik Vasa: or not, but it's not as test of and
00:17:34
Saikat Pyne: on that inside foot note, it's a wrap. Thank you
00:17:37
Saikat Pyne: for joining us on the Thrifty Items podcast. I sincerely
00:17:41
Saikat Pyne: hope we were able to bring you one step closer
00:17:45
Saikat Pyne: to building and growing your venture.
00:17:47
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00:18:19
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