Fundraising is a two-way street. It’s just as much about the entrepreneur learning more about their potential investors as it is about the investors learning more about the company. It can go a long way to take into consideration the mindsets and motivations of investors — and while there are principles / commonalities, it can differ from fund to fund or even investor to investor.
In this article, we dive into one investor’s mindset, our VP Shefali Dodani, through notes from her recent podcast with Bipin Mishra (scroll to the end to see the podcast) on her approach to evaluating market opportunities, founders, companies, especially in Indonesia, and how it has evolved since she started her venture capital career back in 2018.
We took some key notes from her sharing:
1/ The oft-mentioned big market opportunity of Indonesia may not be quite as big
Such is the case when you factor in how extensively the company can actually sell (distribution) and who are actually buying (target segments). Distribution is not easy to build especially in Indonesia, home to 17K islands and high logistics costs. And it’s important to factor in population by income classes and product price when determining target segments. This “locking out” of market opportunity may not necessarily be a weakness initially, to focus on achieving real product-market-pricing fit.
2/ Old school is in for first-time founders in Indonesia
They’re a new generation of first-time venture-backed founders in Indonesia: old school entrepreneurs, digitizing their traditional businesses. And what sets them apart is not just domain expertise but also a savviness for business that focuses on what many investors are seeking these days — healthy unit economics and capital efficiency.
3/ Fundraise with exit potential in mind
It’s important for entrepreneurs to consider existing exit outcomes in their industries as well when it comes to approaching VC fundraising. Outcomes are not just valuations at IPO or acquisition but also the path it took to get there (i.e., how big of a business did it become, how long did it take, how much money was raised prior).
4/ Comparables are important, but so are the nuances of Indonesia
When discussing comparables / existing exit outcomes globally with potential investors, it is important to also see how well they are able to draw not just similarities but also key differences, depending on the regulations, socio-cultural nuances, and competitive landscape in Indonesia, for example.
5/ Factor financing into your company’s unit economics and cash flow
Financing is also part of unit economics and cash flow. As Shefali shares, “Founders should pay attention to being able to ensure not on a P&L basis, but — let’s say they take financing — the interest that they pay to these financing companies are also factored into unit economics, which five years ago, maybe this was not a core focus.”
6/ Do you really want to raise VC money?
There needs to be founder-investor fit — an alignment of expectations on what the business can become. Shefali expands on this point in the context of D2C brands. “I have seen a lot of D2C brands not raise VC money, and my point is they’re very profitable. But at the end of the day, it goes down to what are the entrepreneur’s goals and their ambitions? So VC money is like jet fuel. These D2C companies are very much working capital heavy. So at the end of the day, if you want to turn, let’s say 100K in year one to 5M in year two, you wouldn’t be able to do that without raising. So I would say those that have an ambition to turn 50M to 100M to 500M in revenue, those would be the type of profiles that would and should raise money. Even if you take a loan from a bank, you can’t take that large of a loan.”
Learn more from her and other investors in Insignia Ventures Academy’s VC Accelerator program! Cohort 7 (March 2024 intake) is open for applications!
See the full podcast: