Revving up Start-ups – A smart choice

Technology & Business Perspectives

What Technology has definitely done is to provide unlimited opportunities for those who can think out of the box. If you have a good product idea, start-up is the way to go. One thing that the start-ups have in abundant supply is new, fresh ideas. Two things that start-ups have in short supply is time, (limited by window of opportunity), and resources, limited by fund availability.

To tackle the limits set by the window of opportunity, start-ups have to address the resources short supply in a hurry. The ‘Idea to Monetization’ cycle goes through several phases viz.,

  • Ideation

    • Initial Idea

    • Idea refinement

    • Idea Validation

  • Development

    • Product Development

    • Product Validation

  • Scaling

    • Revenue generation

    • Accelerate growth & Take off.

Each step above requires resources (read funding) of varying size. The funding priorities for each stage and the associated cost would be

Funding Source
  • Research

  • Development

  • Sales & Marketing

  1. Self
  2. Development Partner
  3. External Investor
  1. Low
  2. Low
  3. Extremely High
  • Development

  • Sales & Marketing

  1. Development Partner
  2. External Investor
  1. Low
  2. Very High
  • Sales & Marketing

  • Product Support

  • Product Development

  1. External Investor
  1. Medium to Low

As any start-up entrepreneur will vouch - While the funding needs increase exponentially, the cost decreases exponentially too – as your business gets proven over time. Once you are profitable – funding comes to you. As you move through the phases, the valuation of the start-up keeps increasing and hence the earlier you get funds in, costlier it gets. Early funding options such as Angel funding comes in at a very high cost because of two primary reasons

  • The start-up is just an idea – pre-money and desperate to get in funds to enable them move up the phases

  • The investor is coming in at a time when other safer options such as Banks may not be open and hence it is considered risky.

From the promoter’s point of view, delaying or minimizing external funding in the early stages is the way to go, especially if the promoters are bullish about their idea.

This is where a Development Partner could come in very handy to delay external funding as much as possible. Development partner is the one who will help the promoter fructify their idea into a product at minimal cost and then will stay on with the start-up throughout the product lifecycle for support and continuous product enhancement. An arrangement with a development partner could be a combination of one or more of the below options

  • Low cost through offshore development

  • Lower cash outflow through a combination of covering cost plus deferred payment

  • Reward through stakes or profit sharing

A smart choice would be to find a development partner who will graduate into a business partner over a period of time.