Seed-stage investor Vaibhav Domkundwar on why a startup should raise money when they don’t need it
Vaibhav Domkundwar is a seed-stage investor with a growing portfolio of 25+ companies across software, fintech, healthcare, e-commerce and other sectors. His Better capital invests up to $150,000 in pre-seed, seed, and pre-series A startups in India and US markets.Updated: Aug 18, 2018 16:46 IST
Vaibhav Domkundwar is a seed-stage investor with a growing portfolio of 25+ companies across software, fintech, healthcare, e-commerce and other sectors. His Better capital invests up to $150,000 in pre-seed, seed, and pre-series A startups in India and US markets. Excerpts from his interview with Namita Shibad.
As an investor, what is it that attracts you to a startup?
I’ve always been a mission-oriented founder and that is exactly what I look for in a startup and its founding team - the mission. So, if say Software as a service (SAAS) is the trend in the industry and you have a startup which sets up a SAAS company, then that is being opportunistic. A company that drives great impact with its work, that is genuinely interested in making things better, that has a mission, is the one that I will choose. So a company that is trying to reinvent the Kirana supply chain is genuinely trying to get great benefits for the Kirana stores across the country. These are companies with a mission and of course, what’s important is the team.
What advise would you give startups?
That is a loaded question and it is tough to answer in short, but if I have to speak in a broader perspective and give an advice, I’d say you should have a mission and should never run out of money. Lack of funds is the surest way to failure. So structure your finances in a way that you always have money, or have a fund raising plan, that ensures smooth flow. Capital efficiency is a must.
Is there a specific time when a startup should seek funds?
That depends on the type of business you are building. Some businesses, such as e-commerce and medical devices, require funding early and may require a large amount of funding, whereas businesses like SAAS software and fintech can be bootstrapped by the founders to show strong product/market fit and traction before they raise funding. So founders need to be pragmatic about the timing. Another aspect I like to stress to founders is to create enough leverage before they go out to raise money . It helps them showcase a strong business and get valued correctly. Lastly, raise money when you don’t need it.
What are your views on equity dilution?
Equity dilution is part and parcel of how high growth companies are built today. Founders must look at the size of the opportunity and the dynamics in their market and then decide how and how much capital to raise to drive growth and optimise dilution. Raising too much or too little can both be disastrous so it is crucial to raise in stages and achieve milestones to grow the company value. Founders must focus on making the pie bigger than worrying about dilution.