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When, how, and from whom should a startup seek help?

23 December 2019
Author: Dmitry Filatov, Head of Sistema_VC

Any startup support measure is not a cure-all for teething troubles. Still, the more access to external experience, sources of growth, and ready answers a startup has, the lower is the risk of ruining the company with a chance mistake.

Startup incubators and mentors

In a situation when there’s no formulated concept of a new business nor an effective team yet, one of the best solutions is to avail yourself of the opportunities provided by startup incubators. These organizations «incubate» startups from scratch by helping entrepreneurs work out business concepts and gain experience and business contacts. The existence of startup incubators is a positive sign for the country’s ecosystem because incubators stimulate generation of ideas and give entry-level entrepreneurs a chance to apply and develop their skills.

At the next stage, when the business concept has been formulated, networking comes into play. Networking means communicating with other startups at the same stage of development or with more experienced entrepreneurs. Here, an advice from a mentor will come in useful. A mentor is an industry expert who is ready to share his or her experience in a systematic way, concerning both the development of the concept into a business and levelling up the founder’s personal competences.

Business angels and accelerators

At the stage of creating and testing a pilot version of the product or service, the problem of financing comes up, especially if the founder’s own resources are insufficient. A relatively small (but sufficient for testing a concept) amount of investment can come from business angels. Mostly often, business angels don’t require the legal side of the project to be well-developed but demonstrate a high level of engagement.

Then comes the most difficult stage when initial investments are made and the project is launched but it doesn’t generate any income yet. In Russia, the «valley of death» problem, as this phenomenon is usually called, is compounded by a lack of a system of experienced entrepreneurs who could suggest ways to deal with the situation. At this stage, a wise move is to turn your attention to business accelerators. These are launched by individual corporations to deal with specific business tasks. Unlike incubators, accelerators only accept ready teams and projects and help startups get out of the «valley of death».

Venture capital funds and late-stage investors

The next problem, that of achieving rapid growth, can be solved with the help of venture capital investors. At an early stage, the startup’s investor is often its largest client. Also, funds of the relevant stage (seed fund, growth fund, etc) will do. Venture investors can be found in related industries or at large technological conferences. The right investor should have relevant market expertise and should help the founder avoid typical mistakes.

Lastly, at the final stage, a startup goes through a classic «growth crisis». Here, help will come from investors specializing in unlocking demand growth. These are firms that possess technological expertise and experience in developing late-stage businesses. Unlike venture investors, direct investment funds don’t deal with risky companies whose technology hasn’t been tested on the market yet. They work with profit-making companies whose technologies have already proved that they are necessary for the market.

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