This blog has been reproduced from a live chat between with VideoForm Co-founder Abhishek Ekbote, SafetyConnect Co-founder Thanmai Deekshith and Upekkha Partner Shekar Nair. Scroll to the end to watch.

Videoform - a personalised video platform for sales & marketing teams, and SafetyConnect - an AI-based driving safety app for field sales and service teams, are Upekkha alumni startups and two of the ten early-stage SaaS startups to receive investment from Upekkha UP Funds in 2021.

Customer revenue as primary 'funding'

First-time founders believe the journey of a startup begins with funding. The sequence in their mind goes like this: spot a product idea, build an MVP (minimum viable product), take it to investors, raise capital, and then go to market.

Their reality in one line: ‘There is no startup without funding’.

Concepts like founder-market fit, ICP focus and problem-value fit are alien to new SaaS entrepreneurs. Abhishek and Thanmai were no exception. “We were running a business on intuition, going by assumptions, and there was no structure to our thought process,” recalls doctor-turned product entrepreneur Abhishek.

Thanmai's approach was similar. “We built a product after college and we didn’t have an idea about what value that product offered to our customers. We were acting on the whims and fancies of our customers,” he says.

Then came their encounter with Value SaaS.

Value SaaS says, ‘do not write the first line of code until you have spoken to a lot of target customers’. Talk to hundreds of your ICPs (Ideal Customer Persona) and zero in on a high-value problem faced by them before building a product.

These cardinal principles took Abhishek and Thanmai from the realms of the unknown to the known and predictable. “Value SaaS brought a lot of structure to our thought process. We had to understand whether a lot of our ICP would pay repetitively for the problem we are solving for them,” says Abhishek. Thanmai adds that having hundreds of customer discovery calls helped them understand their problem deeply. "Once we understood their challenge, the rest started falling in place."

Solving a high-value problem faced by hundreds of customers can generate recurring revenue year-on year and with this founders stand a chance to build a large organization capital-efficiently. In short, Value SaaS advocates that customer revenue be the primary source of funding.

Capital-efficient growth vs funding is a false dichotomy

Capital-efficient or Value SaaS growth doesn’t equal ‘saying no to funding’. It means that before raising funds, make sure to earn more than a dollar for every dollar spent.

To grow profitably or capital-efficiently, achieve product-market fit and acquire as many logos as possible. It gives you the conviction that you are on the right track to build a large SaaS business. And when the time comes to scale, seek funds from investors.

So, capital-efficiency is a precursor to funding, not an anti-thesis.

Abhishek explains, “I'm solving a problem and people are ready to pay for it. Then, I may feel it's important to raise money, and of course, raise the right amount of money so that it can get you to your next milestone without diluting too much equity. That's how I look at capital efficiency.”

Further, if you are profitable at the time of raising, you preserve your equity and stand a chance to create wealth for yourself and your employees. “Building a capital-efficient businesses will help founders, employees and investors get the maximum value out of it,” seconds Thanmai.

Deciding when to fundraise

Raising the right amount of money at the right time is critical. Many founders who get access to capital upfront throw a lot of money at marketing, sales and customer acquisition before understanding what problem they are solving for their customers.

On the other hand, Value SaaS founders do not focus on funding right from day one. They build their revenue Flywheel and look at specific milestones they want to reach. They study the bottlenecks and understand what resources they need to get rid of those bottlenecks and reach their milestones. Then, their fundraising journey begins.

SafetyConnect, formerly IoT Research Labs, initially focused on fleet analytics and management for businesses. Their product was trying to solve multiple challenges. After joining Upekkha, they spoke to hundreds of potential customers and discovered that driver safety is a higher-value problem in fleet management. And so, SafetyConnect became a product for driver safety.

“After joining Upekkha, we had a good story to tell that we are solving a high-value problem. Our two enterprise customers became our proof of solution. To reach our next milestone, we wanted to strengthen our sales process, customer success, support and IT security policies. That’s when we decided to fundraise and UP Funds became our first investor,” says Thanmai.

In case of VideoForm, the scenario was starkly different. After joining Upekkha, they scrapped their old product and built an entirely new one. They onboarded nearly 50 customers and thanks to encouraging tailwinds from the pandemic, more companies started to adopt videos in their customer communication and sales strategy.

“With the new product, we are now solving a high-value problem for our customers. But we wanted to understand if there is other critical problem we can solve for them. To reach the next milestone, we wanted a runway of 12 to 18 months and decided to fundraise, and were the first ones to receive funding from Upekkha,” says Abhishek.

Retaining control: Vanity funding vs founder-friendly funding

In the Value SaaS world, outcomes for founders and their employees are equally important as outcomes for investors. Therefore, partnering with the right investors is important.

Not every idea is VC-fundable. Raising venture funds may hit roadblocks because the investor might have different opinions about the idea or the market. Most VCs expect a binary outcome. Either you go big or go home. When they invest $100 mn, they expect $500 mn to $1 bn in returns. Founders who do not promise high-scale growth lose their funding opportunities.

Preserving equity should be a top criterion for founders while raising funds so they retain control of the business they have built. Having 95% equity in a $25 million exit is better than having a 5% equity in $200 million. In a $200 million windfall, the press goes gaga. In a Value SaaS deal, there is no vanity but the founder and team will get meaningful outcomes.

Abhishek says, “Fundraising is a full-time job in itself and founders often find it difficult to manage their time looking for investors, understanding the term sheet and making the right decision. UP Funds made it really easy for us, saving 4 to 6 months and a lot of heartburn, because we already knew the Upekkha partners, their ecosystem and funding philosophy.”

“The equity buyback option helps us maintain optionality and be in control of the business,” adds Thanmai.

UP Funds is India’s first rolling fund that allows LPs to commit to quarterly investments. Read more about it in this Mint coverage. UP Funds invests $100K-200K in early-stage SaaS startups to help them overcome their bottlenecks without having to spend bandwidth on a fundraise.

Most investors are entrenched in traditional VC ways. Investors from a debt funding or equity funding or pure financing background seldom look at the entrepreneurial aspect of a startup. There is not enough upfront trust between investors-founders. aimed to change that with its founder-friendly term sheet. Upekkha, with its North Star of creating Meaningful Founder Outcomes, adopted to upload this ideal: even founders who never want to raise funds but are capable of building profitable businesses should get funding on friendly terms. Upekkha should be a trustworthy partner for founders helping them build profitable, equity-efficient businesses.

“UP Funds have helped us micro-pivot and chart our growth path to $2M in ARR, which was a milestone we wanted to achieve. We will get there very soon. Now we have a better picture of how we can scale our business to $10M, and then to $100M in ARR”, says Thanmai.

“Our primary goal was to experiment with different markets and see which one had the highest value we were getting. During the last six, eight months we have been able to expand our marketing efforts and I think we've been able to get almost 10x the traffic that we used to get. And effectively it has got us a lot more customer conversations and has helped us solidify our understanding of the market” says Abhishek about how Videoform is using the $100K fund.

“We had our own micro-pivots and understood that instead of solving a $49 problem, we could go ahead and solve a $10,000 problem. And with the help of the remaining fund, we will figure out how to get a thousand customers who can pay us $10,000 or $50,000,” adds Abhishek.

Having an open conversation about the vision you have for your business and your team with your investors is a great beginning. Many investors ask for liquidation preferences, management rights, some ask not just for board control, but veto power on different aspects of founder’s management control and so on. Understanding these aspects are important for founders.

Fundraising is a tough slog. It drains founders emotionally and intellectually. As a close-knit community, without much reservation about sharing critical information, Upekkha founders reach out to their peers who have already raised funds. Founders who have gone through fundraising help other founders understand the nuances of fundraising, what they think are right and wrong terms, etc.

“The initial conversations I had with some investors were interesting. Their aim was to give us capital so that we could go on and raise more capital. Raising money to raise more money will take control away from us founders,” says Abhishek. “After joining Upekkha, we thought we would talk to every founder in Upekkha who has raised funds and when we spoke we gained a lot of clarity about the nuances of fundraising.”

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