Startup Grind's Naman Jain on Scaling Through Investor Trends

Introduction

Starting and scaling a business comes with many challenges, and only the most well-equipped and best-prepared startups can overcome these hurdles to build a successful brand.

According to the Growth Institute, only about half of all startups ever make it through their first five years in business. Even more daunting, only about one in 200 startups successfully scales.

Clearly, the process isn’t easy. But it’s not impossible, especially if you’re willing to work hard, put in the time to thoroughly research your industry and market, and build a strong product. Getting advice from experts in the startup space can help, too, which is where today’s post comes into play.

A conversation with Naman Jain, Senior Manager of the Startup Program at Startup Grind

Naman Jain is no stranger to the world of startups. With experience in both starting his own company and helping other founders, Jain now serves as the senior manager for Startup Grind’s Startup Program. In this role, Jain is responsible for getting founders’ names out to the world, whether it be to interested investors, the media for press coverage, or even potential customers. Further, Jain helps startups build up their communities to support their growth.

With these experiences, Jain has become extremely familiar with the challenges that startups face today, whether determining product-market fit or finding and reaching out to investors. As such, Jain has a unique point of view that adds to founders’ and investors’ perspectives, and he sat down with HubSpot for Startups to share what he has learned while working with startups.

HSFS: When you're thinking about the types of startups that would be a good fit for a program like Startup Grind, what are you looking for within those startups?

Naman Jain: I think, for me, it’s the eligibility. There are two things: there are startups, and there are businesses. Both are great, but for me, a startup is a tech-enabled company with a scalable and repeatable business model.

Nowadays, because startups are such a cool space to be in, many service providers and companies like that call themselves startups to apply for the program. All of these are really good companies that create companies. But for our program in Startup Grind, we try to find companies with enormous potential to scale. They should be using technology in some way, and the business model should be easily repeatable and scalable. That’s the first level.

When we come to our conferences, when we're working with fewer startups, we look at the product, the market, how big the market is, and whether the market is big enough for the team to be worthwhile in that space. What's the educational background like? Why are they starting this company? What's the opportunity cost for them? I think that's very important.

If someone starts the company because they couldn't find a job, that's completely different from someone who starts the company while they have a very high-paying job and gives that up to start a company. I think this is something VCs look for as well. Because when a VC is trying to put money into a company, they're taking a lot of risk, right? So, they also want the startup founder to be bought in and have a certain degree of risk. I think it's important to showcase what you gave up to pursue that, which proves how much you believe in it. People don't often talk about the opportunity cost.

HSFS: When new companies join Startup Grind, what are they looking for help with, or what are the biggest scaling challenges they tend to face?

NJ: Because many startups that join Startup Grind are early-stage startups, I think the most important thing for them, even before fundraising, is to find product-market fit. And that's very challenging, no matter which space you are in. Almost every startup starts with an idea. What they end up with a couple of years later is probably completely different from what they started with.

Oftentimes, it's difficult for these startups to get the right feedback because they talk to friends who agree with them. They say, “I have a startup. Would you pay $100 a month for this subscription?”

Most people, even if they're not your friend, would say, “Yeah, sure!” A lot of founders start building based on that feedback. I think the product-market fit is more about building a minimum viable product (MVP). There's this book called The Lean Startup, which basically says that the biggest mistake startups make is building a big product, spending a lot of money and time around a problem that's in their head and that they validated with surveys. But usually, the only way to reach product-market fit is getting an MVP out there, getting people to use a product that doesn’t work, and then having them tell you what works.

We don't help companies build MVPs with Startup Grind because we're a community, right? But we try to connect founders who are in different stages in their lives. So, if I'm a fintech company just starting out raising my pre-seed, it's super helpful to meet another fintech founder, maybe from another country, who has already raised the seed round and is one step ahead of me. We try to connect founders so they can help each other and give real feedback with no strings attached.

The other thing is that we have a big network of investors who come to our conferences and come to us looking for the right deal. We have internal systems in place where we collect some information from our startups raising capital and share that in a very easy-to-digest format with our VCs. We also make double opt-in introductions virtually and obviously through conferences and scheduling office hours. 

Those are the two big ones. Then there are all the others, where we give them access to our content, events, newsletters, offers from partners to reduce a burn rate, and things like that.

HSFS: What are the biggest challenges that founders experience once they start seeking capital, and what are founders doing to become more attractive to investors?

NJ: Raising capital is one of the most challenging things. I think it’s challenging for a lot of first-time founders who don’t necessarily have a network; they don’t personally know any VCs. Many founders have a lot of trial and error, where they make a pitch deck and go online to reach out to investors. But when you’re building, you don’t realize that these VCs are probably getting 100 other emails from 100 other founders. 

The challenge is standing out, and there are very different ways to do it. When you’re reaching out to VCs initially, don’t send them a 20-page deck. There’s no way they’re going to look at that. I say that because when I personally vet startups for our conference or the upper tier of our conference, even if I have to select from 500 startups, it’s impossible for my team and me to go through each deck objectively. We have certain things that we look for, and then we just eliminate companies based on that. We look at the team; we look at who the founders are. We’ll go to LinkedIn quickly and see if they started something before, where they’ve worked before, and where they’ve studied to get a basic idea of who the person is. Do they have any senior advisors on board? 

The second thing that helps is to ask if there’s any traction. This is not necessary, but it always helps. My suggestion to founders is that before you try to raise capital, try to have at least one or two customers using your product, if possible. This doesn't apply to all industries, like healthcare, where it’s not possible. But generally, with SaaS or fintech companies, try to have a few customers and some traction because that shows that your product is ready. As a VC, I'm not going to look at your product and how it works initially. We just want to see if someone else is using the product. And you’re also getting feedback.

In terms of the deck, I think there should be different versions. For the initial outreach, there should be a one-pager, literally just one page that makes it very obvious why I should spend another five minutes looking at this company. Founders need to think about how they can stand out and make it very easy for whoever's looking at that email or that deck to understand what they're like.

Another thing that founders often do is, if you look at that deck, it's hard to understand what they do because it's so technical. They build an advanced machine learning startup, and they get super technical in the deck. But most VCs are not technical people, right? They're trying to identify the right business to buy, and they're not from your industry. So, I think it also has to be highly simplified, at least initially. Because if you're looking at 500 startups and don't understand what the startup does, you're less likely to engage with it.

HSFS: Are you seeing any changes in how investors decide which startups to invest in?

NJ: In terms of industries, AI is definitely right up there. Most VCs, even if they're conservative, want to invest in companies with the potential to 50x or 100x their investment. They don't want a company where they invest $1M to become $2M two years later. That’s not what venture capital is for. 

There are so many investments in AI because the potential is real. Most of these AI companies, if they succeed, can become really large companies. I think the two major revolutions that will happen in the next couple of decades are artificial intelligence and energy transition. 

A lot of investors are investing in climate tech, batteries, and electric vehicle (EV) companies—and it's not just EVs. It's also about shifting the grid from coal-based and having business support systems (BSS) to support that. 

From what I've seen, these are the two hottest industries that VCs invest in because they're going to grow so much over the next couple of years and have the biggest revolutions for the next couple of decades.

The other thing is that fundraising, in general, has become conservative. That's because a lot of VCs have lost money investing in startups over the last 10 years, and it's been very hard for many of these VC firms to get exits.

Because Amazon, Airbnb, and Uber have done years and years of cash burn … obviously, Amazon worked out and made its first profit 10 years after starting. A lot of these companies had this model where they kept burning just to get user adoption and brand awareness, which works really well for some brands. 

But then there are also thousands of companies that try the same approach, burn all the VC money, and it's all gone. So, one of the biggest trends that we're seeing is VCs focusing more on businesses that care about unit economics and profit. Obviously, the vision has to be there. They have to burn money when they have to. But the business model should be very clear. 

In the past, I feel like many companies said, “Okay, we're solving this problem. We'll make it work, and then we'll figure out the business model.” 

Now, one of the first things VCs look for is whether this company will ever make a profit. There has to be a route to market and a timeframe for that. Most VCs don't want to invest in a company that’s always going to burn money.

HSFS: Are you seeing more late-stage investments because of the aversion to risk?

NJ: I wouldn't say so. Obviously, it depends on fund to fund. There are still lots of funds focusing on early-stage investments. I don't personally think there's more investment in late-stage.

I think they’re just more careful. You can still raise a lot of capital for early-stage companies, but it's harder to do that now than it was, say, pre-COVID, when there was just so much allocation. 

Now, I think the due diligence is a lot more, and that’s why it feels like VCs are investing more in later-stage companies. However, for their 100x returns, they still have to invest in early-stage companies or a combination of both. 

It's definitely harder to raise capital now than it was. But it's easy, I would say, if you're an AI company with a good background that’s building a solid product. AI's like a buzzword now, but people are still investing in it.

HSFS: What startup trends are you seeing globally?

NJ:  I was reading this article that said five or six years ago, 20% of all funding that happened was in Silicon Valley, just San Francisco, Palo Alto, and that whole area. But that’s changed quite drastically. Other parts of the U.S. are getting more funding, and other countries like India, Israel—all of these countries have an increasing share in tech company funding. There’s this huge unicorn, a SaaS B2B company, from the UAE. I think things are changing; it’s getting more widespread. 

I think because Silicon Valley was the origin of most of these startups, that’s where the whole ecosystem lived. But now, we’re seeing a lot of companies coming from all over the world. For example, this year, we had startups from about 38 different countries at our conference.

People still want to come to Silicon Valley, and there are still lots of investors there. Silicon Valley is still the heart of it, but it’s getting more distributed over time.

HSFS: What final advice can you share for early-stage founders for raising capital and finding community?

NJ: Founders really need to differentiate themselves. Keep thinking about how many other startups are pitching the same idea, and they're probably going to get rejected a lot.

Keep the deck super direct and super simple. And focus on your team, product, market, and traction.

Conclusion

Starting a company is a dream for many, but the process comes with several challenges, especially for early-stage startups that hope to scale sustainably. Making sure your product is a good fit for the target market is one major piece of the puzzle, but then you have to find investors, develop a solid business plan, and pitch your dreams to make them a reality.

All this work can seem daunting, but with extra research and planning, founders can have a better shot at scaling successfully. Founders can follow Jain’s advice to create multiple pitch deck variations (including a short-and-sweet version for initial outreach to investors), prove solid product-market fit, secure a few customers with an MVP, and connect with other founders in the startup space to make their dreams into reality.