Written by Donald Wihardja
Recently for my trip to Malang to present at Malang Digital Lounge, me and my fellow VCs were asked this question by TechInAsia. And out of all the questions out there, I think this question is worth elaborating on.
To all the Budding Indonesian Startups out there, this is a question you have to ask yourself constantly, and indeed the FIRST (of many) milestones you need to pass on your way to greatness. Why? The one million dollar valuation is that one magic number when you can get VC funding. Below that number, it is too small even for VC in Indonesia to work with, and you should either use your own money, or get it from friends and family. (or angels, and incubators).
A MILLION DOLLAR STARTUP
So, what makes a Million Dollar Startup? Now I must say that this is MY answer, (not THE answer), and that THIS answer has changed even in the last half a year as I realized my dream of being a Venture Capitalist. However, looking back at our own investment decisions in the past few months (where we’re forced to put our money where our mouth is), the true answer falls somewhere along these lines.
#1 THE TEAM: For any startup, your team is the key. You must have a solid team to make it, because if you’re not comfortable with each other, this journey will tear you apart. (see Amazing Race)
The team should ideally be composed of balanced team members whose strengths complement each other. Ideally there should be at least one marketing/product guy, and one tech guy (in another word: one hustler and one geek).
#2 THE PRODUCT: At a million dollar mark, you should have a well fleshed out MINIMAL VIABLE PRODUCT (MVP). Meaning, it can be installed, or seen on the web, and real people (not tester) can use it.
It must answer a REAL NEED, (a REALLY BIG NEED). Be careful of a solution looking for a problem. Just because you can write a QR CODE in 3D in the air, doesn’t mean that there is a need for it.
And, Lastly, YOU must be able to DESCRIBE AND DEFEND WHAT THAT REAL NEED is, and why your other COMPETITOR (yes, there are always competitors) are not doing it. Remember, its YOU (not the product) that we invest in, thus you need to demonstrate that you understand the environment around your product.
#3 THE TRACTION: Now, at a million dollar mark, you should also have a TRACTION, proof that this product of yours does answer the problem, and that YOU are the best team who will fix it. And this is where it gets complicated, and where it has changed in the last few years as the popularity of tech start-ups have hit Indonesia and yes, as raising your first investor round gets easier.
IN THE EARLY DAYS, Traction means 1-2% market share of the target market. Yes, thats an enormous proof that your product is indeed the answer the world is looking for.
TILL RECENTLY, Traction means you have gained the initial following of a few thousand users, some paying customers to prove the viability of your business model (but far away from paying any significant part of your expenses)
BUT NOW, We also would consider as traction if your team has some previous experience in the field, even though the product is not yet launched. This means that if your team members are experts in, say, insurance selling, we would consider it part of your traction in building an insurance sales app or other products. While this is NOT traction in the real sense, we are now more willing to let the team’s experience substitute for real traction in demonstrating that the start-up has found/can find a market fit.
In any case, these three components must exist to be considered as a million dollar company, pre-money (meaning the value BEFORE investment). Thus you can reasonably ask for $250,000 for only 20% of the shares. (The Math, in case you’re asking, is: $250K / ($1M + $250K) = 20%)
So Good Luck! And do let us know if your startup fit the bill! OR, if you’re not there yet, tell us how do you plan to get to this milestone, maybe we can help. Send us an email at email@example.com, or follow me here for more information.