This Is The Reason Why Newer And Smaller Startups Get Huge Funding!

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Remember the early 2000s, when the repute of Google just got out, and let’s say one had invested 2 million in them… then, they would have been a billionaire by now. Just like Warren Buffet did. So, the investors hope that the company they are investing in will become a giant one day and they will be richer by almost 10x their done funding. This gamble keeps them in the game.

But why do the small start-ups get huge funding?

They get huge funding, for one and only reason:

The basic principle of investment: Higher the risk; higher the return.

But again they aren’t stupid. They ask like 1000 questions before investing and it may seem like Flipkart, ola don’t have a plan and are just burning cash, they will actually have a plan to control it and make themselves profitable in a time-bound manner to get funding once again. Because funding is always metric based. You perform you get more funding, you don’t perform, nobody will give you money.

The long-term strategy could be that they want to be the market leader in their segment, thus creating a monopoly. So that if you want to buy online, you have only 1 choice or at max 2.

Make you habitual of the product and later increase the price to compensate for their losses. Monetizing their existing infrastructure. Flipkart to throw open its logistics arm eKart to deliver packages of competitors. R&D to develop new products, which will also fetch money. Acquiring business which will become profitable hence providing them with sustenance option… and many many more.

More so, investors have one and only goal. To get returns from their investment. Well, not all are only thinking about money some care about the product too, but the majority does. So, in short, they want returns. Founders are always trying to solve new problems, all they want to do is solve the problem and for that they need money, hence they sell their stake, to generate more money to solve problems.

As, Nils Chrestin of Jabong who put the current situation in words pretty well, said:

In the interim, you can try and buy market share through investments. If that is your only strategy, then you are building a very transactional customer base… the moment you stop giving discounts, they will not come back to you. You need to bring a great offering, great content and have a great customer experience.