Founder: Dr. Malpani, I’ve pitched to 15 investors. Everyone says, “Interesting, let’s keep in touch.” Translation: no money. What am I doing wrong?
Dr. Malpani: You want the honest answer or the polite one?
Founder: Honest. I’ve already had enough polite rejection.
Dr. Malpani: Good. Then let’s start with the most common rookie mistake: your valuation is completely disconnected from reality.
Founder: But I’ve done the math! We need ₹3 crores for 18 months, and I don’t want to dilute more than 5%. So the valuation works out to ₹60 crores pre-money.
Dr. Malpani: Exactly. That sentence right there explains why you’re not getting funded.
Founder: What’s wrong with it?
Dr. Malpani: Everything. You’ve started from your needs, not from your business. That’s backwards.
The “Excel Gymnastics” Fallacy
Founder: But isn’t that how fundraising works? You figure out your runway, then decide dilution?
Dr. Malpani: That’s how PowerPoint startups work. Real businesses work differently.
You:
- Calculated how much money you want for comfort
- Decided how much dilution feels emotionally acceptable
- Then tortured Excel until it confessed to a valuation you liked
- Investors can smell this from a mile away. Excel gymnastics don’t impress anyone who has written real cheques.
Founder: But we showed a detailed DCF model. Terminal value, market size, everything.
Dr. Malpani: Ah yes, the holy trinity: DCF, TAM, and hockey-stick projections. Lovely bedtime stories. Completely useless for early-stage investing.
How Investors Actually Think About Valuation
Founder: So how do investors value startups?
Dr. Malpani: Uncomfortably simply.
Early-stage investors anchor valuation to:
- Current revenue
- Revenue growth
- Quality of customers
- Unit economics
- Founder execution ability
Not to what you hope will happen in 2030.
Future projections are optional. Current traction is not.
Founder: But we’re pre-revenue!
Dr. Malpani: Then your valuation will reflect that reality. There’s no moral outrage involved—just math and risk.
The less evidence you have, the more risk the investor takes.
More risk = lower valuation.
This is not cruelty. This is physics.
Bootstrapping Is Not a Punishment
Founder: But if I accept a lower valuation now, I’ll give away too much equity.
Dr. Malpani: Only if you raise money too early.
Here’s a contrarian idea:
Delay fundraising. Build something customers actually pay for.
Bootstrapping isn’t a failure mode. It’s a filtering mechanism:
- It forces you to listen to customers, not investors
- It kills vanity features
- It rewards frugality and speed
Founders who bootstrap learn discipline. Founders who raise too early learn slide design.
Founder: But doesn’t bootstrapping slow growth?
Dr. Malpani: No. It slows waste. There’s a difference.
The 5% Delusion
Founder: Still, giving more than 5–10% feels excessive.
Dr. Malpani: That’s because you’re treating equity like property, not like fuel.
Let me be blunt:
Owning 95% of nothing is not better than owning 70% of something valuable.
Early investors don’t just bring money. They bring:
- Pattern recognition
- Governance discipline
- Strategic restraint
And sometimes, the courage to tell you your idea is stupid
If you think an investor deserves only 5%, you’re saying their contribution is negligible. Don’t be surprised when they agree—and walk away.
Revenue Is the Only Non-Negotiable Proof
Founder: So what should I focus on before fundraising?
Dr. Malpani: One word: revenue.
Revenue solves many problems:
- It validates demand
- It disciplines pricing
- It improves valuation automatically
- It attracts better investors
Notice I didn’t say “users,” “engagement,” or “eyeballs.”
Customers who pay are the only investors who don’t dilute you.
A Simple Mental Model for Founders
Founder: So what’s the right sequence?
Dr. Malpani: Try this:
- Build a scrappy version
- Charge early (yes, even if it’s ugly)
- Prove repeat usage
- Improve unit economics
Then raise capital to accelerate what’s already working
Fundraising is an accelerator, not an ignition key.
If your engine isn’t running, more fuel just causes a fire.
The Investor’s Perspective (Unfiltered)
Founder: What goes through your mind when you see inflated valuations?
Dr. Malpani: I worry about founder maturity.
- High valuations without traction signal:
- Poor understanding of risk
- Over-attachment to ownership
- Under-appreciation of execution difficulty
These founders are hard to work with. Money amplifies behaviour—it doesn’t fix it.
Final Reality Check
Founder: So you’re saying my startup isn’t unfundable. Just mis-priced.
Dr. Malpani: Exactly.
Capital is abundant. Credible execution is scarce.
Lower your valuation expectations, raise your execution standards, and focus obsessively on customers. The funding will follow.
Or don’t—and keep polishing your Excel sheets. They’re very pretty.
Want to learn more about bootstrapping and creating sustainable businesses? Explore more insights and resources for entrepreneurs at www.malpaniventures.com . Let’s build businesses that put customers first!