Lessons to learn from Frag Games Founders who have Raised 400K USD from Local Investors!
“A friend of mine recently commented how they had bootstrapped a startup without any money, by just getting one client contract. That’s how everybody does it. ”
But everybody is not able to get a combined sum of over 400K USD in Angel investment and certainly not from Pakistani investors and yet the people at Frag Games have achieved what has till date been considered almost impossible. Investment is the main issue that startups all over the world face, but in Pakistan it gets more difficult because in the recent years, most startups are tech startups and it seems that there aren’t enough technical people who can assess the business model of these startups and then invest in them. However, Frag Games founders, Ali and Rehman refute the popular belief.
“You would be surprised how much money there is available to invest in tech provided that the people presenting the case have some prior experience in doing it and can present the details as far as the international market is concerned. ”
Frag Games as a whole has turned down the traditional model used in the Pakistani gaming industry and they are on to something new. It appears that their analyses, deductions and strategies are working out very well for them. In order to find out more about their successful efforts, TechJuice team recently met the founders, Ali and Rehman so we could find out more about their experience and share the valuable tips they gave with our readers.
To begin with, Frag Games is not like your ordinary startup. As Rehman fairly pointed out, what most tech startups are aiming for is a unique product which the market needs but doesn’t yet have. The uniqueness then makes the startup viable. However, to start a company that wants to develop games is by no definition unique and thus from the very beginning, the founders never pitched it as a unique solution but in fact as a gaming company that wanted to develop amazing games at a much cheaper cost. The second part that makes the company unique is that all the employees are not just working for the company; in fact they own some portion of the company.
“Almost everyone in this room owns a part of Frag. We have good profit sharing schemes and stock options. This means people are excited about their products and this leads to a collaborative company culture. ”
What this means that Frag Games knew exactly what their startup was focused on and had a highly motivated team that was willing to go to all lengths to make sure the startup saw success but even with all that, it took strategy to get the big guns interested in investing in the company.
Investors Don’t Have to be Technical to Invest in a Tech Startup
One of the key lessons entrepreneurs should take away from Frag Game’s success in raising money is that investors are investors, regardless of whether they have technical know how or not. A Textile Mill Owner could very well become the main investor for a Gaming company provided you have the skills to convince them that you won’t ruin their investment.
“Industrialists have a lot of money and they are not stupid. You just need to talk to them in their language. What’s more interesting is that now second generation industrialists are taking over who are willing to listen to your idea. These industrialists in turn are easier to convince because they can see the potential in tech startups. ”
At the end of the day, what all investors are looking for are numbers. If your pitch features the use of impressive figures, backed by research reports, preferably from international industries, you are a lot more likely to get their attention.
Startups should be Backed by Accounting and Legal Firms from the Pitch Stage
If you want people to take you seriously, you need to back your startup with a well known Accounting and Legal firms. This can not only help a startup stay on top of the game but can seriously add credibility to the figures presented when pitching to investors. Moreover, this also shows the investors that you are serious about the business.
Frag Games founders are convinced that doing business the right way helps retain investors. This means that the company takes matters such as regular bi annual audit very seriously.
“In the startup business, reputation matters. You need to be able to show that you did everything right so that even if you fail, people can’t point fingers at you and investors know that you did all that you could. ”
Invest in your Own Business Before you Ask the Investors
In the interview, Ali pointed out that they got a serious edge when they told the investors that they had invested in their business themselves. It helped businessmen believe in the company because their own money was at stake as well.
“People showed a positive reaction when I told them that the cost of starting the company was giving up my Masters education. It helped convince them that we were going to put all our efforts in making the company successful.”
Both Ali and Rehman have invested in their own businesses. Furthermore, when the company isn’t doing well, the team leaders are the first ones to bear profit cuts.
“We met a lot of people. A lot of our connections were second party references who eventually became our investors.”
For a startup, connections are of supreme importance. Many international business owners have worked in their companies of interest for several years before launching their own company. This not only helped them gain business acumen and experience, but also helped them develop connections which later proved essential. Similarly, the founders of Frag Games built connections.
“There were many investors who liked our startups but were hesitant to invest so instead of money we asked them to refer us to other investors.”
Foreign Funding may not be the Best Idea
Startups in Pakistan are generally looking for funding and funding from international firms is considered a good option but Frag Games had to reject a few foreign funding offers simply because in the long run, it wasn’t helpful. What they have learnt through their experience is that not only are there willing investors in Pakistan but that local investment turns out to be more suitable for local startups. Foreign funding comes with restrictions and dealing with the paperwork and costs to bring the funding to Pakistan is an elaborate issue.
Team and Office Space Helps
“In retrospect, we wouldn’t have needed as much money in the second round of funding as we did if we had an office at a pitch stage.”
A startup that has a strong team, preferably consisting of at least some senior, experienced team members as well as an office space, stands a much better chance of getting the investment. Companies can see that the startup is committed, is getting work done, has ideas in the pipeline and is backed by people who know what they are doing; therefore it is more likely to succeed.
Landing the First Investor is the Hardest, Subsequent Funding are Easier
Ali and Rehman are convinced that getting the first investor on board is the hardest job but once you have one investor on your side, the rest will start to get easier.
“The second round of funding was ridiculously easy as compared to the first round. Investors would visit the company, see the work being done, examine products and would agree to help.”
Lastly, Don’t Give an Investor the Biggest Slice of the Pie
There came a stage when a few investors offered to become the single investor for the company, provided it let go of other investors. Frag Games rejected it and urges entrepreneurs to diversify the power of decision.
“With a single investor, we would have been forced to do their bidding. With six small investments, we stood a chance to get a few on our side while making a decision.”
Another important strategy was to ask the investors why they wanted to invest. That way the company was able to clarify right from the beginning that the investor would not intervene in the internal working of the company but would be free to share ideas.
“We told them in a very straight-forward manner that their concern would be limited to money only. If they wanted to come on board as investors, they had to trust we knew what we were doing.”
For an entrepreneur looking to start his/her own business, there are significant lessons to be learnt from Frag Games. The founders have been able to accomplish what they dreamed of: launching a company that is based entirely on their ideology while still being able to get the confidence of investors. No doubt that it took a mountain of effort and hard work to get where they are but what helped them gain traction was the fact that their approach of getting investors was spot on, they were quick to learn from mistakes and most importantly they didn’t try to take shortcuts. A good startup with a great pitch can indeed get local investors to help through angel funding; all it requires is persistence and aggressive pursuit of the goal. There is no reason why more local startups can’t succeed using Frag Games experience and methodology.