Tips to gather funds for your business venture
Finding funds for your bright business idea is not difficult. Here's how you can get it right.
Case Study: Rashmi Sawant, from Mumbai, runs Culture Aangan Holidays that offers home stays in Sindhudurg. PHOTO: Nishikant Gamre
How many times have you hated the clockwork regularity of your working life, the hard work you put in making money for others, secretly wishing you had your own business venture? If the answer is often, you have been bitten by the entrepreneurial bug.
Starting out on your own has never been easy. However, there are a number of funds and support networks-such as Mumbai Angels, India Angel Network and Aavishkaar-that promise to make the ride smoother.
If you have a good business idea, getting funds from investors or venture funds was never easier than it is at present. "We look for passion, energy and commitment of the entrepreneur. Academic qualification, past experience and ability to convince are also the key criteria for funding," says Prashant Choksey, co-founder of Mumbai Angels, which funds start-ups.
"Having a good idea is not enough. How much preparation you have done, your confidence, scalability of the business, all these are important too," says Vineet Rai, co-founder of Aavishkaar, a venture fund which invests in businesses that focus on rural India.
KEY INGREDIENTS
"For funding an idea, we see if it can make money, is scalable and can give us an exit in up to six years," says Choksey.
Investors look at growth visibility and feasibility. They should be convinced about your unique selling proposition (USP). The key point investors who fund start-ups look at is returns. They help the business grow in its initial stages but also like to have an exit option.
Once investors are convinced that your business is sustainable and can grow, they look at the core team to check if it is competent enough. "You can have a brilliant idea but we may still not fund it if the team is not good enough," says Choksey.
"While having prior experience in the business is an advantage, it is not the only criterion. If the person is able to convince us that he has the ability to do the business, we may fund his venture," says Rai of Aavishkaar, which funds education, health, clean energy, agriculture and financial inclusion projects in rural areas.
Investors also look for commitment. If your idea is to set up a business and later sell it off, this will alarm most investors.
In a nutshell, investors look for commitment, USP, scalability, execution ability and sustainability of the business.
SELL THE IDEA
While making a pitch to investors, make sure the presentation is not too verbose. It should describe things in as few words as possible so that those listening do not lose interest.
ABOUT BUSINESS PLANS
While you must give a clear picture of your products and services, the possible difficulties in implementing the plan, the details of how you intend to take the business forward, plus the industry you operate in and the kind of competition you face should also be covered.
In addition, you must have a detailed knowledge of the size of the market you will be compete in, distribution and marketing strategy, potential customers and likely competitors.
FINANCIAL FORECAST
Investors will also like to know the revenue and profit forecast for the next five years along with likely expenditure and revenue. You must also try to give them an idea about when the business will break even, that is, it will stop making losses.
HOW FUNDS ARE RAISED
Investors usually fund by way of equity, taking up a significant minority stake. This can be anywhere up to 49%. However, it depends on the valuation. Most investors prefer to buy a lower stake as it enables them to exit the business easily.
"We generally like to take a minority stake. However, it depends on valuations," says Rai of Aavishkaar. "We generally fund anywhere between Rs 1 crore and Rs 35 crore," says Rai. Mumbai Angels Network invests up to Rs 2 crore.
The idea is valued based on the business, the product, the promoters, etc. "Valuation is like an art. We do the valuation based on the type of business, the product it makes, the credibility of the promoter, his projections and past transactions, if any, in a similar business," says Prachi Mathur, associate vice president, Intellectual Capital Advisory Services Pvt Ltd, which gives advisory services and facilitates investments by companies, non-profit development agencies and governments working in developing markets.
WHOM CAN YOU APPROACH?
Start-up entrepreneurs often ask family members or friends for money. But not everyone has a rich family or a friend. Angel investors, who usually invest a lower amount than venture funds, come to the rescue in such situations.
Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. Angel capital fills the gap in start-up financing between "friends and family" who provide seed funding and venture capital.
Although it is usually difficult to raise more than a few lakh rupees from friends and family, most traditional venture capital funds are not able to consider investments under $1-2 million. Thus, angel investment is a common second round of financing for high-growth start-ups. Venture funds are registered with the Securities and Exchange Board of India.
Starting out on your own has never been easy. However, there are a number of funds and support networks-such as Mumbai Angels, India Angel Network and Aavishkaar-that promise to make the ride smoother.
If you have a good business idea, getting funds from investors or venture funds was never easier than it is at present. "We look for passion, energy and commitment of the entrepreneur. Academic qualification, past experience and ability to convince are also the key criteria for funding," says Prashant Choksey, co-founder of Mumbai Angels, which funds start-ups.
"Having a good idea is not enough. How much preparation you have done, your confidence, scalability of the business, all these are important too," says Vineet Rai, co-founder of Aavishkaar, a venture fund which invests in businesses that focus on rural India.
KEY INGREDIENTS
"For funding an idea, we see if it can make money, is scalable and can give us an exit in up to six years," says Choksey.
Investors look at growth visibility and feasibility. They should be convinced about your unique selling proposition (USP). The key point investors who fund start-ups look at is returns. They help the business grow in its initial stages but also like to have an exit option.
Once investors are convinced that your business is sustainable and can grow, they look at the core team to check if it is competent enough. "You can have a brilliant idea but we may still not fund it if the team is not good enough," says Choksey.
"While having prior experience in the business is an advantage, it is not the only criterion. If the person is able to convince us that he has the ability to do the business, we may fund his venture," says Rai of Aavishkaar, which funds education, health, clean energy, agriculture and financial inclusion projects in rural areas.
Investors also look for commitment. If your idea is to set up a business and later sell it off, this will alarm most investors.
In a nutshell, investors look for commitment, USP, scalability, execution ability and sustainability of the business.
SELL THE IDEA
While making a pitch to investors, make sure the presentation is not too verbose. It should describe things in as few words as possible so that those listening do not lose interest.
ABOUT BUSINESS PLANS
While you must give a clear picture of your products and services, the possible difficulties in implementing the plan, the details of how you intend to take the business forward, plus the industry you operate in and the kind of competition you face should also be covered.
In addition, you must have a detailed knowledge of the size of the market you will be compete in, distribution and marketing strategy, potential customers and likely competitors.
FINANCIAL FORECAST
Investors will also like to know the revenue and profit forecast for the next five years along with likely expenditure and revenue. You must also try to give them an idea about when the business will break even, that is, it will stop making losses.
HOW FUNDS ARE RAISED
Investors usually fund by way of equity, taking up a significant minority stake. This can be anywhere up to 49%. However, it depends on the valuation. Most investors prefer to buy a lower stake as it enables them to exit the business easily.
"We generally like to take a minority stake. However, it depends on valuations," says Rai of Aavishkaar. "We generally fund anywhere between Rs 1 crore and Rs 35 crore," says Rai. Mumbai Angels Network invests up to Rs 2 crore.
The idea is valued based on the business, the product, the promoters, etc. "Valuation is like an art. We do the valuation based on the type of business, the product it makes, the credibility of the promoter, his projections and past transactions, if any, in a similar business," says Prachi Mathur, associate vice president, Intellectual Capital Advisory Services Pvt Ltd, which gives advisory services and facilitates investments by companies, non-profit development agencies and governments working in developing markets.
WHOM CAN YOU APPROACH?
Start-up entrepreneurs often ask family members or friends for money. But not everyone has a rich family or a friend. Angel investors, who usually invest a lower amount than venture funds, come to the rescue in such situations.
Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. Angel capital fills the gap in start-up financing between "friends and family" who provide seed funding and venture capital.
Although it is usually difficult to raise more than a few lakh rupees from friends and family, most traditional venture capital funds are not able to consider investments under $1-2 million. Thus, angel investment is a common second round of financing for high-growth start-ups. Venture funds are registered with the Securities and Exchange Board of India.
CASE STUDY 1 {mosimage} Organisation:Rolocule Games, which produces interactive game software for iPhones and iPads Founder: Rohit Gupta, an MS in computer science from Columbia University, New York, and a BE from Pune Institute of Computer Technology. After BE, got a job in Infosys, where he worked for two years. Got fascinated by graphics but did not find any institute in India which offered courses in latest gaming technology. Went to study at Columbia University, which offered a course on gaming. Returned to India after a brief stint with Electronic Arts, the world's leading developer and publisher of interactive entertainment and games software. Start: Gupta started Rolocule in April 2009 with a capital of Rs 1 lakh given by his father. Developed first squash video game, Touch Squash, for iPhone. Past experience: At Electronic Arts, he was in the team that worked on the game "The Sims 3". Funding: Got Rs 20 lakh from IIM-Ahmedabad as the winner of a contest, Power of Ideas. Negotiating with investors for more funds. Break-even: Rolocule breaks even for the game within a few weeks of launch. Investor link: Rolocule has to send statements to investors on how the last quarter went and on plans for the next quarter. Advice to entrepreneurs: "Go and start on your own. See if the idea is feasible. If it works, many investors will come to invest in your firm." CASE STUDY 2 {mosimage}Organisation: Culture Aangan Holidays, which offers home stays in Sindhudurg. It plans to offer services in Rajasthan by May 2012. Founder: Rashmi Sawant, an arts graduate with a diploma in travel and tourism. Start: Sawant started Culture Aangan in 2005 to aid rural development and later developed it into a full-fledged business. Past experience: Nil Funding: Company raised Rs 80 lakh via five-year optionally convertible debt to be paid off or converted into equity in 2010-11. Started with a capital of Rs 26 lakh. Break-even: Expected in 2013-14 Investor link: Sawant is required to keep investors updated on major events and send them quarterly reports. Advice to entrepreneurs: "Always go for mentoring. It's important to have a good mentor. It took me ten steps ahead. Now, we also focus more on marketing and public relations" |
