Glimpse 2.0 - Issue # 52

QUOTE

"Anyone who lives within their means suffers from a lack of imagination." - Oscar Wilde

BUSINESS UPDATE

VCs are Looking for Smaller, Smarter Deals

The pool of money for start ups in India has been shrinking since 2007 but there are signs that 2010 could at last see some new money in new areas.

More than 250 entrepreneurs and investors are meeting at Mumbai’s ITC Grand Central Hotel Thursday for the APEX ’10 Private Equity and Venture Capital Summit. Through a day of round tables and networking events they hope to generate ideas for start ups in the subcontinent as well as help define the new investment environment here.

Things have changed from only two years ago when money came easy and information technology companies serving the developed world dominated discussion.

Today private equity and venture capital backers are looking for smaller, smarter deals. They are also focused on opportunities in India rather than the West which is still struggling with a hangover from the debt crises.

“IT used to account for a lion’s share of the pie but we have seen that go down significantly,” said Arun Natarajan, chief executive of Venture Intelligence the Chennai-based private equity data company which has put on the summit for five years. “Investment is instead moving towards a consumer-oriented service and largely domestic plays rather than export-dependent services.”

Venture capital investment data from Venture Intelligence illustrates the trend. In 2007, India attracted close to $1 billion in VC money. Last year that figure had plunged to $475 million.

The specifics of the investment however provides some hope. The last quarter of last year recorded a big surge in VC investment, almost more than the first three quarters combined. Meanwhile a growing number of investments is going into new sectors. IT, which used to account for more than half of all investments, has slipped to around 40%. Meanwhile sectors like microfinance, health and alternative energy attracted more attention.

The subjects of the different discussions at the summit and the panels that will lead them reflect the new reality. Among the sectors in focus: education, healthcare and financial services.

“The areas of interest have changed,” said Mr. Natarajan. “Clearly the ones that have fallen out of favor are the IT and BPO.”

ENTREPRENEURSHIP

Ever wondered what would be Investors side of the story

Let's start with the bad news...
1) Last year was a 15-year low in the amount of venture capital invested in companies.
2) The amount of money raised by venture capital firms (for investment in companies like yours) was down by as much as 30%.
3) VC/Angels returns sank to 8.4% in the 10 years ending Sept. 30, 2009, from 40.2% in the 10 years ending Sept. 30, 2008.

WHAT DOES THIS MEAN FOR ENTREPRENEURS?

You are seeking investment capital in one of the most challenging and competitive fund raising environments in decades! Most entrepreneurs I meet have spent considerable time to understand the market for their products and services. They seek the best talent when trying to address the market and will spare no expense (within reason ;-)

Also, most entrepreneurs I know spend 30%-50% of their time raising capital,

BUT
a) have little experience raising capital
b) do not understand the market for capital acquisition well and
c) do not have a sufficient network of active investors
* Yes, most investments are still made between people that have existing relationships or meet through introductions.

The opportunity cost to the entrepreneur's company by spending so much of his or her time in an area where they are not expert is extraordinary.

WHAT DOES IT TAKE TO RAISE CAPITAL TODAY?

At a high level it comes down to three key factors:
1) TEAM. Have you assembled a team of industry leaders with experience growing a business and seeing it through exit?
2) PRODUCT. Have you developed a unique product addressing a need in a large and growing market?
3) REVENUE. Is your product complete, available to customers and generating revenue?

If you don't meet a minimum amount of the above you are going to have to reach this point by raising money through friends and family.

WHAT ELSE? A lot. First and foremost you will need a comprehensive due diligence package.

GOOD FOR YOU

• Good advice for startups
  
• Relevant, useful and appropriate guidance to entrepreneurs
  
• Procedure involved to Start a Company (Private Limited) in India