Coverage by Bhat Dittakavi of Variance.AI on “Indian scenario of VC funding” on 25th Jan 2017
Three hurdles I think we chased in India.
-Income tax
-RBI
-Compliance
We worked over 9 months with RBI to resolve startup issues. We met RBI governors many times. Last meeting we told him we didn’t change the presentation except the date. He addressed our issues then and there.
Income tax matters we couldn’t do much. They didn’t respond.
We could succeed in compliance some what.
T-HUB is recently certified to give Startup certifications.
3 year profit track record is required by one of the startup policy.
I am happy for the kind of work PM is doing. There is policy “20% procurements shall come from Startups.” PM is doing awesome and is committed.
Q) What is hot?
Nats) India is huge and problems are plenty. Choose the problems that consumers are paying for. How long your father feeds you? Investors are the same. You have to survive on your own.
9 years ago ecommerce jump started. Now everyone goes after. Same thing with food delivery.
Say crossing the road is a big problem. Then you build an app. If you say pay Rs. 10 to cross, none will cross the road not use the app.
Initial investor money is for developing technology and building a team. Ideally in one year, you should be on your own.
Why should you be not self sufficient after investors poured in?
If your burn rate is Rs.60 laks per annum and tax is say Rs.15 lakhs, if govement returns 50% of the tax, then what do you do? Entrepreneurs in the room said they open three startups with 100 employees. People are like that to take tax advantage of this Startup tax refund policy!
Q) What happens after startups get funded?
Nats) 40% of funded Startups fail. 10% do very well. They say but I don’t know.
Q) i run service apartments and you guys invested in Hummingbird. We are partners with them. There are many like us who like to grow.
Always good to start a lifestyle business that is self funded and then you seek VC fund for scaling. I like it. You assure investors. Because you are used to lifestyle business and are used to being on your own, you give me exit in few years.
Atttributes required for VCable businesses
1) Scalability of the business
2) Exit
There was one investment we made in brick and mortar company at Helion. Founders of this company talk to me like a trusted friend. One founder called me and said, “our revenue is 75 crore and we want 225 crore valuation. What to do?”. I met him. I started writing on paper napkin. We keep our earnings in land, gold, shares and so we diversify. It is the same thing for Investor also.
With different returns expectation, investors put money and valuations differ. So, I asked him, with 225 crore valuation, can you give them 3x returns to investor in 3 years. Then I told him to call for a meeting and share the plan. Good news is that investors accepted his proposal!
Q) I am into ecommerce. US is ahead. We are way behind. Sales cycle is quite long. Legalities are challenging.
Nats) If it is your money, will you spend? Don’t make plan for investors. Investors hedge their investments. You can’t. Even investors money is not his own as he is managing someone else’s funds.
Change our culture of doing business.
Sales cycle is long when the problem is not serious. Take a real problem and sales cycles are small.
Q) We have one channel and it worked and now we are trying another channel but sales cycle is longer owing to the adaptability of the customer.
Cheaper, convenient and time saver are value adds for ecommerce. That is the value that make the customer adapt.
B2B has better sales cycle than B2C in my opinion.
Q) What verticals, what stage and what you seek?
We invest in technology enabled companies. Primarily in series A and Series B. More Series B. We look whether this company be at least 1B company.
Q) Valuation?
Nats) If they figured out and we are convinced, we will do.
Q) How to connect with investors?
Nats) There are more investors than companies 🙂 Get some mentors. There are investors coming up with tickets as small as Rs. 10 lakhs. There are lot of seed and angel investment groups. Reach out to networks, online ones like “LetsVenture”.
First find out why do you need money. Going to Investor just for money is not correct.
Q) When I prove myself through organic growth, if an investor is reaching out to me, what do I do?
Nats) Talk what you are doing. Don’t dismiss the interest of the investor. Keep it warm. Focus on your business. Take advantage of those calls by seeking their advantage. Don’t tell the investor expectation on your valuation. Leave it to the investor. Let him figure it out and then you respond.
Q) Rumor in the market that VC firms are window shopping you?
Why do you care? Use the call to get more information about your industry from your market. It is the question of who is smart.
Q) How do you see Israel against US and against India?
Nats) I should not talk what I don’t know.
Q) interest of investors in R&D company?
Nats) How much money is required before go-to-market yearwise. This of how you can revenue-ise your product mid-way. Ask the investor whether he can give investments in tranches over period of time? Most investors look for the complete picture and their ability or appetite to get full funding needed at the end of the timeline. Don’t undercut your need.
Q) We are not like those that have traction.
Nats) Its a basket. Investors invest in all.
Q) Us government keen on investing in research companies?
Yes. DST does.
Q) R&D done and ready with mass production. Patented product. Looking for investors. Invested 5 crores in 7 years and looking for 18 crores.
I am not an investment banker. I can’t even refer you. You have to explore for investors on your own.
Q) Capital crunch in the market? Risk capital or growth market?
Nats) Every capital. Only when I exit the money I invested, I can invest more. Else, if I didn’t get exits, I will be paranoid.
Q) There are hardly any successful exits in India.
Nats) There are end-of-life funds and they get bought by other investors.
Q) Do you have data on whether Indian Startups fared better or other ones?
In USA, exit-ability, profit or loss, is faster. If I exited from $1 to .70, it is still good as I can put that 70 cents in another one quickly.
Q) FIntech got different Startups. How do you see regulatory challenges?
Attendee) Safe guarding Indian public us the pretext that makes it hard from us. We discuss regularly with IRS. Guidelines are there but demonetisation pushed their decisions. Be compliant across the board. Whenever the regulation comes out, we would be the first targets by the bankers.
Q) How we break the wrong notion on Indian startups that investors can’t exit them? What do we need to change?
No opinion needed. I only said there are certain differences between US startups and India startups when it gives investments. We don’t have to changing the perceptions.
Be open for accepting talent to run the company without thinking I am the owner.
Q) We help post-surgery patients for adherence. You have Healthtech portfolio. Give your views?
Nats) We got 4. Dental, stem cell baking, eye care and oncology. Except dental, other three are doing well. We look at 1) Team 2) Scalable market. I don’t associate with anyone who can’t be a billion dollar company.
The challenge in post-operative adherence is scale as you have to give a cut yo the doctor it hospital.
Q) Two founders?
Who is the CEO? Who calls shot? Can one fire the other?
Q) Travel industry?
We invested in Redbus and MMT. Challenge is profitability. Discounts are a phenomenon. I asked the CEO of MMT, how do you ensure the loyalty of the customers is there?
Q) We come as a platform between hoteliers and online travel agents. We provide live inventory technology for them.
Bhat's Notes 