How does a VC evaluate an entrepreneur and what is the basis on which he decides to fund the project...?

Sateesh Andra, Venutre Partner in Draper Fisher Jurvetson, has hands-on start-up experience and in-depth knowledge of the dynamics of VC funding and also a strong experience of leveraging India for creating technology products for global markets.

He has formed strong relationships in Silicon Valley and India amongst VCs, Entrepreneurs and Executives. Strong hands on experience in entrepren-eurial ventures include Metrikus - Persistent, Euclid- e4e, Tsqware - Conexant and has worked in public company environments like LSI Logic and Wipro.

Sateesh speaks: As an Entrepreneur does not have a crystal ball, when people say Think Big, it is not easy. It is important to think big, but you need to know your domain well. Opportunities become clear as you start on your journey as an entrepreneur. Thinking does not mean one can boil the ocean, nobody has a crystal ball to predict the future, so just follow your instinct.

An Investors interests are aligned to the Entrepreneurs interests. When an Investor invests in a technology or service company, he is actually investing in the Entrepreneur. If the Entrepreneurs is not passionate and does not succeed, the investor looses. In earlier times, even in Silicon Valley, entrepreneurs had to mortgage their houses as collaterals.

While you pursue your dreams, you can't be foolish, and keep waiting for years to see results.  You need to be bold enough to accept failure, cut losses at some point and let go, but before that, you have to put your 100% to make the business work. I'm not saying that you should get the investment and then shut down your company with in a year, and look for a better idea. But if you wait for 10 or 15 years for your company to succeed, you might be missing other opportunities. It is important, to learn from the market and customers.

An Investor looks for 3 things - Product or service risk, Team and execution risk and Market Risk, If you address these 3 things, you have a fair possibility of raising funds.

When you approach an investor for the funding, it is important to know the value you bring to the table, is it an idea, is it the Domain expertise or the Customer touch. For example, if the Entrepreneur is a Vice President Sales or Business Development of a company with a huge customer base, then the Investor will be more than happy that there is a pipeline already in existence. Without having a clarity about the value you bring to the table, it is difficult to have the conviction to meet the investor. End of the day, the Investors are managing someone else money and are looking for returns.

Matrix to raise the new round - Lets say you've raised the first round from family and friends you've got your business going. Key thing is that the Product or Service readiness, is it fully baked?

Most important is customers and references. A stated value proposition is nowhere close to the implemented value proposition. Do you have references, is your customer willing to give a testimonial about how good your product or service is. ROI and Value proposition is very important, if your prospective customers problem or issue is being resolved by someone in some manner, then that is your competition.

Next important aspect is having a Team, you may not have all people, it is like the chicken and egg question, till you have funding you can't get a CFO or a COO and till all these issues are resolved, you may not get funding. It is not necessary to have all of this before you approach the investors. It is important to know how to fill the gaps.  Please don't be defensive, be confident and convince the Investor that once you have the funding, you know how to fill the gaps

Your pipeline is the next most important thing. You need clarity on the business model and you need to know your margins. Your margins may be thin in the beginning, because you are building momentum, but you need to have clarity on the reason for each and every move.You need to have the conviction that you can scale up. Competitive landscape is your differentiation.

Try to leverage your advisory board and your existing investors. Don't approach too many investors, if they turn you down, the word spreads; it spoils your possibilities of raising funds. Don't do one off pitches, approach 5 or 6 investors, carefully listen to their feedback,  go to the drawing board and fix the issues. Don't bring celebrities and very successful people on to your advisory board,   they may not be able to give you time, and they will not add value. See if your customers or channel partners are willing to invest in you, because his interest is also covered.

He was speaking at a Panel Discussion organized by Businessgyan and TASMAC on the topic ‘Funding for Growth'. 

Compiled by Ms. Mangal D Karnad for Businessgyan 

Issue BG81 Dec07

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