Rostow Ravanan, Chief Financial Officer, MindTree Consulting,  is responsible for the accounting, financial, treasury, controllership, compliance & legal functions at MindTree.  Rostow has previously served Lucent Technologies, as a Business Value Manager and  has worked at KPMG Corporate Finance. He has over 10 years of experience in the area of corporate finance.

Excerpts:

I will Cover 4 broad themes, from my experiences as a consultant and also from my experience in MindTree Consulting.

Planning Big: While starting a company, we usually are in self doubt, and find many reasons why the business can fail. If you want to run a business, plan something really Big; as big as your imagination allows you to, Business plan should be something that is really big, audacious and exciting, and  motivate you and your team to come to work every morning.  You should be so convinced that you can sell it to the whole world.

Other reason to plan big is that, Investors look for a business that has a really large potential. When investors take a bet(invest) on 10 companies, about 7 will generally fail, 2 will do average business, and only one will give handsome returns to the investor. So if you want to interest an investor, look for a large opportunity.

Unless the opportunity is big, you can't sustain a business for a long period of time. Take the example of Microsoft, Nokia or service companies like Infosys or MindTree, who have sustained for 20 - 30 years. If you target a potential of 20 thousand customers, and once you crack that business, how will you make the business sustain or grow after that.

Selecting the VC:  Very large investors are heartless,  after the initial round of funding, you need support and smaller investors are more likely to provide that. Usually in a start up things keep going wrong, crises keep cropping up, for eg. the most important employee would throw a tantrum on a Monday morning or  your key customer will call and say he wants to cancel the order, choose someone whom I'd call a foul weather friend, who will stick with you during good and bad times.

Look for an investor who has a good understanding of the business, he should know trends and intricate details in the space, only then they can help you take the business to the next level. Don't choose someone who will be easy on you, you need someone who is Critical of you, watch you very carefully but will also support you.

Managing investor's expectations: At the end of the day, investors look for and are motivated by money; they make money out of money - that is their business.  

Before you take money agree on a broad objective with a 3 to 5 year provision. If you have a very short term and go back to them for more, they will ask you questions for which you may not have answers..

Be Careful on committing your numbers, mismatched expectations can create problems. I don't believe in the usual philosophy, ‘under commit and over achieve'. If you do that a few times, their expectations will overshoot. If an investor has a mismatched expectation, it is due to some communication made by you, investors don't get their expectations from thin air. 

If your business needs a long runway, explain it to them, and they come on board with their eyes wide open. Be extremely open and transparent with the VC, explicitly state the risks, issues the business faces, keep the expectation very realistic. They will watch you on how you run your business, how good is your sales and marketing team, delivery team, financial team, how accurate is your book of accounts etc.

It is not enough to discuss revenue and profits with them during the quarterly board meetings.  If you build comfort with them, that you are ethical, have high integrity and you have reliable processes etc.,  when something goes wrong, even though they are disappointed  they will understand that you have done your best.

Going IPO: Be very sure you want to go for it, the IPO honeymoon lasts at best for 3 months. Sustaining your organisation as a successful public company is a huge nightmare. Your processes in terms of delivery and financials have to be completely up to the mark to sustain the success.

You can present yourself in a exciting way, get yourself a good valuation and go IPO, but the smallest execution mistake you make can crash your stock valuation. Sometimes stock markets swing between extremes, when your stock value goes up or down, most often you may have no clue as to why it happened. 

Have a clearly articulated objective to go IPO, is it the money or the visibility or whatever else is the reason; be very clear about it. Unless you know it, you cannot articulate it internally or externally to your clients.

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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