An often discussed topic is getting funding for start ups. But what about someone who is already on the way, knows his idea works and now wants to expand. How should he go about getting the funds to grow from strength to strength?

The Panel who answered these questions and more were:-

Vipul Parekh - Investment Director , Ilabs Capital Pvt Ltd.

L. Subhash Chandra - Managing Partner, Sangeetha Mobiles

Rostow Ravanan - CFO , MindTree Consulting.

Sateesh Andra -Venture Partner in Draper Fisher Jurvetson

Q :  What is the exit clause for a VC, What happens if your business fails and you have taken funds from the VC ?

Vipul: Shake hands and go home ! VCs realise that they are taking a risk, that is why they do a through study before investing. Both the investor and the entreprenuer can't predict the future, sometimes things go wrong.

Rostow: Depends on whether you are building the business to last or to sell, in the case you are planning to sell, another investor can come on board.

Sateesh: The investor asks this question to understand whether you have thought the idea through. If you can tell them, this large company will be willing to buy it at the end of 18 months, at 3X or 4X, I will say it is great return. During my due diligence if I feel that 4 or 5 buyers are interested, then VCs will invest.

Q: What are the mistakes investors make ?

Sateesh: Investors are like sheep, it is a herd mentality because they want to have a company from  popular space. Early stage investments can go wrong due to some wrong assumptions.

Vipul: Investors are also Human, and make mistakes very often.

Q : What are the qualifiers for a company to go for IPO ?

Rostow: Once the company reaches a business critical mass from the point of view of a certain number of customers, profitability or volume in sales, they can go public. Or when internal issues like financial process and operational processes are mature. Other aspects are also important, like how does the public treat your segment, is your story interesting etc. Clearly evaluate if your business needs to go public, can it afford the actual cost of going public etc. before you take the plunge.

Q: In traditional business the margins and growth are low compared to IT, how does a VC view a traditional business ?

Vipul: Traditional Business offer a lot of scope to scale, Traditional Businesses like retail are more predictable, deterministic and the risk is taken away.  A lot of information is available like market size, what are the challenges to reach the market size. Expectations in terms of returns are also clear, one out of 2 retail companies will do well, I will not expect a return of 20 times, I will probably expect 5 or 6 times return.

Rostow:  Understand the Investors interest, you can't have a mismatch from that prospective.

Q :  What kind of revenue sharing models exist between the investor and the entrepreneur ?

Vipul: Investors don't take returns. Our returns come when the company closes, someone buys the company or when it goes public.

Q: When should a company look for the second round ?

Sateesh: Depends on how long will your money last

Vipul: If your money lasts for 5 years, don't open discussions till 4 and a half years. As soon as you get the first round don't start looking for the second round..

Q: How to maintain relationship with the investor ?

Vipul:  Be upfront. Keep your investors informed at all times. Build trust, treat your VC like your partner.

Rostow: If you build a good relationship and inform them either when something good or bad happened, they will not keep guessing.

Sateesh: It's a great time to play the game, the journey has to be equally exciting, not just the destination. One day you are on cloud 9 and another day you don't know what to do. Now is the best time, there are several success stories, you can know what to do and what not to. Being an entrepreneur itself is a great thing. Let's not get disappointed too early.

Subhash: We need to have patience. I opened a mobile store in Mangalore in 1997, I could not run it by remote control, I did not have the infrastructure nor the systems or people in place to run it. I had to close the store. Till 2002, I could not expand. Between 2002 to 2007 I have added 39 stores. Have patience and determination to continue, Success will follow.

Rostow: Success is not about strength or being powerful, it is about who is fastest or Whoever adapts quickly and survives. As long as you have passion, conviction and perseverance more than sheer intelligence or Money or Strength, you will  succeed. 

Vipul: Keep your enthusiasm going. The biggest battles are inside your mind and not outside, and if you can win those battles you can win.

They were  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 Dec 07

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