In most cases nowadays an entrepreneur needs a VC at some point in his venture to go ahead full steam with his vision. Here is a VC point of view about how to get things going...

Ravi Narayan, Managing Director, Mentor Partners

Excerpts:

At Mentor partners we get 6-8 business plans every week, people who come to us expecting to raise money, with an ‘Idea' that they think has a great business opportunity. We are seed and early venture stage investors, and one of the only 5 companies who operate in that stage, so entrepreneurs who are in very early stages come to us.

For an investor, Ideas are only Fabrications of the entrepreneur's mind,... nothing concrete to hold on to. The investor has to put his money, time, effort and his whole network at work for the entrepreneur, on the basis of this idea. If there's a strong team to back that idea, a huge market possibility and scalability, then a "Value" can be assigned to that ‘Idea'.

For an investor Business is a very Tangible entity, it's not just a structure of a corporate entity, but something that has been executed, with customers who have put their money into it. It is something demonstrable and has a value in itself. If it has a capacity to generate and project a revenue stream, then it is the real starting point for an investor.

A great idea is more like a big block of stone. We at Mentor partners wanted to work with early stage business in the Intellectual property space; and accordingly we started defining our core focus area as our expertise was in the field of IT and Telecom. But it's a wide area, so we narrowed it down to security, identity management and consumer marketing place. If the context is too large and the core is not clearly defined, then the focus is lost.

An entrepreneur with a great technical team can not make the business happen without a strong marketing team. So the investor will expect 2 strong marketing people to be part of the core team, at least in the no 4 and 5 positions. It is these 2 guys who'll make a difference and bring success to the company.

As a start up, focus on the feasibility of the idea, you have to show the initial idea working and then think about scale. You need to demonstrate that your core competency is within the company and not a dependency outside your company.

Before you go to an investor think objectively and unemotionally, What does the idea do? How does it do it? Why are you best suited to do it? Why will you succeed? How will you grow? It's important for you to Step away from your idea and answer a couple of these questions in a detached manner.

For any company the various stages of growth are Inception, Prototype, Rollout, Growth, Expansion and Maturity. There are fundamentally 4 risks Technology, Market, Execution and Finance. Most of the entrepreneurs who come to us say that their idea is very cool; it's true when you find customers who can vouch for it with their money invested in it. your goal should be to grow these type of customers rapidly. Even if the business matures the worry about execution and finance are not over.

Angel investors are those who will invest in spite of knowing the risks in all four areas, these are people who know you and want the best for you and want to give you a chance, but not so with a Venture capitalist.

When you are taking an idea and making it in to a reality, a quantum leap happens from one milestone to another. At early stage all you have is 2 technical directors, a Hot idea and a potential market. At stage 2, you have a advisory board and a neat prototype and so on. When you reach stage 3, you have a strong management team and a strong advisory board, revenues crossing a million Dollars. Now your business is very real now and VCs queue up outside your door to fund you.

Be realistic about the funds you ask, it your company is valued at 4 crores, and you want to raise a crore of fund, you just have to part with 25% of your company. You grow to the next level, and when you want the next round of funding, your valuation is around 16 crores, you raise another 4 crores by diluting another 20% of your company. It is easier. like the steps in the ladder.

We as VCs have raised the money from someone else, promising a handsome return, that has to come from you. Either you sell your company or go IPO or we sell our stake to someone else to realize the money invested in you.

Ravi has over 18 years of management and engineering experience in the corporate & startup companies in the Telecom and IT Industry. He worked at various technical and management levels for IBM and Hughes Networks.

He was speaking at a Panel Discussion organized by Businessgyan and TASMAC  on the topic ‘ Getting it done'. 

Compiled by Ms. Mangal D Karnad for Businessgyan

Issue BG88 July 08

Related Items:

---

Be first to comment this article

Only registered users can write comments.
Please login or register.