AdityaSpeaks

Written on September 15, 2007 – 1:55 pm | by aditya |

Well, this topic is what i was researching from a long time ago and have drawn quite many conclusions from it. Before jumping into any discussion i would like to clear the point Venture Capitalist who have encountered this term first time. Venture Capital is a usually a fund which is used to invest money into other companies (mostly in equity form by purchasing a stake), so as to provide them funding. The person or organization or company who manages the Venture Capital is called a Venture Capitalist (Can be called a strategic investor). Most of the time, the person or the company who needs money for a business plan approaches the Venture Capitalist to fund their business by acquiring an Equity Stake in it. Well what does a Venture Capitalist get by investing money in a company ? The answer is obvious, handsome returns when the company grows organically into a huge size. Venture capitalists invest money with a preplanned exit strategy. They estimate in advance how much return they expect and in what time frame and also how will they sell their stake out in the company (Mostly through an IPO in the primary market). Mostly it is seen that Venture Capitalists hunt for small companies with innovative and unique business ideas with great potential and lack of funds. They provide them with funding and will acquire a particular x% of stake in the company and probably after say 4 - 5 years when the company had already grown into a huge size, they will sell their stake in the Primary Market through an IPO route for a 10 or more times the amount they invested. Apart from this they also nominate their own members to be on the Board of Directors of the company which is generally a good sign for the company as they are able to harness the vast field experience and knowledge of the venture capitalist.

Not many are familiar with this concept in India until 2006 - 2007 which has been a year when India witnessed a lot of foreign funds inflowing into India from Foreign Venture Capitalists. How much ? total 700 million US$ in 2007. Well then who are the people who actually got funding in India ?

Who Got The Funding ?

MakeMyTrip.com - 10 Million $ from SAIF Partners

Times Internet - 7 Million $ from Sequoia Capital

TravelGuru - 15 Million $ from Battery Ventures and Sequoia Capital

MakeMyTrip.com - 13 Million $ from Helion Ventures , Sierra Ventures and SAIF

TutorVista - 10.5 Million $ LightSpeed Ventures, Sequoia Capital , SVB Capital

Sulekha.com - 10 Million $ by Norwest Venture Partners

TravelGuru - 10 Million $ Sequoia Capital

Games2Win - 5 Million $ by ClearStone Ventures, SVB Capital

How to get your business plan funded by a VC ?

Well first of all your plan needs to be very innovative a new idea. Venture Capitalists are not social workers who are there to help entrepreneurs, they need profit and they will invest x amount in your business only when they are sure that they will be able to get 10x after 5 years when they sell their stake and exit the business. You need to pitch your business plan enough to them that they are impressed with it. The process starts with you submitting a few page executive summary to the VC. The VC goes through it and if he is interested (90% plans are rejected at this stage) will call you for a presentation where you will present your ideas infront of their board who will fire your questions in a brainstorming session. After much talks if you are able to convince them (Only 6 Out of 1000 do get the funding) that your business plan is really profitable, you will walk away with the cheque.

What a Venture Capitalist Looks for before funding a venture ?

Read this article http://www.rediff.com/money/2007/apr/11bspec.htm

How to Pitch to VC ?

Well you have to keep certain things in mind while presenting your biz plan to a venture capitalist. They are -

1. Pick you VC Carefully. - Not all VCs are equal. Some VCs have a focus and interest in a particular niche only. Some of them invest in early stage companies while some in later stage.

2. Focus on the Biz Plan - Show them exact figures in your presentation like Market Size, Estimated Sales , How will you spend the amount of investment, and what will be your marketing and advertising strategy. Keep things simple. Rather than complicating things, its better to have a simple presentation on key points.

3. Put together a team - Here is the key. VCs wont fund you probably if you are alone. They fund teams and not plans. Some VC will even suggest you a good plan if you have a great team to work on with highly experienced people. Having a team reduces the risk in the venture.

4. Try again : - If one VC rejects you , learn from your mistakes and approach others until you find a good investors.

Best of Luck