The Hindu Business Line : `Many potentially good firms fall by the wayside'

"If we do not have seed stage and very early stage funding, where will we get enough companies eligible for VC funding?" — MS ANJANA VIVEK, CEO, VENTUREBEAN CONSULTING

Billions of dollars are pouring into India via the venture capital (VC) route as more and more US-based players set up shop in the country to ride the next big growth wave. However, the increasing interest in investing in India has not translated into easier access to capital for entrepreneurs at the early stage levels, says Ms Anjana Vivek, co-founder and CEO of VentureBean Consulting, a Bangalore-based firm that works with early stage ventures and companies in transition, including those looking at funding options.

In an e-mail interview to Business Line, she says that start-ups needing less than $1 million still find it difficult to raise funds. "While much noise is being made, we do not see funding to the extent it is required in this space. This is a bit of a worry for the industry as a whole. While everyone seems to agree that this requirement is to be met, there are very few risk takers for this space."

Key link

"If we do not have seed stage and very early stage funding, where will we get enough numbers of companies eligible for VC funding?" wonders Ms Vivek, who was a full-time faculty member in the Finance and Control Area at IIM-Bangalore, and is still active as Venture Advisor and Guest Faculty at the Institute. According to her, it's a lot like the link between the number of college-going students and students who have gone through primary, middle and secondary school; you don't have many of the former if there aren't enough of the latter.

"Similarly, most companies need the funding at the idea, seed and early stages to take them to the level of VC funding. These are typically companies for which loans are not advisable." She adds that many potentially good companies fall by the wayside because of the lack of this initial-stage, high-risk funding.

Ms Vivek, who has been COO of the NS Raghavan Centre for Entrepreneurial Learning at IIM-B and Vice-President (Corporate Advisory Services) of Ernst & Young, where she headed the due diligence practices in South India, believes that India needs funding models that will leverage Indian strengths, "rather than the US models which are resized and cut to a different size!"

She thinks the time is probably ripe for more Indians to get into the act and fund start-ups that are able to understand the uniqueness of the Indian environment. "India should be the starting point, not the ending point. When I say starting point, this could be business environment, customers, employees, etc." Too much money is chasing too few start-up deals in India, while at the same time established players are often getting a lot of money from VCs. Ms Vivek attributes this to the limited bandwidth that VCs are constrained by.

The Fund Size

"Existing and new funds are raising larger sums of money. Typically, VC fund managers have limited bandwidth and therefore limit the number of companies they invest in. Thus, as the fund sizes increase, the average investment per company also increases."

VentureBean's main focus is mentoring, training and linking entrepreneurs to resources. "For entrepreneurs, we provide a sounding board. Often they don't have or make time to think about the long-term impact of current actions, bogged down as they are by routines and operational challenges. We provide the external yet involved perspective. We work with companies from idea to scale-up stage and beyond." For VCs, the company provides a means to leverage their existing bandwidth. "We can be their outsourcing partners and help in building their portfolio companies through a combination of mentoring and training services."

Like all VCs, Ms Vivek, who has also been associated with Centre for Technology Development project of the US Agency for International Development (USAID) and Vice-President of NVCF Finance, thinks that the team behind a startup is critical to its success. "What sets successful entrepreneurs apart is their staying power, the ability to stick through the bad times." She believes that in addition to basic capabilities and domain knowledge, key team members should have the drive to succeed.

D. Murali
C. Ramesh

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