Helping novices win the first round with funding veterans

As Professor in the Department of Management Studies at IIT Madras, Thillai Rajan A has been bringing out an annual report on the Indian venture capital and private equity industry. This gives him tremendous insights into funding issues at start-ups. “The number of start-ups that are able to raise the first round of external funding is low, only 6-7 per cent,” he says. The number improves in subsequent rounds, he says, going to 15 per cent in the second round and 20 per cent in the next.

It is the first round of external funding that is critical for any start-up. Start-up founders have two options before them. Either they can bootstrap the venture and fund it internally. But then, says Thillai, given the business model of most of them, they want to focus on growth, for which external funding becomes important.

With his insight and experience, it is no surprise that Thillai decided to start a venture himself, YNOS Venture Engine CC (Catalyse & Create) Pvt Ltd, nurtured at the incubation cell at IIT-M’s Research Park.

The main focus

Thillai, who is the co-founder of YNOS, says entrepreneurs are the main focus of the company. Entrepreneurs, he points out, make a pitch to several investors for funding, many times without any luck. It is more by chance than by design that they get to meet the right investor.

YNOS, according to Thillai, seeks to change that and improve the funding chances of entrepreneurs. What if, out of about 40 investors, entrepreneurs are able to narrow their field to just a dozen potential investors. It will improve their chances of getting funded and also prevent them from getting frustrated by making numerous pitches and answering the same set of questions.

Is there any way entrepreneurs can effectively increase their chances of getting funding, Thillai poses a rhetorical question. “We have been doing research on the venture industry for at least 10 years now. We have done nine annual reports and we have got some insights, trends on what are the factors that influence venture capital investments,” says Thillai.

The idea behind YNOS, he says, was to see whether technology can help intermediate transactions between investors and start-ups. “Can we identify potential match-making tool that will help entrepreneurs identify who could be their prospective investors. This tool will use factors we have identified based on our research,” he adds.

YNOS focussed on angel-funded deals, studied their characteristics and identified using an algorithm the factors that led to successful deal closure. “When an entrepreneur comes and gives information about his or her start-up, we will use this particular factor to suggest these could be the top 10-15 investors whom we think are potential match for them. We cannot guarantee success, but we can ensure that the exercise is not frustrating for the entrepreneur,” says Thillai. Right now, only 7 per cent of start-ups are getting funded and “if we can increase this to even 9 per cent, that we think can be a significant contribution,” he adds.

YNOS, according to him, seeks to increase the effectiveness of a fund-raising exercise for early-stage entrepreneurs. Why early-stage? Because, he points out, it is at this stage that entrepreneurs do not have access to information. They don’t have a team and the resources to subscribe to databases. Once the first round of fund raise happens, the investor will help entrepreneurs in subsequent rounds of financing.

The company also provides information on what the competitive landscape looks like for an entrepreneur in a particular sector in a specific city. For example, if an entrepreneur wants to start a venture in food delivery, he can get information on how many similar ventures there are in a particular city, how many of them have got funded and the like.

YNOS has different products and services for the entrepreneurs – Insight, Insight Advanced, both of which give an idea of the competitive landscape; Verve, which will give an idea about valuation; Clarity, a half-day workshop that educates entrepreneurs on the intricacies of the fund raise process; and, Consult, another offline service where entrepreneurs can engage with top-notch advisers to help make them more investment friendly. Appropriately, the algorithm that will help entrepreneurs find their potential investors is called Discover.

Business model

According to Thillai, YNOS will charge the entrepreneurs a nominal fee for the service. Consult and Clarity, being offline workshops, there will be a fee that has to be paid. Insight will be complimentary, while Insight Advanced, Verve and Discover will be on a subscription basis. Apart from targeting individual entrepreneurs, YNOS plans to tie up with incubators and incubation cells in institutions. Incubators provide a variety of services to start-ups and this can be an added feature, according to Thillai.

The company will also bring on its platform mentors and other service providers, such as accounting professionals and those offering secretarial services. Once YNOS has been successful in roping in early-stage entrepreneurs, it will offer its services to those going for Series A and Series B rounds, according to Thillai. It has tied up with Venture Intelligence, a leading provider of information and analysis on venture capital and private equity deals.

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