I was invited by The Economic Times to attend a panel discussion for “ET – Power of Ideas” at Times of India’s Mumbai office this afternoon. Its own words, The Economic Times (ET) describes the Power of Ideas as:
“The Power of Ideas, an initiative by the Economic Times, seeks anyone and everyone with an idea to come forward and realize their entrepreneurial dream. They are reaching out to people who might have great business ideas and are seeking funding to put their business idea into practice.”
The panel consisted of Venture Capitalists from VC firms like Battery Ventures, Nexxus Capital, Clearstone Private Equity and IDBI ventures. The discussion primarily focussed on how entrepreneurs can access capital better, what are the challenges faced by them, how these can be overcome and how the face of the Indian entrepreneur has changed over the years – where we were happy to get a perspective from Mr. Jitender Balakrishnan of IDBI – a veteran in this space and someone who has worked with the likes of Mr. Dhirubhai Ambani.
Some of the key points that came out and were discussed include:
- Typically, venture capitalists are interested in: a) Execution; and b) Scale.
- With regard to focussed sector-specific funds, the mature Indian entrepreneur knows which funds to go to.
- 10 years back it was much easier for an entrepreneur to raise capital. These days the “risk-perception” tends to cloud the view of the lender / venture capitalist.
- However, it has become tougher for the heartland entrepreneur to access capital, since a lot of VCs / PEs are in the cities and the heartland entrepreneur is simply not aware that opportunities exist.
- The Indian entrepreneurs are probably the most capital-efficient – possibly because resources are always scarce for entreprenuers!
- The Indian entrepreneurs are also the most stingy when it comes to giving out equity. Sometimes they do not want to part with stake even if it hurts growth.
Another very interesting point which came up during the discussion was the fact that entrepreneurs are ‘outsourcing’ the process of arranging for funds to ‘intermediaries’. Often this is done because the entrepreneur might not be aware of the ‘tricks of the trade.’ For instance, he might not know finance jargon, or the nitty-gritties of preparing a business plan. However, the VCs were not too happy with the idea of outsourcing to intermediaries because:
- They did not like the idea that the entrepreneur would be “coached” by the intermediary into giving them answers that “VCs expect!”
- The entrepreneur should ideally understand the details of funding himself – first hand!
— IN A NUTSHELL —
Some of the major factors that VCs / angel investors consider while committing funds to an entrepreneur are:
- What is the size of the market?
- Who are they betting their money on?
- What is revenue model?
- Who is the person being referred by?
Of course, ‘Who is the person being referred by?’ does raise some eyebrows but one of the panelists (himself a venture capitalist) admitted there are certain systemic inefficiencies that, perhaps, need to be weeded out of the system.
So, what are the qualities that VCs look for in an entrepreneur?
- Is he a leader?
- Can he inspire people?
- Does he have integrity?
- Is he transparent as an individual?
- Domain experience is necessary but not sufficient.
ET has already received close to 2,500 entries from all across the country and they expect the number to go upto 3,500 by the time the registrations close – That is quite a response, considering that we already have many such fora in progres in India right now – with the likes of The Indus Entrepreneurs (TiE), National Entrepreneurship Network (NEN) and Proto, which are doing a lot of good work in this space.