Show him the money!

Show him the money!

On November 27, 2009, we at The Smart CEO witnessed an interesting panel discussion on ‘Funding Opportunities for Tomorrow’s Entrepreneur’ at Tiecon (a flagship event for the local The Indus Entreprenuers chapter) Chennai 2009. The panel spoke of the expectations that a venture capitalist has from a business proposal, in addition to addressing specific questions on methods of raising money from a pool of resources.  The moderator was Sandeep Singhal, managing director, of the Indian firm Nexus India Capital Advisors.The panel, which comprised the heads of venture capital (VC) firms, included Kumar Shiralagi, managing director, NEA-IndoUS Ventures, Vishal Vasishth, managing director of Mauritius based SONG Investment Advisors and Samir Kumar, managing director, Inventus Capital Partners, India. Representing the entreprenuers was Kami Narayan, Co-CEO, PreMedia Global, a provider of end-to-end content solutions.

Here are some excerpts from the panel discussion:

How do you approach a VC?

KS: The most productive way is to either have met a VC earlier in some context or through a reference as it lends more credibility. There’s also a chance that you could meet VCs at conferences or through networks.

At what juncture does one approach a VC?

KN: Before PreMedia Global decided to go the external capital route, we felt it was necessary to establish a proof of concept. We approached VCs only after having been in business for three years. If you take in a lot of money too early in your business, there’s a chance that you might get highly diluted. In our case, we were looking for additional funds to scale up our business.

What are the attributes one must present to a VC?

SS: If you put yourself in the shoes of the VC and think through what they may ask you, it makes a huge difference.

KS: If I may add, one of the key requirements is that he or she must be a very good salesperson. You have to present your idea with as much enthusiasm as you would to your prospective customer or your internal team.

What do VCs look out for in a proposal?

SK: The team is the most important part of the evaluation. I think more than 50 per cent of the weightage goes to the team. When we say team what we mean goes beyond the lone wager. We see if the person has a good background in the field in which he is pursuing this new idea. It adds value if the people have known each other in the past. We also look at who’s in the team like the board of advisors, the board of directors and so on. We also look at the market opportunity that is being pursued.

We check for the unique value proposition that differentiates this case from others in the same space and to see if it is not positioned in a very crowded space. A me-too idea might not work.  VCs need to exit from the investments they make, so before we get in we look at how we can get out – we look at the exit opportunities that are present.

Do VCs push entrepreneurs to see results and if so, how far must you let them go?

SK: Right at the beginning, at the stages of evaluation, the value presented to the VC must be realistic and the expectations of both parties must match. An investor who gives you money on false expectations on business growth is as disserving as the one pushing you to deliver unrealistic numbers.

What sort of a relationship do you share with the VC and what are potential deal-breakers?

KS: The relationship between an entrepreneur and a VC firm is like being in a marriage; you have to be with each other for a long time. As far as deal-breakers go, there are times when an entrepreneur is too good a salesperson and in reality, the expectation that we as VCs have is not met.

SK: Speaking further on the topic of marriage, we live in a time where all these social networking sites are prevalent. Say if I were to meet a girl and she kept posting or blogging that all men are lousy and I still go ahead with the marriage, I would start to doubt if she would be happy in the marriage. Similarly, if you as an entrepreneur were to take a negative approach, as in, blog too much about VCs in the negative, it would certainly affect what I think of you.