Experiences in Raising Funds for My Startup

Beyond Profit Guest Blogger, Venkat Subramanian, reports.

First, this is NOT an article advising a budding entrepreneur on “how to approach a VC or how to write a business plan.” There are enough websites and magazine articles that have literally beaten that subject to death. On the contrary, this is an article based on our own experiences and (mis)adventures over the past several months in trying to raise funds for our startup firm, eFarm. One, this is meant for entrepreneurs who want to know what to “expect” during the “funding hunt.” Second, this is meant as a guide for investors on how to approach an entrepreneur. Yes, you DID read me right – it is high time the INVESTORS attend some workshops, read articles, and try to learn how to “pitch” to a potential entrepreneur. Because as they say, a one sided relationship is often a dead end. If you want us to do the mating dance, make sure you know some steps as well!

One reason I presume such articles or talks from an entrepreneur’s perspective are a rarity is probably because they don’t want to antagonize a community that they see as the only source of funding for their growth. As a result, much of the pain and horror stories of dealing with funders never come to light, which we feel is a great injustice to other entrepreneurs who may end up barking up the wrong tree, all over again. Second, none of the investor conferences ever invite an entrepreneur to speak about his experiences in fund raising!

So, for entrepreneurs – this article helps you to stay informed and avoid the jerks. And for investors – what goes around, comes around! The names may have been changed to protect people’s identity. But what the heck, it’s a small world… for people in the community, you can pretty well read between the lines. As usual, bouquets and brickbats are welcome.

The Business Plan

Like all newbie startups, we too started with a simple, neat 5 slide presentation that explained what our vision and business model was. Though our key focus groups and customers all “got it,” unfortunately when we started discussing this with investors, they all wanted more details and in “standard templates.” Though it did add a lot of structure to our business plan, it also added some 50+ slides and a whopping 20Mb size to the deck, which could no longer be emailed to anyone! So, we ended up having to upload our business plans and financial plans all on the net.

And NOW, we have people asking us “Why have you put it up on the net? Can you email us a shorter version?”

Lesson learned: A plan is just a plan – it is the execution that makes all the difference! And no template can capture that. For people interested in seeing our current business plans, check it out here. You can also catch all our early versions, just for kicks, on our SlideShare page.

The Government

Initially, while we were still in our gestation period, and even before we even thought of any external investments, it was the government, through the Department of Science and Technology’s grant department that approached us. That caught us partly in shock, surprise, and then high hopes – for the uninitiated, GRANT = FREE MONEY! No equity, no debt – just cash. Was this too good to be true? Well, it did turn out that way in the end…after some 9 months of waiting. On paper, the government has thousands of grants and funds available for entrepreneurs, small and medium sized industries, etc. But, between elections, changes in ministries, changes in department officials,  paper money remains locked up in paper files.

Lesson learned: One may elect the government, but they can still reject your grant. A mirage for the patient few to chase.

Friends, Family, and the Father-In-Law!

In the stereotypical “Tam-Bram” community from which I hail, running a business is something Aziz Premji, the Tatas, and the Birlas do. An entrepreneur is usually a “reject” or a social untouchable. Money is better invested in gold for a daughter’s marriage or in buying a plot of land near a tech park. This segment may often be the most difficult first to convince – as they know too much about you. But then, most times, that’s a blessing as they believe and trust in you as a person, not because you have a fantastic five year plan.

Though one’s own funds and the funds of friends form the foundation to launch any venture, I am sure 90% of India’s businesses are actually initiated through seed funds from fathers-in-law; they deserve a special category by themselves. Though they may not demand a board seat, but they often watch over any news and happenings, refer a lead, or just give helpful encouragement in times of distress – something NO suit/booted investor is ever going to do!

Tip: Keep your laptops and ROI calculators aside, avoid funny jargons, and just talk straight. Be open to different terms: soft loan, Diwali gift, or even if you may have to forcibly live with someone’s daughter for rest of your lives – anything for realizing your dreams!

Ex-Colleagues

I am sure several of you must have slaved away for tyrant bosses for years, ensuring they met their sales targets while you sat gloating in a “feather in cap” award. Long hours in the office, heated arguments with clients, missed anniversaries notwithstanding, several have bent over backwards to please bosses in return for a carrot that was never to come. And then, when you decided to quit, you hoped this gratitude would be returned at a later point in life. Sorry, loyalty is often a one-way street in the corporate world.

Lesson learned: Ex-bosses are like ex-wives – The farther away they are, the better.

External Investors – A Curtain Raiser

Before we dig (at and into) the external investors segment, some key trends and insights:

• People who used to talk in “minimum of XX million dollars” 1 year ago have now begun to talk of “maximum of YY thousand dollars” as their own investment portfolio has shrunk.
• When they ask the proverbial “How much money do you need?” question, rest assured that REGARDLESS of what you quote – the response will be, “It’s way above our fund size: or, “It’s way below our minimum requirement.” I am YET to see ONE person who says, “Actually you know what, this is just about right fund amount for us.”
• Most investors never directly deal with entrepreneurs. They appoint some go-between firm which is more of an admin operation – often just collecting and filing info for review by someone abroad.
• They are more comfortable looking at spreadsheet numbers rather than understanding how the business operates. We were once so bugged by one dude who was harassing us for detailed financial statements, that we sent a “slightly modified” version of the latest Infosys annual report and he was perfectly happy with it!
• Almost 90% of investors are technology-centric, and hence they don’t have much knowledge of other domains.
• Though VC firms want to see all financial statements, they hardly disclose anything from their side. Not even a brochure. And there was one who didn’t even have a business card or designation. We have started insisting that they bring their check books and latest bank statement for our meetings.

Banks

Though there are several ads prompting small and medium entrepreneurs to approach banks for collateral free credit and many schemes for startup funds, the fact is that the local branch managers are not even comfortable about starting a current account with an entrepreneur. We were nearly coerced by a public sector unit (PSU) bank manager into going to a private bank to start an account. Targets not withstanding, they are more interested in maintaining a non-performing asset less portfolio until they retire. One should either have 10 times worth of collateral or have Ambani or Tata as a surname to get a bank loan in India.

Angels and Demons

There could be enough material for another Dan Brown novel on the murky corridors of the Indian Angels. Though most angels claim they are former entrepreneurs themselves and are hence passionate and understanding of the needs for seed capital, our experiences have been rather on the contrary. Though each of these organizations have their own peculiar templates and processes for reviewing funding requirements, when the final presentation happens, it is shocking that most have hardly even taken a minute to review it! All the more, out of the 7 minute pitch time, we end up listening to 6.5 minutes of “gyan” from the “senior gurus” on their own interpretations of the business and their life success story.

Lesson learned: Most angels are get-rich-quick-during-the-boom type millionaires who were lucky to be in the right place at the right time. Their understanding of technology is more in terms of clicks/page per views/hits. If you are on a non-IT business venture area and talk genuine revenue and profit, they often stare at you like a deer in headlights. If you are keen to know the lifestyles of rich and famous in India, do spend an afternoon with them – but for the rest, better luck elsewhere.

The (anti)social VC – The Wolf in Sheep’s Clothing

Social entrepreneurship is the “in” thing among investors trying to rebrand themselves as socially-conscious lenders. Failed investments, poor images of corporate powerhouses caught in investment scandals, and the collapse of the citadels of investment banking has suddenly opened them up to the idea of the “fortune at bottom of the pyramid.” Not to be outdone, the modern social VC rejiggers their organizational chart, brings in a “soft face,” throws in some ladies weaving…

Venkat Subramanian is the Founder and Managing Director of Matchbox Solutions, a company which uses technology to solve critical issues in India. Efarm, one such solution, uses technology to provide supply chain efficiency for procuring and delivering fruits and vegetables grown on rural farms.