Ideas meet funds hurdle

The entrepreneurial bug may have bitten India but selling the idea is getting increasingly difficult.

Take, for instance, the case of Ajay Patel. He has been doing the rounds of venture capitalists (VCs) for over six months but has been shown the door even before someone goes through his proposals.

VCs are hardly to blame. They receive around 150 to 200 proposals every month. Of which, on an average, they fund just about 1-2 companies. A lot depends on the business model and the innovation that the entrepreneur is trying to bring but there are other factors too. Like whether the model fits in what the VC firm believes in, market opportunity and size, business differentiation if the model already exists and most important how is the team. Rather, all the VC firms that Business Standard spoke to highlighted the most important criterion as "How prepared is the team to face adversities".

Seed Fund, a venture capitalist that funds at the initial stage receives anything between 150 and 200 proposals every month of which one or two are cleared for funding. Mahesh Murthy, managing partners Seed Funds is quick to point out: "These rejected proposals need not necessarily mean that the proposals are bad. When we evaluate a business proposal we are also trying to see if it is something that we believe in." Having funded close to 18 start-ups (14 in his earlier capacity and 4 with Seed Fund) Murthy believes that more than the money, a company should look at a VC that can act as their mentor and help them build their business.

Similarly, Helion Ventures in the last one year has received more than 500 proposals. Kanwaljit Singh, managing director, Helion Ventures, and his other colleagues go through almost 50-60 proposals every month. Of the overall proposals that the company receives it ends up investing in just about 2 per cent. The VC has signed 8 deals in the last one year. "We are ready to take a risk but the criterion is the company has a business model based on technology and should have India as its strategic part," adds Singh.

Sandeep Murthy, partner, Sherpalo Ventures, says, "Entrepreneurs should look at what is that the customer needs and how are they going to address it." Sandeep Murthy receives more than 30 proposals every month. In the last two years of its operations the VC has seen 600-700 proposals and funded about five companies. With a focus on consumer enabled technology and mobile platform Sherpalo has invested close to $3-6 million.

Though the total percentage of proposals has remained constant over the last eight years, it is the competitive environment that has changed. Looking back Murthy says, "It was only after the dotcom bust that the number of proposals went down to. But since 2002, it has been quite steady." Singh agrees, "Earlier people who knew us or who had direct contact or were recommended by investment bankers approached us but now entrepreneur directly get in touch with us."

VCs also caution those who are trying to duplicate a business model (Copy-paste). Though many themselves look at business model that have been successful in US or China, but feel the thought process behind any project has to be localised.