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Funding

Funding your startup or your dreams

Team YS
12th May 2011
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MohitBhatnagar, MD of Sequoia Capital, said during the TechSparks 2011 Regional RoundTable that investors at time have a negative pressure to push out their money. They are looking for an excuse to fund a startup. The problem is they are not running a charity organization. They have their principals to answer and they do make mistakes – in fact a lot of them. Typically, out of 10 investments, more than half fail. The rest of them give them a return on their investment. SramanaMitra, founder of 1M/1M movement (creating 1 million entrepreneurs to reach $1 million or more in revenues by 2020) says 99% percent of the startups that go for funding are rejected by investors.Your ambition of what you want out of entrepreneurship decides whether you want funding or not. Let’s face it. Once you go for funding, you lose equity and some control. You are answerable to investors quarter on quarter. What typically happens is as you seek more investments, your own stake goes down considerably. That’s how giant companies are built. Except Wipro, in which AzimPremji holds close to 80% stake, most of the promoters in big companies hold less than 10%. But theirs is a singular majority stake and hence control the operations of the company. Typically financial institutional investors hold other stakes. If you are a public company, part of the shares are held by public. Inevitably, at one point in time, your investors will decide to sell their stake. This may result in two possible scenarios. The stake may pass on to a new investor, which typically happens in case of big companies or you become a target of acquisition or merger if you are a small or medium-sized company. You should remember that if you don’t get an investment, your growth is not on a fast track. You need someone to pump big time money to realize your great growth ambitions. Take the example of Landmark. HemuRamiah built it, scaled it and finally sold the entire stake to Tatas. This is one way where you say, I create, grow, scale, and sell my company. Then you decide what to do for the rest of your life. Many successful entrepreneurs go on to become an investor or a consultant, or take roles of mentors taking a seat on boards of many companies. Even failed entrepreneurs who are forced to sell their companies become investors. There is no one path. You have many options.

The control freaks who decide how to run their own companies not paying much attention to growing at breakneck speed or to be featured on glossy business magazine covers set their own pace of growth. They reinvest part of their profits into growing and scaling and keep it that way. They typically bootstrap their business, starting out with money culled from savings or acquired from friends and fools. They stay in the game for long. But it is not that they are less celebrated. They also gain traction, visibility and provide inspiration for other entrepreneurs. If you nurture a dream of doing something for life and enjoy doing it, then the best way to keep all the stake with yourself and be happy with whatever growth your profit and subsequent reinvestment brings. Sridhar Vembu of Zoho is not selling his business. He wants to pursue it. That’s the way he positions himself to investors. Many entrepreneurs are chased by investors and they always reject investments because they know what baggage they have to carry if investors come on board.

But you can also carefully rope in investors who only want to invest to see their money grow and not ask you too many questions on what is happening on a day to day basis. This is one way of both getting huge loads of cash to grow your business and you still being the boss. The investors will anyway have a say in decision making. You have to balance your personal with professional sides of running a business. There are some businesses that cannot grow without loads of investment. And at one point you cannot run it yourself. You have to hand it over to a larger company who would be able to take it to the next level or hand it over to someone else who will be more competent to grow the business.

So funding is really an option of whether you are funding a startup (that you don’t mind selling later) or are you funding your dreams (you want to do it for the rest of your life and achieve something meaningful – make a dent in the universe, change the world, or make a difference).

—VenkateshKrishnamoorthy, chief evangelist

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