Arun Natarajan Gives an Overview of Funding Landscape at TiE Chennai Startup Super Day
When Spring is at its height in Chennai, when flowers should bloom, and the day should shine, the city woke up to a steady drizzle, wet roads, and grey clouds this Saturday. It was unusual for the monsoon to show its smile on Chennai when it played truant in the rest of the country, sending alarm bells among policymakers. The newspaper on the other day painted a rather gloomy report stating the overall storage in dams across India is one-sixth of the total capacity. Probably it was a welcome shower for the Startup Super Day hosted by TiE Chennai.
Early stage funding vibrant
Pravin Shekar, the governing council member, set the day in motion with his introductory remarks. Arun Natarajan, MD and CEO of Venture Intelligence, in his keynote, touched upon the salient aspects of the funding landscape in India. From 2002 to 2012, the PE investment has grown multifold from $0.5 million to $10 billion. The two years 2008 and 2009 saw a dip in investments because of global economic downturn. PE investment as a percentage of GDP stands at 0.33% in India compared to 2% in Israel and 1% in the United States. Active venture funding activity started in 2006 with ICICI Ventures becoming a venture fund and American funds such as Sequoia, IDG, Helion, Matrix, IndoUS, Accel, and others setting up India-specific funds. “2007 was big year before things fell apart,” pointed out Mr. Natarajan. “There is a squeeze in PE funds as LPs are pushing hard,” added Mr. Natarajan. Exits are hard to come by for PE funds.
“There is vibrancy in early-stage segment,” felt Mr. Natarajan. You are a startup if you are three years old as a company and you are early-stage till when you are five years as a company. Sequoia became a multistage investor and soon many funds entered the early-stage funding domain. “There is a clear shift to early stage,” said Mr. Natarajan. The setting up of with incubators and accelerators such as Morpheus and The Hatch is also adding up to the activity in this stage. Angel investments are also picking up with Indian Angel Network, Mumbai Angels and Chennai Angels in play. “The ticket size is small and no. of investments large” for funds investing in early stage, Mr. Natarajan said. IT tops the investment with 53% of investments followed by health care and education. In IT, online services have attracted 64% of the investment. Early-stage investments range from Rs. 50 lakh to Rs. 2 crore. NCR and Mumbai lead these investments and Chennai comes fourth when it comes to investments.
With 80 to 90 angels, it cannot be called a “bubble.” Angels are realizing exits through VC investments whereas VC exits are yet to happen in a big way. The jury is still out on VC exits.
Angels and Entrepreneurs Let Out Their Funding Secrets
Funding and opportunities – Myth and reality: Naru Narayanan from 20:20 Media (angel); Sudhir Rao from IndusAge (angel); Balachandran from VIT Incubation Center (incubator), Suresh Sambandam from OrangeScape (entrepreneur), Sivaraman Pillai of Proklean Technologies (entrepreneur), Venkatesh of Future Telecom (entrepreneur). Moderator: Chandu Nair
In a lively panel discussion moderated by Chandu Nair, the TiE Charter Member, angel investors and entrepreneurs who received funding shared their perspectives. “I see no risk,” said Naru Narayanan, now an angel investor and an entrepreneur for 25 years. He started Dosa King, an automated dosa making machine business. You could guess his risk appetite by this. He is also founder of 20:20 Media. “The exciting aspect is investing by taking risk and participating in the failure as it happens,” quipped Sudhir Rao, an angel investor. He has seen close to 1000 IPOs in his long career. Sudhir Rao bets on white spaces and that resulting in substantial change. For example, he said the risk the entrepreneur took 25 years ago to sell bottled water and investors encouraging that person. If Sudhir Rao feels an idea is a white space point, he is ready to sit with the entrepreneur and understand how it would create an impact. Altruism is not a top motivator for these investors, though it is one.
Suresh Sambandam felt that the entrepreneur’s belief should find a chord with the investor. Active angels help companies in a big way was his take. Compromising on the core belief for the sake of getting an investment or modifying a business plan should not done, emphasized Suresh. His active networking in the Chennai ecosystem helped him get funding and “one does not network keeping investments in mind,” he added. He consciously did not seek VC investments when they began approaching him because he felt a compelling story was not formed yet. But now OrangeScape has raised “bridge round” of $1 million with Indian Angel Network. “The angels also bring in their expertise and network,” said Suresh. He also felt Indian investors are not in a position for fair valuation of PaaS companies. So he has to raise a “bridge” round.
Venkatesh felt that suitable angels should be identified who are experts in the area of the entrepreneur’s service or product and their investment is considered a validation of the entrepreneur’s idea. Angels being experts, it acts as a morale booster for the entrepreneur. Sivaraman Pillai felt the right mentor through an angel is required. He is now 59 and started his business when he was 56. Chennai Angels has funded his venture.
Sudhir Rao added an important point to the debate. He said India is a high-context society where the entrepreneur is identified by his family roots, pedigree and networks, unlike in the United States where it is a low-context society. And failure is looked down upon in India whereas Chapter 11 is not a problem in the US. These cultural attributes should also be kept in mind.
Bankers make their pitch
Gunasekaran from SBI, YagnaRaman from IOB and Pattabhi Raman from Corporation Bank spoke on CGTSME scheme through which an entrepreneur can raise Rs. 1 crore without a collateral (of course, conditions apply). The banks ranks the entrepreneur on their credit worthiness, credibility, and then a score is given. If the score is below 700, it is difficult to get funding. Banks also assess different sectors of the industry periodically and categorise them as moderate risk and high risk. Usually high-risk categories are not funded. Working capital needs and project funding (a term loan) are undertaken by banks.
Cleantech gets attention
To get a diverse subject into the discussion, cleantech sector was included as an opportunity for entrepreneurs. The panellists consisting of sustainable energy, water management, waste management and solar energy experts along with Boo Raghavan, Aspiration Energy, debated on the various present-day challenges in delivering clean energy and green buildings. Vineeth, whose blog Panchabutha, is widely read and who sits on the committees of Central and state governments on cleantech, moderated the discussion. R. Karthik of Iacharya, engaged in solar energy, drew a lot of interest among the audience who began to seek answers on how viable it is to put up a solar panel on their roof tops. “Technologists have a huge role to play in cleantech,” said Vineeth, which was seconded by Boo Raghavan, engaged in erecting green telecommunication towers.
Back to Basics
A finance expert (Mohan from Grant Thronton), a lawyer (Dikshit Mehta), and a marketing expert (Surya Prakash) explained the fundamentals of business practices. While Mohan explained the essentials of good finance practices and systems even for a startup, Dikshit dwelt upon the legal structure of how companies are formed. Surya Prakash gave a presentation of why marketing is important and how it can be done cost-effectively without huge budgets.
The start-ups Carpe Diem, Avon Mobility, BrainNooK, ContractIQ, RuralERP, Sourceweb, Syscloud Soft, When Delhi Weds, xCode, Zypher, and LocalEver were given opportunity for a five-minute elevator pitch in front of investors, angels, bankers, and audience. The interesting aspect of this presentation was diverse focus of these companies in gifting, ERP, wedding costumes, education, ERP for SMEs, and technology-enabled location-based services. SysCloud Soft helps you back up your Google Apps data on Amazon Cloud to act as a back up and security for the data, if it is hacked or accidentally deleted. Some companies like Carpe Diem and BrainNook have made global forays suggesting the vibrant startup space in Chennai. LocalEver’s presentation in form of a story was worthy of note.
Vishy Vishwanathan, Executive Director, TiE Chennai, was elated. He said, "Start-up Super Saturday exceeded our expectations. The wide business ideas and ventures covering education, ERP, gifting, e-commerce, cloud services, clean tech and much more clearly show the wide range of opportunities that entrepreneurs from Chennai are wanting to exploit. We had budgeted for an audience of fifty but the actual numbers were triple that. It clearly shows that Chennai's entrepreneurial appetite is hungry and growing." This pretty much sums up the Startup Super Day.
—Venkatesh Krishnamoorthy, chief evangelist