With Rs 200cr in GTV, QED aims to be the virtual CFO to early-stage startupsHarshith Mallya
Having clocked 200cr in GTV in two years, QED Corporate Advisors aims to do what the Big Four in advisory services haven't been able to do- cater to startups
About nine of the 188 global unicorns have Indian roots. Many in India have been hit by the entrepreneurial bug and aim to start their own ventures. The government too has been optimistically pushing the Startup India plan since 2015. But so far only about 10-odd startups seem to have benefited from the initiative.
While there are multiple reasons for this, one of the key factors is that, generally, startups tend to focus more on solving the business problem or their technology, not paying enough attention to regulatory compliances till it is too late. QED Corporate Advisors, headquartered in Chennai, aims to help SMEs with accounting, compliance, M&A services, and also a Virtual CFO service. Here is their story.
Story so far
QED Corporate Advisors is a financial advisory venture that three friends, S Aravind (28), N Hariharan (27), and S Kumar Srivatsan (28) started in early 2015. The aim was to provide advisory services akin to what the ‘Big Four’ (Deloitte, PricewaterhouseCoopers, Ernst & Young, KPMG) provide but to a more diverse clientele (SMEs) and with more flexible finance options. Based on their personal experience and understanding, the founders believed that there was a big gap in the market. Talking to YourStory about QED’s USP, Aravind says,
Startups are generally prudent and don’t want to spend too much on financial advice in the early stage. But on the other hand, they are demanding and want to be their financial partner’s number one priority. Traditional CAs generally don’t understand how someone can call them at 1 am and expect an answer or land up for a meeting without an appointment.
Being in their late 20s, the QED team believes they better understand early- and mid-stage entrepreneurs and can better cater to their needs. While all three founders are CAs by qualification, each of them brings specific skills to the table. Aravind specialises in M&A, Foreign Exchange Management Act (FEMA)-related matters, and also has hands-on experience in auditing. At QED, he advises clients on project finance and loan syndications-related matters and also leads the startup team (more on this later).
Hariharan has about three years of audit assurance experience, having worked at KPMG and being involved in financial statement audits, internal audit, forensic engagements, etc. Srivatsan, on the other hand, has certifications in capital and financial markets from the National Stock Exchange and his experience includes stints at Royal Bank of Scotland and Ernst & Young. As part of the business advisory services team at EY, he was involved in advising primarily BFSI clients. Srivatsan is also the founder of OptaCredit, an online lending platform
QED currently consists of a 25-member team spread across Bengaluru and Chennai and also has associate offices in Singapore and the USA. While the venture is doing well now, there was an initial barrier for entry. Aravind mentions that when they started QED in 2015, some clients had trouble trusting them because of the lack of grey hair in their 20-something team. He says,
But the market has matured quickly and now it (our age) has become our USP.
From 0 to 200 crore in GTV in two years
QED claims to have over 100 clients, with some of the prominent ones being Freshdesk, PipeCandy, ZOHO, eShakti, and Isuzu. They worked with Freshdesk during its acquisition of Konotor (undisclosed) and Ivy Cap's investment in Eshakti. Bootstrapped so far, QED notes that it has clocked Rs 200 crore in Gross transaction Volumes (GTV) in the two years(2015 and 2016) it has been operational. It is split as 50 crore in the first year and 150 crore in the second.
While India and the US are prominent markets, QED also has clients from countries like Thailand, Singapore, and Myanmar. They have over 10 service offerings, with some of the prominent ones being accounting advisory, startup advisory, compliance management, taxation, M&A services, due diligence, valuation, and risk advisory. One other interesting offering from QED includes a virtual CFO service through which QED provides a full-fledged in-house finance department to startups. Aravind explains,
During the times of funding, a startup really needs a CFO by their side to protect their interests. However, until the funding comes in, they cannot afford one. So, the virtual CFO service is targeted at early-stage startups.
QED has a separate team just to cater to startups. The team takes care of providing end-to-end compliance management solutions for clients.
The government is in the process of rolling out the Goods and Services Tax, but there seem to be a lot of questions around it. Aravind says,
Our landline, which never usually beeps because people usually call us on our mobile phones, has been ringing off the hook with startups calling for clarifications on GST.
Under the GST regime, all taxes paid on one’s purchases can be interchangeably adjusted. Tech startups invest heavily on fixed assets. So the expectation is that startups can reduce the working capital constraints to a great extent.
A freemium revenue model?
For standard compliance requirements, QED’s service charges are in the Rs 4,000–35,000 per- month range, while for M&A, the cost of services depends on the deal size.
QED also has a freemium model which includes free advisory calls with companies in the ‘early-stage’ phase. They also offer subsidised services to early-stage ventures with limited financial resources.
Aravind mentions that many of their clients are increasingly setting up overseas entities which are managed from India. The QED team has expertise in international accounting practices and hence they are able to reduce the burden on their clients by connecting them to reliable folks abroad and through QED’s associate offices.
Of the 4.8 crore SMEs in India, only 0.2 percent have a CA working for them. With a big shortage in this space, Aravind notes that many entrepreneurs hit the panic button when they’re about to get funded and realise that they they’re not compliant on some fronts and need quick clarifications over phone or email.
Based on QED’s experience, Aravind believes that most SMEs in India have poor accounting systems. He says, “It is always a post-mortem exercise where the accounts are done at the year-end and returns are filed. So, at any time during the year, most do not have an MIS system in place to monitor their performances.”
But Aravind understands that most startup founders have so much going on all the time, that they don’t have the bandwidth to figure this out. To add to the trouble finance isn’t simple and in India it is more complicated than most other countries. So there is big market in India for corporate advisory solution providers to work with early- and mid-stage startups.
QED is in the process of developing a fintech platform to automate the accounting and compliance management. The platform would assist startups and SMEs in managing their entire accounting and financial management without the help of a finance person. Aravind says,
What’s available in the market right now is more for individuals than for businesses. So our platform will be targeted at early-stage startups.
In a few months, QED aims to open a Singapore office to cater to the demands of Indian startups looking to register their business there and also cater to NRIs starting up.
One of QED’s long-term goals for 2020 is to start an incubation centre. Aravind says that apart from providing startups with seed funding and a co-working space, they aim to look after their finance and compliance requirements. The government is already making huge strides in this area, so they will likely align with a government organisation to this end.