As one of the most experienced venture capitalists in the business today, Kanwaljit Singh, MD, Helion Venture Partners has clear views on when and how a start-up entrepreneur must access outside funding for his company. In this column written exclusively for The Economic Times, Singh explains why rushing for venture money is not the best way to kick-start a company.
Vigour in the economy
No one would have failed to notice the excitement in India today, about new companies in every sphere — from e-commerce to Education to Retail and mobile. As a venture investor in India for the past decade, I have seen this phenomenon at least once before in the early 2000’s, but this time it does feel more real and rooted to fundamentals such as economic growth and real money being available for entrepreneurs to take the big leap.
Before you venture
The glamorous port of call typically is a venture fund. But before you approach a venture investor, you must know they are looking for large market opportunities in specific sectors, very scaleable business models, great teams and some proof of concept. On an average, a venture fund sees 500–750 investment opportunities every year and end up investing in less than 1% of these.
So ask yourself these questions — Are you ready for the VC? Do you really need a venture investor? They bring networks, a strategic view of markets, corporate governance, discipline and of course the cash. But there is also the overhead of an external shareholder who asks tough questions, insists on a lot of process and controls and can generally have some nuisance value.
So go to a VC when you have established a clear proof of the business model, have a few good people on board and have more clarity on the future of the business and its scalability. The alternate source of funding is what was the only source of funding 10 years ago – friends and family. These are people who believe in you and will put money behind you. They won’t ask for clearer idea or wait to see the proof.
Funding sources
A new class of investors has started emerging — high network individuals, very aptly called Angels; and seed funds who will back you as a start-up if they see the potential. Every city has some of these and it’s worth reaching out to them. You could also link up with a lot of wealth managers who manage HNI money as they are also looking to pool their client money and invest behind interesting businesses.
Apart from these options, which all come under the ‘money for equity’ category, some interesting new options are opening up, including venture debt. This is a specialised debt product that is offered by some institutions without collateral. While it has an interest rate attached to it, typically they would also look for some warrants to convert to equity. Very often, venture debt is offered once the business has raised some equity money. We have done a few venture debt deals after investing in a company.
Believe in banks
Bank debt is tied to collateral and profitability, therefore the business needs to be more mature. Some public sector banks offer small loans without collateral to SMEs. There are also semi-government bodies, incubators and academic institutions offering soft loans and grants in specific sectors, which can be a good way to start the business and then look for equity investment.
This is a great time to turn entrepreneur. So hang up your ties and suits and pull out the jeans and T-shirts. It’s time to have some fun.
Kanwaljit Singh, MD, Helion Venture Partners
Vigour in the economy
No one would have failed to notice the excitement in India today, about new companies in every sphere — from e-commerce to Education to Retail and mobile. As a venture investor in India for the past decade, I have seen this phenomenon at least once before in the early 2000’s, but this time it does feel more real and rooted to fundamentals such as economic growth and real money being available for entrepreneurs to take the big leap.
Before you venture
The glamorous port of call typically is a venture fund. But before you approach a venture investor, you must know they are looking for large market opportunities in specific sectors, very scaleable business models, great teams and some proof of concept. On an average, a venture fund sees 500–750 investment opportunities every year and end up investing in less than 1% of these.
So ask yourself these questions — Are you ready for the VC? Do you really need a venture investor? They bring networks, a strategic view of markets, corporate governance, discipline and of course the cash. But there is also the overhead of an external shareholder who asks tough questions, insists on a lot of process and controls and can generally have some nuisance value.
So go to a VC when you have established a clear proof of the business model, have a few good people on board and have more clarity on the future of the business and its scalability. The alternate source of funding is what was the only source of funding 10 years ago – friends and family. These are people who believe in you and will put money behind you. They won’t ask for clearer idea or wait to see the proof.
Funding sources
A new class of investors has started emerging — high network individuals, very aptly called Angels; and seed funds who will back you as a start-up if they see the potential. Every city has some of these and it’s worth reaching out to them. You could also link up with a lot of wealth managers who manage HNI money as they are also looking to pool their client money and invest behind interesting businesses.
Apart from these options, which all come under the ‘money for equity’ category, some interesting new options are opening up, including venture debt. This is a specialised debt product that is offered by some institutions without collateral. While it has an interest rate attached to it, typically they would also look for some warrants to convert to equity. Very often, venture debt is offered once the business has raised some equity money. We have done a few venture debt deals after investing in a company.
Believe in banks
Bank debt is tied to collateral and profitability, therefore the business needs to be more mature. Some public sector banks offer small loans without collateral to SMEs. There are also semi-government bodies, incubators and academic institutions offering soft loans and grants in specific sectors, which can be a good way to start the business and then look for equity investment.
This is a great time to turn entrepreneur. So hang up your ties and suits and pull out the jeans and T-shirts. It’s time to have some fun.
Kanwaljit Singh, MD, Helion Venture Partners
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