Thursday, December 13, 2018

Venture Capital Funding – Giving life to new ideas

Sachin Mittal is a maestro when it comes to giving life to new ideas. Due to his inbuilt ability to take risks and experiment with new avenues, venture capital financing has been on his mind map.

Sachin’s venture capital funding

The process of Sachin’s VC financing can be segmented under the following stages:

Seed stage

  • A person approaches a VC firm with the idea and product
  • Convince why the idea or the product is worthwhile
  • The investor does a feasibility study of the idea
  • If the idea does not seems feasible the investor may take a back foot
  • If a part of the idea seems worthy enough the investor might invest some amount of time and money for further investigation

Startup stage

  • If the idea qualifies completely it goes further to the startup stage
  • The business plan is presented to the VC firm
  • A management team is formed to run the venture
  • A person from VC firm might become one of the board members
  • The VC firm monitors the feasibility of the product and the capability of the management-team from the board of directors
  • If at this stage, the VC firm is not satisfied about the progress or result from market research, the VC firm may stop their funding

Second stage

  • The idea has been transformed into a product and is being produced and sold
  • VC firm tries to get some market share from the competitors
  • The venture is trying to minimize their losses in order to reach the break-even
  • The VC firm might suggest restructuring of the management team it does not performs
  • If the changes in the structure does not helps the VC firm might cut funding

Third stage

  • This stage is seen as the expansion/maturity phase of the previous stage
  • Venture tries to expand the market share
  • Venture will have to see whether it is possible to cut down their production cost or restructure the internal process
  • Venture also investigates how to expand the life-cycle of the existing product/service
  • The VC firm will evaluate if the management team has made the expected cost reduction

The Bridge/Pre-public Stage

  • The venture goes public so that investors can exit the venture with a profit commensurate
  • At this stage, the venture achieves a certain amount of market share

Your idea our money

Do you have new business idea? You can discuss the same the same with us, if the idea is feasible enough than we will surely invest in your venture.

Write to Sachin Mittal about your idea in detail with as much information as possible.

Growing Popularity of Startups as an Asset Class

By Sachin Mittal

The asset landscape is undergoing a sea change in current times with growing popularity of startups as an asset class. Mobile app developers, radio taxi companies and other online internet businesses are definitely the in thing now, with as much as Rs.1200 crore being invested in such startups by high net worth individuals last year.

The HNI investments are usually channelized through various venture capital funds that invest in early stage entrepreneurs and the year 2014 has seen 6 such funds accumulate almost Rs. 4,400 crores according to Economic Times. These funds were namely – Zodius Capital, Orios Venture Partners, Kalaari Capital, Your-Nest Angel and Blume Ventures. In most of these funds, over 50% of the corpus featured investments from HNIs.

Startups as an Asset Class – The Growing Trend

The trend of investing in startups as an asset class had primarily begun with the entrepreneurs and top executives focusing a percentage of their investments in such ventures. With time, even other wealthy investors, who were exposed to a wider variety of asset classes, saw the potential in the startups and began investing in such startup funds.

According to a poll done by Economic Times on 100-plus Corporate Executives, 60% said they have already invested a portion of their wealth in startups and another 25% stated that they are planning to do so in the near future, all of which go on to prove, beyond doubt, the growing popularity of startups as an asset class.

Startups as an Asset Class – How does it Work

Investing in Startup funds in India, till now, is a rich man’s prerogative, since the startup funds fall under the purview of ‘Alternative Investment Funds’ Regulation of Securities & Exchange Board of India’, where investments below 1 crore is not allowed. For such funds, the asset managers have to keep a minimum of Rs. 20 crore corpus without any fund having more than 1000 investors.

Alternative funds usually have a 3-5% exit load in cases where there is a call for premature redemption. Moreover, asset managers charge separate fund management fees which is approximately 2-5% of the net corpus per annum. 15-20% of the profits generated are skimmed and managers thus receive 4-5% from such fund sales. Against this backdrop, it can be said that such a fund needs to generate at least 20% gross returns for it to be worthwhile. Clearly, this current popular asset class is well suited for the more adventurous investors with high growth, high risk appetites.

 Startups as an Asset Class – The Future

Most of the Wealth managers are on a wait-and-watch mode to assess how the first batch of startup funds fare in terms of ROI. It is safe to say that the vintage funds would pave the way for future investment trend in this particular segment.

Against the potential as well as risks in case of such funds, as recommendation, if one wants sufficient exposure, a corpus of Rs. 3-5 crores as investment might be the right amount, which again should not be more than 8-10% of the entire investment portfolio of the person in question.

 

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