Approaching a VC? Here is a checklist
By Sikta Samantaray   |    14 Comments
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Approaching a VC? Here is a checklist
Bangalore: Seeing the growth of Indian software market, Ravi Varma started its own software venture in 2005, but could not go long and had to shut company's door in 2007, as he failed to raise fund from venture capitalists (VCs). Currently working as a Vice President - Strategy in an IT firm, Varma graduated from IIM, Bangalore in 2004. After running the business for two years without any financial support, Ravi thought that his company had all the right credentials needed by venture capitalists, but when he pitched his ideas to around 10 VCs, he realized that his idea is premature and can not be funded by any venture firm. Not only Varma, there are several such start-up entrepreneurs, who are in a race to raise VC funding. So, to help these emerging entrepreneurs, SiliconIndia talked to some of the VCs to know the important factors that can help these entrepreneurs to improve their chances of getting funded. Here are some important thoughts being given by VCs: Do you have a Team to lead? A company may have a big business idea, but working individually may not help it to achieve the objective. It is the team which may help one's idea to convert into a profitable product or service. Anurakt Jain, Analyst, Draper Fisher Jurvetson India said, "VCs invest in a team, so sell the team. A start-up should know well about their team members before pitching to VCs." Pitch The process of raising fund can be one of the more physically and emotionally draining parts of starting a business. It can go on for weeks or months, taking away focus from business. As an entrepreneur seeking funding, one need to demonstrate that he/she is very clear about his/her idea and how he/she would build an economically viable business around it. Rajesh Vakil, Head, Siemens Venture Capital, India said, "Put together a good investor presentation that covers all aspects of the business plan. A weak presentation can put off VCs easily." Speaking on the similar lines, Jain said, "The first 5-10 minutes of pitch to VCs are very crucial - get VCs on the hook. Describe the company in one-two lines - that would be helpful in running the business as well." What is your USP? While explaining about the product or service, a company need to avoid using jargon and adjectives. VCs say that startups should explain the product or service in simple language and emphasize its competitive edge or USP. Manav Sethi, COO BigMaps said, "The basic objective of a start-up should be to show that there is a need of this product or service in the market." Business Plan For any start-up, the purpose of presenting a business plan should be to show the potential to investors that if they invest in its business. Vakil said that a business plan must have a very effective executive summary, and in that summary a company should highlight the market, the product or service, management team, stage of the startup, location, market, market size, business, business model, capital structure, capital required and exit options. He also asked these startups to critically evaluate the business plan and do a market opportunity analysis to determine scalability of business. "Ask honestly "Will you fund this if it was someone else's business plan," added he. Customer Base Before presenting to VCs, a company needs to evaluate the customer business case, benefits and payback. Also, it needs to know in details about its existing customers as well as its potential customers. Any company can?t have any better evidence than customers to prove its claims about the marketability of its product/service. A company needs to understand that it is in the market to sell a product, its business idea, which can't be sold unless its customers are satisfied with the product, which they plan to buy. Raghu Batta, Partner, Ojas Ventures said that startups should always make something or sell a service that people want. Revenue Model To make it easier for VCs to understand the financial plan, a company need to do a proper thought out strategy that may also help in company's growth plans. Vakil says that preparing a sound financial plan is very necessary for long run, and also a company needs to keep an eye on the total funding requirement over subsequent rounds till scale up and its impact on investor's ROI. He also advices companies to analyze its present and future margins in detail, bearing in mind the potential impact of competition. The monetary projection should also include the sale prices or fee charging structures of your product or service. Marketing Plan Having everything, but no marketing plan can force any start-up to taste the failure soon. The objective of marketing plan should be to convince the VCs that the market for its product/service can be developed and penetrated. Also, the marketing plan should have all the details including pricing, distribution and promotion strategy for the product or service. All these details must be supported by verifiable data. Apart from these few thoughts, VCs feel that in India first time entrepreneurs are unclear in their own heads about what their idea is about. In fact, many are even not able to articulate it in an easily understood manner either. Adding to this, these VCs also think that startups should raise the fund at right time. Vakil said, "VC funding taken prematurely can be very expensive capital, and company may end up giving up its ownership to the VC." He also thinks that startups should never think of raising fund if the business is not scalable. It will probably waste time unsuccessfully trying to raise finance. The real danger however is that, incase it succeeds; it does not only lose an opportunity to run a lifestyle business that is personally lucrative but is stuck with an unhappy investor.

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