VENTURE FUND SPECIAL The Reverse Swing
The scramble to land the best deals in India's
highly competitive startup market is prompting venture capitalists to shed
their old ways and adopt some new ones
A fortnight ago, coworking space 91Springboard organised a startup
event in Gurgaon where eight people made pitches to an audience of about 200.
To a spectator, the event would hardly register as
out-of-the-world. But for someone intimate with the startup world, the
differences were apparent: those pitching wore formals, spoke for longer than
five minutes, and were not asking for money. Instead, they were venture
capitalists from top firms like Sequoia Capital, Matrix Partners and IDG
Ventures asking the entrepreneurs in the audience for a chance to finance their
companies.
“The idea was to empower entrepreneurs to turn the tables and let
them ask questions,“ said Anuj Pulstya, cofounder of 91Springboard. Going by
the questions posed to the investors, empowerment certainly was at play.
“In earlier editions, entrepreneurs used to ask plain-vanilla
questions. `Who are you?,' `What is your ticket size?,' etc.Now they're getting
bolder in their line of questioning,“ said Karan Mohla, executive director at
IDG Ventures India.At the 91Springboard event, he tackled questions such as:
“Why should we take your money?,“ “Which fund are you currently in?,“ and, “Why
do you not invest in non-tech companies?“ Such events, common in Silicon
Valley, are becoming more frequent in India owing to a variety of reasons: the
emergence of more quality founders, excess venture capital in the system, and
investors wanting to be seen as entrepreneur-friendly for fear of missing out
on potential good deals.
While the common perception has been that investors have the
strong hand over startups and call the shots, the dynamics are changing
somewhat in favour of entrepreneurs, at least in the initial funding
stages.Venture capitalists, on their part, are also proactively organising
mixers, beer parties, and viewing sessions for major league cricket and
football matches, to be able to spend quality time with entrepreneurs.
Mohla said he was able to leave the 91Springboard event after
successfully shedding the “evil“ persona venture capitalists are associated
with. “A few (entrepreneurs) came up to me and told me, `Hey, you guys aren't
so bad. It is so nice to meet with you,'“ he said. “That's a good feeling to
end the day with.“
VV Subramaniam, chief executive of Happy Visitor, said that until
a year ago if he met venture capitalists at a gathering and introduced himself
as the founder of a business to-business startup, the topic of investment was
never broached. Now, he said, the conversation inevi tably tilts towards, “Do
you need funds?“ A recent gathering he at tended was a mixer organ ised by
Helion Advisors at Bengaluru, one of several the venture capital firm has
hosted in the past six months, including in Delhi, Chennai and Mumbai.
“We took feedback and real ized entrepreneurs do not want to
listen to any panel discus sions. They valued networking more than anything
else,“ said Alok Goyal, a partner at Helion. “So we get them all together and
just talk over drinks. It's also a low-effort event on our part.“ He plans to
take the mixers to Pune and Hyderabad as well.
For venture capital firms, these events are a great play at
efficiency, said Guhesh Ramanathan, cofounder at seed stage incubator
Excubator.“VCs don't know which (startup founders) to meet face-to-face and
which ones to ignore. In events like these, they get to meet 20-25 startups in
a matter of two hours,“ said Ramanathan.
Investors say there are several other factors influencing this
shift in dynamic.
“What has changed is the speed of decision-making,“ said Mohan
Kumar, executive director of Norwest Venture Partners India. “It has shrunk to
a couple of weeks from 3-4 months earlier, especially for deals in the trending
market of that season. Hence, VCs have to make decisions fast.“
This week, Times Internet-backed TLabs decided to do away with
demo days large public events where investors judge startups and get lit tle
time to connect and introduced Investathon. The firm set aside 36 slots at
its accelerator for investors to speak with startups in an informal setting
over nine days. Within two days, about 90% of the slots were filled.
“When one investor sees their competitor talking to another
startup, they are compelled to talk to them as well,“ said Abhimanyu Godara,
chief manager at TLabs. “It's a psychological thing, a fear of missing out that
comes into play.“
The new camaraderie aside, it can't be said yet that there's been
a full swing in favour of startups, as investors continue to put out the same
terms as before. “Everyone gets so fixated on valuations that they fail to
understand the fineprint of the term-sheets, and the terms haven't gotten much
better than in the past,“ said Pankaj Jain, a partner at seed fund and
accelerator 500 Startups, referring to redemption rights and liquidation
preferences.
Jain, however, added: “It is most definitely a far more balanced
market than it has been. The best deals are filling up and closing very
quickly.“
Meanwhile, early-stage entrepreneurs, who are only too happy to
have the opportunity to be a part of such events, have feedback for the venture
capitalists organising them: a more diverse group of people, including
corporate executives and angel investors, will add more value.
“Not everyone is looking for money,“ said Rakesh Agarwal, chief
executive of NotifyStory, a storytelling platform for brands, who was present
at the Helion mixer. “We need more angels to be coming to these events,
strategic partners who can guide us in the right direction and become our
godfather.“
|
Krithika Krishnamurthy
|
(With inputs from Evelyn
Fok in Bengaluru)
ET12JUN15
No comments:
Post a Comment