Disclaimer: This session was hosted by YourStory.in as part of our YS Workshops for Entrepreneurs
In our endeavour to help startups and entrepreneurs understand the complexities of the real-world of business, YourStory got into the workshop space. Educating entrepreneurs and creating information resources is an integral part of YourStory’s mission to promote entrepreneurship. YS Workshops come with one critical differentiator – to focus on the most relevant and pressing issues for entrepreneurs, with real world experiences of industry experts, investors and seasoned entrepreneurs. We conducted the inaugural workshop on ‘Demystifying the VC Term Sheet’ with Soumitra Sharma of IDG Ventures India last month. And last Saturday, Anirudh Singh of Norwest Venture Partners spoke to a large crowd of entrepreneurs at IIT Powai on ‘How To Get Series A Funding?’
The workshop hosted a full house and to sum up the workshop in three words, it would be – in-depth, interactive, knowledgeable. Anirudh took the meaning of interactivity to an all-new level, when he allowed participants to ask him questions after every slide that he presented. On an average atleast five questions followed every PowerPoint slide that he scrolled and it was no wonder we overshot the workshop timing by a good 30 minutes.
Anirudh explained the basics to entrepreneurs before starting the subject. “You should understand what will get you money and what will not,” said Anirudh to the packed hall. And the even bigger question to be asked is when do you need debt and when should you do it. A VC is looking for certain basic fundamentals to be in place before he parts with his money. These basics include – a good team, a large market for your product/service, strong value proposition in your offering, the ability to scale the business, how different are you and surely how can they exit the business. “No VC wants to be invested in your company forever, but he will also not leave you soon once he has committed himself,” said Anirudh. To questions on whether a VC will dictate his terms once he comes aboard, Anirudh said that the VC is not there to interfere with the business or run it. He is interested in a company because he sees value in it and therefore has made the investment. The only thing that the entrepreneur should be bothered about is to continue building a good company.
Series A Checklist
Before any startup approaches a VC, it would do them good to have a checklist to tick. Anirudh’s tips for items on the checklist include:
- Think like a VC – Do you have the basics in place like team, your TG, how will you scale your business?
- Put down your vision and thesis in two sentences.
- Keep an eye on the external environment – like what are the trends in industry; what is the funding activity in the sector that your business belongs to; have there been exits in the market?
- If need be adapt & position your business to fall within the consideration set of a VC. “Become the flavor of the season,” suggests Anirudh.
- While approaching a VC pick someone who has an interest and appetite in your sector.
- Talk to entrepreneurs funded by the same VC to understand how the entire process is.
Investment process within a VC fund
Anirudh explained that the investment process with a VC is broken into three parts:
- First 15 days – Once a startup approached a VC, this time is taken to do the preliminary market analysis. There are internal as well as external discussions about the investment proposal.
- 30-45 days – This is the time when the VC will deep dive into the actual startup business to understand the team, how big is the target market, how well the product/service is differentiated, what business traction does the startup have and how good are the financials of the startup before they make the investments.
- 60 – 75 days – It is almost after two months from the first meeting that the VC fund will actually get involved. This is the time when all fact validation work happens, legal work and accounting work will begin.
The VC will evaluate their investment decision based on a number of factors like how attractive is the market that the startup is in; validate the startup’s business model; how good is the team and talent on board; the entrepreneur’s vision for next five-years; how capable is the startup to scale profitably; is there a validation of the startup’s idea by the customer, are they willing to pay for the product/service that the startup wants to sell. “But one of the main things that the VC seeks in an entrepreneur is the ability to hustle, the ability to get stuff done,” said Anirudh.
Once the VC has invested, their extent of involvement would vary. While some may want to do monthly board meetings others will monitor mutually agreed milestones. Some will pitch in with strategy, while some can help in connecting with potential customers as well as helping in hiring good people to the team. “VC will work to help and grow the company in whatever possible way,” said Anirudh.
Despite all the due diligence, it is possible that a startup may not get funded and in such a case, the problem may not always lie with the startup. And according to Anirudh there are external factors to blame: “The prevailing market conditions may have influenced their decision to a great extent. Whatever happens, always be in touch with the VC, get feedback and understand what is missing.” Raising a Series A or any other kind of fund should be atleast for a period of 2 years, because it is a time consuming process and there should not be a need to keep going back to the market again and again. “Getting a VC onboard is similar to marriage. There has to be a meeting of minds, else there will be problems and the partnership cannot be a long term one,” was Anirudh’s suggestion to the participants.
This was the second of what will be a highly packed workshop calendar from YourStory in 2013. Our next round of workshops is being planned for several other cities like Chennai, Hyderabad, Pune and Ahmedabad. The workshops will cover a range of topics from Finance, HR, Marketing and Product Management.