Dare EWeek: Amit Speaks on “Sources of Finance For Entrepreneurs”

This session was conducted online by DARE Magazine, details below:

The audience at Amit Grover’s session had plenty to learn today. His talk on funding was extremely informative and was an eye opener for many new start-ups who insisted on getting more out of Amit even after the session was over. Here are some of the highlights of the discussion.

He started with explaining that it is necessary for entrepeneurs to familiarise themselves thorougly with certain terms of finance before looking for ways to raise money for their ventures. Example: turnover, gross profit margins, net worth, equity etc. He took the audience through the growth stages of a company through an informative graph (refer graph below). Right from the ideation to maturity, Amit stressed on the importance of taking one step at a time in order to make your business a successful one.

Stages of a company:
Inception stage –> Prototype stage (where your idea is converted into a product/ service) –> Roll out stage (you grow as a company, but you are still in the negative growth area) –> Growth stage (reaping positive cash flows and furthur growth in terms of expanding offices, hiring more people) –> Expansion and Maturity stage(implementing new strategies, diversifying company)

“The biggest risk in your company is between your inception and your growth stage, that is the time period when you are in the negative growth period,” says Amit.

Sources of Funding:
Inception stage: Friends and Family are usually the contributors of finance in the starting days of your venture
Prototype stage: Angel investors or Angel network. Ex:Mumbai Angels
Roll out stage: VC firms, strategic or corporate investors. Ex: IDG Ventures, Excel Partners, Seqoiua capital.
Growth stage: Here it is possible to take up bank financing. Ex: ICICI ventures or any other banks which give loans as working capital.
After Growth stage: Initial Public Offering, list company in BSE/NSE.

Apart from these traditional sources of funding Amit also discussed how funds can be raised from some government funded incubators. e.g., CIIE at IIM-A, FITT at IIT Delhi. Crowdsourcing can also be a source of funding for start-ups. e.g., GrowVC. Few other non-traditional sources were also discussed. e.g., ‘Power of ideas’ campaign run by the Economic Times (Times of India Group) supported by DST provide prize money to businesses. Similarly, cash prizes are given in contests like Maruti challenge which can act a much needed source of income for start-ups. Various schemes under which an entrepreneur can procure funding were also discussed.

“The next step after this is to identify what stage you are in to determine the kind of funds you want to raise. There are a few points you need to keep in mind”, says Amit.

* What exactly does the entrepreneur need the money for?
* How much does he need
* Time when breakeven is expected
* Determine what you want to expand to next, so that you can give a meaningful exit to your previous investor

Some of the questions which were discussed:

Q. Can you specify tools used by investors for valuation of the ventures?
Amit: At every stage, these tools change. e.g.,For a mature company which is known to have some kind of past performance venture DCI (Discounted Cash Flow) method is used, wherin you say these are the projections and the company is expected to generate the required cash flow. Another example is the Peer Valuation method wherin you compare the worth of a company in comparison to another in the same sector. Some of the investors are concerned with the amount of equity they want, and give the valuation accordingly. But at the early stages of the company, these valuations are very fluid and depends upon the negotiations that happen between the entrepreneur and investor.

Q. If a venture is steadily growing, what are the sources of funding one should look for?
Amit: It depends on the type of sector you are in. Whether it is equity or debt would depend on it. Personally, I would delay the process of funding as late as possible and build the venture through boot strapping to the point where you are mature enough to take either debt or equity. When you come to the point of whether you should take a loan or an equity, it is always good to first cover the basics. Keep in mind that you should be able to return the loan without any stress on your resources. Also see if the VC is adding any value to your venture instead of just adding to it in terms of money.

After the webinar, we requested Amit to answer the questions for those audience whose questions had gone unanswered, and he obliged us within few hours. Here are they:

Q: How do we decide/ finalize what % should be given to the investor ? [Abhinav Sahai]
Amit: The % equity shared with the investor is decided based on cash invested divided by valuation of the company. Cash invested by investor is based on requirements of the company, and investors’ preference. Valuations depends on multiple factor including future performance expected, profitability, team, market size and competition.

Q: What are the options available to already running business, say for the last one year [Harikrishnan Subramoniam]
Amit: Angel investors like Mumbai Angels and individual high networth investors (HNIs) are a good option in case you are looking for equity investment. In case of debt, you can go for a public sector bank or CGTMSE loans.

Q: When do you decide to go for investment? Should you do an internal assesment first, of your profitability? [Roshan Kumar]
Amit: Yes, it is critical to do an internal assessment of the profitability, as well as multiple other factors including team, market size, growth prospects, competition etc. You should go for investment when you feel that your venture’s high growth objectives can be achieved with investments.

Q: How to evaluate the venture at the inception stage, keeping in mind that you need around 5-6 lacs money to start operations. [Jai Anand]
Amit: For 5-6 lakhs investment, friends, family or individuals you can trust and vice versa are the available sources of fund. The only way to evaluate this stage of venture will be to spend time and effort with the team behind the venture, and see if they have the right spirit and motivation to start. The valuations etc. are highly subjective at this stage.

Q: Is it possible to get VC funding in an idea stage of a project? [Vasudev Masur]
Amit: No, it is not possible (unless you are a celebrity entrepreneur with a track record of past success or had an exceptional professional career and good rapport with the VC).

CEans,

We have an active discussion going on our CE-Forum about: Why aren’t engineers thinking about entrepreneurship? Presenting to you the story of an engineer from IIT Delhi who founded his Venture ‘Nurture Talent Academy’ on January 1, 2010 after doing his MBA from IIM Indore and working at a couple of companies. Here is Mr. Amit Grover sharing his experiences of taking a plunge into entrepreneurship by building a startup.

CE: Hello Amit, you are the founder of NurtureTalent. Could you brief us about your background?
Amit: Sure, I am from a middle class family, born and brought up in Kanpur where I did my schooling. My mother is a teacher, father is a shopkeeper and education was always a priority in my family. After schooling, I went on to do my engineering from IIT Delhi, did my first job at Infosys Technologies in Pune, Mysore and Bangalore. Later, I joined IIM Indore to do MBA, which was a great personally and professionally. After MBA, I joined Asian Paints in their sales and marketing team, which was followed by a stint at Onida. I started Nurture Talent Academy on 1st January, 2010.

CE: With IIT+IIM background, you could have settled in a job with some MNC in India or Abroad. Why did you decide to become an entrepreneur?
Amit: You are right, it helps to have a IIT+IIM brand to back you. But while at Onida, I was taking care of my Chairman, Mr Gulu Mirchandani’s portfolio, additional to other strategic projects, sales and new initiatives. He is a prolific angel investor, and his son co-founded Mumbai Angels, a group of angel investors. During my stay there, I met over 2000 entrepreneurs personally, and realized it was time for me to become one!

CE: Could you explain us the concept behind NurtureTalent?
Amit: While meeting over 2000 entrepreneurs, I used to spend time on their business plans, strategies, teams etc. and also negotiate, guide, mentor, counsel, consult or fight with them – all with the aim to help them towards achieving their goals. I got only 1-2 hours daily, as I was working full-time with Onida, but there was lots more that could be done. Entrepreneurs need lot of help to answer basic questions like how much money is required to start and run a business, how to plan for break-even, hire teams, pricing, how to get customers etc. So I decided that Nurture Talent will be the 1st company to conduct training programs on how to start a venture. There are lot of MBA colleges, but they teach you how to work as a manager in large companies with set systems, and follow the policies. As an entrepreneur, you need to start something from scratch, learn to generate resources, and have the desire to create something rather than manage what others have created – so Nurture Talent’s idea was born!

CE: Do you think anyone can become an entrepreneur? Can proper training make someone an entrepreneur?
Amit: No, not everyone can become an entrepreneur. Else, we would have lots more Ambanis and Murthys. Entrepreneurship requires a different kind of mindset – you need to have a desire to create something, which may be even more than your desire to earn money, you need to identify customers’ needs, and solve it in a innovative manner and be able to make money in the process. The problem is that you never know if you are cut out as an entrepreneur, unless you try it once! On the training part, I believe that it makes a difference between an entrepreneurial person and an entrepreneur. It also helps you bring clarity of purpose, and move towards next steps in starting up by removing the fear of venturing out on your own.

CE: What type of training is essential for any entrepreneur or a wannabe entrepreneur? Amit: Training is a mix of soft skills like attitude, motivation, determination and hard skills like finance, sales, marketing, operations and business plan. Before starting a venture, a wannabe entrepreneur has to be clear about why he/she is starting a venture, what are the action points, when and where to start, how to go about it, and also identify the risks in business. A little planning, a little effort on personal skill development, and lots of determination can make a successful entrepreneur.

CE: Are you content with the current state of entrepreneurship in India?
Amit: Definitely not! But I am happy that things are changing. India has always been a nation of entrepreneurs – look around, and you will find traders, farmers, shopkeepers in your family. But there came a certain phase in 1980s – 90s that everyone wanted to take up a Government or a private job, that offers security but no satisfaction. I can see things are changing again and next decade will be the decade of entrepreneurship. There are trends like government supporting MSMEs, other NGOs like TIE, NEN, media like ET PoIs, 100s of business plan competitions for students, financial support from banks and VCs etc. that are positive signs. India is growing by 9-10% in GDP and there are opportunities everywhere. You just need to get down and start up!

CE: How can an engineering student go about becoming an entrepreneur?
Amit: An engineering student is exposed to lots of new technologies by virtue of the education and environment he is in. I have seen students come out with innovative products based on a new technology and make a great venture out of it. For example, few IIT Kharagpur students converted their B.Tech. project on online security into a venture and got funded by VCs. So once you have a technology or product, and it satisfies a customer’s problem, try to get a team around it.

CE: Continuing from above question, does the same apply to an employed professional?
Amit: For an employed professional, the first step would be to make up your mind towards a goal – what kind of venture you wish to start, how to find customers for it, and what kind of information or knowledge is relevant for that. Most importantly, you need to give up the security of your job, which is only possible if you are in love with entrepreneurship and are willing to take that risk. I have met lot of professionals, who say that they will start their ventures only if they get funding, but no investors like that attitude. Also, a professional is in a better position to use his contacts/network to get their first customers, so always aim to reach out and talk to your customers rather than keep focusing on internal tasks in the company.

CE: Is some prior industry experience necessary to be an entrepreneur?
Amit: I do not believe prior industry experience is required. It is a myth that entrepreneurs need experience before starting a venture. In fact, if you are passionate about an idea, it may be worth to jump now rather than wait for a few years, when you will have a higher salary and your cost to switch even higher. The experience of failure in a startup itself is a very valuable one, and I personally feel that 1 year of entrepreneurial experience is worth 5 years of working for another company.

CE: Have you had any interesting experiences while running NurtureTalent & Entrepreneurs?
Amit: Oh there have been lots of them – in fact everyday there is a new experience. Just last week, we were doing an online webinar and the power went off in Mumbai – a rarity in a city which has 24 hours power supply. I learned the importance of a “backup plan” that day – fortunately we had other laptops and a dongle to connect internet with! Another great experience was when we got selected by Business Today as India’s Hottest Startups for 2010 – I would have never come on national media like Business Today, ET Now, CNBC Awaaz or Bloomberg if I were working elsewhere! Ofcourse I can never forget the first time when I told my mother that I am going to become an entrepreneur, she told me, “If you need money to do business, we can take a loan on our house property”. That was the best thing I ever heard, and it keeps me going every morning!

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