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Four ways to raise funds

Four ways to raise funds

As a business takes shape from an idea to a venture, entrepreneurs face the biggest hurdle to growth – finance!

1. How much money does a business need? You can determine this based on the business plan. Money could be needed for creating a prototype, market expansion, team hiring, capital expenses or working capital — and the time period varies accordingly. Based on your growth plans, some money may come from profits of the company, and the rest of the gap has to be filled by external investments. So when you approach investors, ensure that you know how much you need, for what and for how long.

2. Various ways to raise investments: Primarily through debt/loan and equity/shares. Debt funding comes with additional burden of interest, while equity funding requires sharing of some percentage in the company, along with board participation and other terms. Other ways like customer advance, revenue sharing, credit card, overdraft facility from banks, vendor financing, etc, can also fill cash needs. Do basic research of the drawbacks and benefits of each kind and then decide.

3. Stages of investments: Early stages require seed investments. As the venture grows, angel investors can come in and invest money to fuel growth. Incubators can also provide some space and initial funding. Venture capitalists (VC) come in at the growth stage and Initial Public Offering (IPO)

happens at a mature stage of

a business.

4. Types of investors: Investors who can provide funds include angel investors, venture capitalists, private equity, IPO, banks, incubators etc. Angel investors are those who invest between `50 lakh-two crore in the early stage of a venture. Venture capitalists invest over `5 crore in a growth stage venture. Private equity investors do higher investments (whether as debt or equity) ranging from `50-500 crore. IPO is well suited while raising investments on the stock exchange and can be over `50 crore. Banks can also provide funding as debt — the norms will vary depending on collateral or it may be without

security like Credit Guarantee Trust for Micro and Small Enterprises scheme n

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Amit Grover – Founder, Nurture Talent Academy On Startup and Entrepreneurship


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!

How to start an Incubation center?

How to start an Incubation center?

Entrepreneurship in India is on the verge of explosive growth. This also throws new opportunities for the eco-system to take shape. Angel investors, venture capital, media, startup clubs, service providers, mentors and training companies are going to grow. And one important cog in the wheel is the incubator – the place where startups are born. When a baby is born, he/she is kept in the incubator for first few hours and maybe days – this gives them a chance to adjust to outside environment, and grow stronger before they face the outside world! In a similar way, a startup is incubated in Incubation Center, which gives them a chance to bring their business in shape, before they reach out to the world.

In India, most incubation centers are hosted by an academic institute, and funded by DST (Department of Science and Technology), which gives them access to government agencies, as well as easy reach to professors and students in the college. Some of the well-known ones are IIM A and IIT Bombay. There are other incubators too, like Technopark (Kerala) and IKP Knowledge Park(Hyderabad), with focus on certain specific sectors like technology and biotech. Overall, there are more than 50 incubation centers across India.

With this basic background, let us come to the mechanics of starting an incubation center:

1. Assess the market conditions and entrepreneurs requirements

There are some top quality incubation centers in the country, where there is always a queue to get in. While there are others, who have a tough time ensuring 100% occupancy of their premises. Be aware of the market conditions while thinking of starting the incubation center – and answer questions like whether there is a demand for incubators, where will incubatees come from, what are the capital costs and operating costs of setting up an incubator. One important thing to keep in mind is what do entrepreneurs really want from an incubator – is it access to cheap office space, internet, electricity (the tangible benefits of an incubator) or the spirit to work along with fellow entrepreneurs, chance to meet investors, get access to quality manpower and experienced advisors (the intangible benefits of an incubator). This will help you identify the real pain point of your customers (the entrepreneurs) and address their needs most effectively. It is very important to ask the question – why do we want to setup an incubation center?

2. Identify team and service providers

While it may sound great to have an incubator which connects the entrepreneurs, investors, mentors, trainers, students and faculty – the real test comes in execution. The team that manages the incubator has to be A-class, as they are the ones who will drive the incubator, while the incubatees will drive their individual businesses. It is also good to identify a set of advisors – preferably a mix of industry veterans, faculty and investors, which always guides the incubation managers on strategic issues.

3. Arrange for resources

An incubation center needs resources during setup and operations. Few of them are listed below:

a. Space

b. Connectivity – internet/telephone/electricity

c. Data center

d. Services – maintenance, security

e. Furnishing – chair, table, cubicles

f. IT Infra and Support – software, LAN, leased lines, wi-fi, printer, scanner, copier, Access control system

g. Others – board rooms, meeting rooms, coffee machines, restaurants etc.

All this comes at a cost, and the incubation center management needs to generate to resources for the same – in terms of capital, manpower and time. For an individual or an institute, it is prudent to setup a project team to take up the task in a systematic manner. Government support provides some subsidy towards this, but comes with its own costs.

3. Establish industry linkages

Once the incubation center is setup, it is very important to establish industry linkages – maybe even before the first company starts operations. This maybe contact with local entrepreneurs, lawyers, CAs, industry associations like CII, FICCI, Nasscom etc. or media (TV, print etc.), and other parts of the eco-system like investors. Many incubators are not able to perform well for themselves or for their portfolio companies because of being too internally focused.

4. Draw out a calendar of activities

It is important to draw out a calendar of activities, which keeps the incubator always charged. Conducting training programs, mentor meets, talks from experts, job fair, product showcases, technology demonstrations etc. from time to time helps the community to grow and brings in a great network effect!

5. Attract, select, retain and manage startups

Last, but not the least, an incubators’ primary reason of existence is entrepreneurs! The team needs to think about ways to attracting, selecting, retaining and managing startups that inhabit their planets. A clearly conceived and stated criterion for selection is important – for example, most college based incubators do not allow anyone else other than their own alumni/students to get incubated. So it is important to communicate the same in advance to avoid disappointment. Another benefit of a government supported incubator is that the portfolio companies get service tax rebate – which again is a way to attract startup entrepreneurs!

The success of any incubator is in the success of its portfolio companies. I hope that all of you, who are planning to support entrepreneurs through incubation, will keep the startups requirements in mind while doing so. Please contribute your inputs and feedback to
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Basics of Finance for entrepreneurs

Finance is the holy grail for startup entrepreneurs. If you find it and manage it well, it can do wonders for your venture, but if you make few mistakes managing finance, it can break your back.

It’s important to understand the basics of finance as an entrepreneur, without trying to become an expert like CA. My effort at Nurture Talent Academy has always been to inspire and guide budding entrepreneurs to think about finance as comfortably as they think about software or marketing.

One shortcoming I have seen is realizing the revenue potential of their ventures. There are various ways to earn revenues, and a successful company depends on multiple streams to generate their income:

1. Product sales – selling your own products, selling products of someone else from your website or offline channels
2. Consulting service – serving other customers by giving them solutions to their problems, diagnosing issues and enabling implementation of solutions
3. Merchandising – just think of Disney and you will understand the power of Merchandising – usually referred as creating a brand and selling products using the imagery of the brand
4. Writing blogs, books etc. – you can use your skills and experiences to write books, and blogs that your users/consumers can follow
5. Subscription – Users can subscribe to your services and pay regular membership fees example health clubs etc.
6. Royalty – In addition to selling your products, you can ask for royalty fees as a % of sales every year, for example, Videocon pays royalty fees to Sansui to sell their products and use of brand name
7. Lead generation – using your customer base, you can connect them with the service providers and charge a lead generation fees – check out, which is free for the users, but charge the airlines when tickets are booked by users.
8. Sales commission – as an entrepreneur, you can represent other manufacturers to sell their products and charge a sales commission to the company
9. Annual maintenance charges – most of the hardware suppliers charge AMCs for continued support and upgradation
10. Licensing – most of the software suppliers charge license fees from their customers for allowing usage of their products for a pre-defined duration, for example, Microsoft sells license for Windows OS.

While each of the revenue sources has some potential, its important to prioritize and accordingly devote resources – as no revenue happens without cost attached. Other benefit of revenue focus is that you are clear of seasonal hurdles – for example, in Diwali season, you can sell more TVs, but when summer comes AC sales increase – rest of the year can be focused for service and maintenance contracts.

Its not easy to handle multiple revenue streams, but its also not tough – at the end of the day, survival matters for a startup!

Also, from an investor or VC point of view, its acceptable as long as focus is on 1-2 type of consumers and product lines and business is happening in related areas.

So go ahead, and keep innovating continuously and entrepreneurial success will be yours.

Social Entrepreneurship – Emerging Scenario in India

With such wide variety of enthusiastic entrepreneurs taking up the responsibility as social entrepreneurs, I am personally very optimistic about the future of the nation. Let me take up few points related to social entrepreneurship:
1. What is social entrepreneurship?

Social entrepreneurship is about having a social objective as a goal of the venture. The objectives can range in the areas of education, healthcare, culture, microfinance etc. with the aim of societal benefits. The venture in itself can be operated as a “For-profit” or as a “Non-Profit” entity. Some of the famous social entrepreneurship ventures include Grameen Bank (Bangladesh) and SKS Microfinance, India(recently came out with an IPO in stock exchanges). Few corporates also follow this as a part of their corporate social responsibility initiatives.

2. Is profit maximization an objective of a social entrepreneur?

Traditionally, profit maximization has always been the objective of any business – coming from a pure capitalist and commercial mindset. However, for last few years, people are realizing that a “Triple Bottomline” – caring for profits, society and environment, leads to long-term sustainability compared to a short-term pursuit for profits. It does not mean that social entrepreneurs do not want profits, they want sustainability over profits. For example, SKS Microfinance focuses on creating impact by giving small loans (upto Rs 10000), to ladies in groups of five, with/without collateral – which a large bank may not do from a commercial angle.

3. How does a social entrepreneur raise funds?

As there are social entrepreneurs, so there are social investors too. There exist various sources of funds for social entrepreneurs:

- Grants – Foundations like Michael and Susan Dell Foundation, Bill and Melinda Gates Foundation, GiveIndia

- Venture Capital – Song Advisors, Acumen Fund, Ventureast, Aavishkar, Lok Capital, Accion, Bellweather

- Angel Investors – Mumbai Angels

- Incubators – RTBI, Villgro

Government and corporate sectors are other major sources of funding for social entrepreneurs. For example, Edelweiss has a Edelgive Foundation, which does funding of social ventures.

4. How to register a social venture?

Depending on the type of venture (profit/non-profit), the venture can be registered as a private limited company, a NGO, a society or as a trust. There are various tax exemptions available for social ventures, and you need to keep in mind the long-term objective before deciding the entity to register.

Among the organizations working for social entrepreneurs, the notable ones include DASRA, Ashoka Foundation and Villgro – who aim at bringing the social ventures into limelight by training, mentoring and advisory activities and also by connecting entrepreneurs to investors. With so much action across the eco-system, social entrepreneurship is being seen as an impactful way to create a meaningful difference.
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