Parameters overseas investors consider before investing in India

There is a constant buzz about India having become a hotbed for overseas investors, more so, since the BJP-led government took over the reins of the country in 2014. Add to it the fact that the ‘startup culture’ is at an all time high in the country with more students and corporate professionals jumping onto the entrepreneurship bandwagon than ever before. Given the scenario, there is little reason why investors wouldn’t be all wide-eyed, considering the number of unique and innovative business ideas springing up from across the length and breadth of the country; each of which offers them an opportunity to grow their money multifold. Also, diving into the Indian market gives the investors access to the burgeoning class of Indian Consumers, thereby creating deeper inroads for expansion.

But what is it that lures investors, overseas investors in particular, to put their money in a particular venture? In today’s article, I’ll decode the criteria that investors evaluate before finally taking the leap of faith and putting not only their money, but also time and experience, that will give the businesses the much-needed opportunity for a global footprint.

Image Credits : Shutterstock

These broadly include:

1. The overall economy/ governance of the country
2. Factors specifically related to deciding which business to invest in (this happens after the investors have already narrowed down their search to a particular country and sector
3. Overall performance of the economy – Amongst the foremost criteria that investors consider is the overall state of the economy of a country. No investor would risk putting their money in a country where the economy is on a downswing, owing to the uncertainty it places on their investments. On the other hand, an economy that had been consistently following the upward trend on the graph is likely to find favor with them.
4. Political stability – Political stability is yet another criterion that is important from an investment standpoint because the regulations and policies governing businesses change, every time a government changes. This can prove to be a big risk for investors, and one that few would want to take.
5. Ease of doing business – Long drawn processes for setting up and operating the business (in terms of completing the paperwork and getting the necessary clearances) can be a big put off for investors. They have no interest in wasting precious time in a system defined by red-tapism and would rather invest their resources where the government regulations and policies are ‘pro-business’. For instance, the Modi government has undertaken a slew of measures to change the long-standing perception of India not being a very ‘business-friendly’ country, and therefore, detrimental to the interest of investors.

Right from introducing a single portal for all businesses to getting the necessary clearances for setting up shop in the country (which will have an automatic escalation mechanism, and hence will avoid delays and corruption), to announcing huge initiatives like ‘Make in India’ and ‘Digital India’, the world is suddenly looking up and taking notice of India as a great investment opportunity. And the results are for all to see with several deals already having been signed with countries like Japan, Australia, US etc. and many others underway.

Other countries that rank high in terms of ease of doing business and have thriving economies include Singapore, New Zealand, UK,US, Finland, Hong Kong, Denmark etc.

4. Tax regime – The tax regime applicable to businesses are also important from an investor’s perspective. They would much rather settle for an investment in a country where the tax regime is business friendly instead of one where they constantly need to focus their energies on how to minimize their taxes rather than pursuing more significant business matters. Moreover, issues like retrospective tax that have plagued India in the past are a big dent on a country and are a sure shot way to ‘shoo’ away the investors.
5. Identifying the high growth sectors – After having assessed the government and economy-related criteria, the next thing that investors look out for is the high-growth sectors. They ideally prefer to invest in sectors that either find favor with the government (for instance, the current government is inclined to give infrastructure projects and renewable energy projects a big boost and is offering many sops to investors and entrepreneurs alike) or those that have been performing well consistently over the years or in sunrise sectors that offer great potential in the coming years (the ROI is high in such sectors because even a small investment can yield high returns in a relatively short span of time).
6. Choosing the right venture to invest in

Once the investors narrow down their search to a particular country and also a particular sector, the next step is to evaluate the options in terms of the companies that can yield the maximum returns for them. The vital aspects taken into consideration to arrive at the final decision include:

1. A unique and disruptive value proposition – In a market that sees new ventures coming up every day, investors are always looking for that one idea that stands out from the rest and has the potential to change the landscape of that domain.
2. Return on investment – There can be no better option for investors than to place their bets on a venture that has the potential to create disproportionate value within a relatively small timeframe as compared to other businesses
3. Passionate and driven management team – A great management team can accomplish a lot simply with their passion and drive. Investors look for these qualities as well as credentials of the management team to gauge how far they can take the business and live up to their promise. It is important that the management team has the capability to mobilize the funds and derive optimal resource performance; to convert the business plan into hard figures. They should prove their worth not just by coming up with winning strategies but also by executing them efficiently and effectively to get the desired output.
4. Business Scalability- Plausible investments occur when a business is anticipated to be a global performer. It is important for investors that the innovation or idea they are investing in is scalable and has the potential to grow across geographies, so it can reap the maximum returns.
5. Leveraging technology- In today’s era, technology offers a competitive edge to any business that uses it effectively. It gives businesses the cutting edge to accomplish their long-term vision faster and better and gives them a definite lead in the market. From an investor’s perspective, if they have to choose between a business running in a traditional manner and one that bases its operations and decisions based on technology, the latter will be a clear winner. After all, the effective use of technology is a common factor between all leading global companies the world over.
6. Exit strategy – Last but not the least, a clear-cut exit strategy is a crucial parameter, on which several businesses fail and investors reject even the most innovative ideas. Unless the company has a proper exit strategy chalked out, investors will not be interested in investing because that is the moment of truth for them; the stage where they get to encash the benefits they have reaped on their investment.

Conclusion:

Investing millions of dollars on a business is not an easy decision and the options need to be weighed very carefully. It requires that investors take the decision keeping in mind a host of factors related to the overall economy, high growth or high potential growth sectors as well as those related to deciding which company to put their money in.

Though certainly high risk translates into high returns when it comes to business, no investor would want to see their investment go in vain

Vikram Upadhyaya

Accelerator Evangelist, GHV Accelerator. Vikram is a Strategic leader and entrepreneur with a successful background of building and leading top performing teams focused on exceeding goals. Dynamic in orchestration of multimillion-dollar business start-ups, turnaround & growth ventures. Advanced communicator and cultivator of key relationships with all levels of personnel, clients, businesses, and executive managers. Big picture thinker, talented and driven to impact bottom line while ensuring staff compliance with enterprise standards, procedures, and regulations. Vikram is a visionary & an entrepreneur, holds 16 years of Indo-Japan Market Experience.

For More Details - http://www.ghvaccelerator.com/

Source : YourStory. 

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Why due diligence is important for entrepreneurs (ENTREPRENEUR INDIA)

In today’s complex business and financial environment that has witnessed several companies, including some of the most trusted names in the business, compromise on integrity and getting caught under the net for fudged accounts, with the intent to siphon off money and evade even the best scrutiny, it is increasingly important for investors and buyers to insist on a thorough due diligence before making the final move.It is critical for a buyer or investor to know about the financial or legal health of the company they are planning to buy or invest in. Due diligence is a vital tool, based on which investors/buyers gauge the effectiveness of corporate governance and make up their mind on merger or acquisition, after validating whether the assumptions and assertions made by the company are true and fair.

This critical step is what enables the interested parties (buyers or investors) take that leap of faith. It is through due diligence that they can check for any unknown issues, which should have been brought to their notice earlier and evaluate the growth prospects of the company. These important inputs help decide whether the investment or acquisition will be worthwhile or not.

In several cases, where issues are uncovered during the due diligence process, companies are told to put them right before any further moves are made by the investors.

What do investors look for in the due diligence process?

First and foremost, investors need to know beforehand about the company's current and projected financial details, organisation information, market size, team structure and level of competence, potential to compete in the market and future growth prospects.

These are the key areas of interests for Venture Capitalists. They also want a perusal of all stockholder communications, customer and supplier agreements, credit agreements and loan/debt obligations, partnership and joint venture agreements. From a legal perspective, it is important for them to know the structure of the company, staff headcount and cost, further requirements in staff to grow the business, and liabilities and lawsuits if any.

Any conflicting claims already made, hidden or unresolved problem areas cropping up during the review will put a halt to any further progress with the investor. Any missing or incomplete information, missing signatures on contracts or facts that arise, which are inconsistent with previous claims or discussions, undisclosed debts and liabilities, will raise all the red flags with an investor and put a halt to further movement in the process unless resolved and clarified.

That is why it is important to ensure that all these necessary documents are well organised and ready to produce as and when required during the process.

Moreover, the company must have detailed presentations together (factually correct and on time) prepared by various teams, giving a detailed overview of that respective function or department to ensure that the right information is shared with the investors and any queries or doubts addressed. Also, the business should keep all lines of communication open with the investors and immediately act on clarifications sought with factual explanations.

Importance of a legal advice

A good legal team can prove to be immensely useful to manage the due diligence and securities offerings and in making the right pitches to the investors.

After the basic information sharing, assimilation of facts and verification of the same is over; the investors will rectify the problem areas, if any. While some problems can be addressed and corrected, others may be beyond the control of business, hence difficult to resolve.

In such case, investors might insist on making changes to the transaction documents, they might adjust the bidding price for the business, the shareholding structure, or investor rights and responsibilities.

It is only when these issues are settled, the due diligence process will be completed to the investor’s satisfaction, which in turn will help the transaction follow through to the signing stage.

Thus, due diligence help investors to get an accurate view on what the company has done so far and how it might fit into a broad portfolio or investment strategy. For an investor, this research helps them from missing something that could be vital to their decision-making process. What was once a short and rather perfunctory process has now grown into a highly detailed and quantitative process offering insight into the future prospects of business.

Though there is no one formula for this process, businesses that understand the criticality of this process and its components are certainly at an advantage, when it comes to attracting investments. They can leverage it as a stepping stone to a bigger and brighter future.

I highly recommend that companies keep this in mind, even as they are just starting up. With good legal advice, keep the records clean right from the beginning. This will save any problems at a later stage and also the aftermath of cleaning up process.

Conclusion

For Investors Due Diligence to be a cakewalk, the entrepreneurs need to have self-discipline in maintaining the records of the venture, such as daily operations documents and details. It is always good to split the responsibilities amongst the Co-founders for recordkeeping and timely reviews. This not only helps the entrepreneur to keep the due diligence outcome positive, but also ensures that they have daily data on their fingertips.

To sum up, the top 10 priority tasks every entrepreneur should religiously follow, irrespective of the stage of the venture, in order to ensure complete compliance for Investors Due Diligence:

1. Do Indexing of all the signed documents and official records
2. Keep the records at one safe place
3. Label your files with color codes and time stamping
4. Do regular and frequent board meetings
5. Review all the pre-decided agenda one by one and check if the documents are in place
6. Entrepreneurs should know the financials and record them
7. Interact with your Legal Advisor/CA or the financial consultant on regular intervals
8. As early stage Entrepreneurs, you might not be perfect in processes, but be honest in your data and remain transparent
9. Never ever hide or fudge your data from your investor, because you think it’s not worth sharing.
10. Last but not the least; never be ‘Penny Wise Pound Foolish.’

For More Details - http://www.ghvaccelerator.com/

Source : EntrepreneurIndia. 

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Why should startups join an accelerator programme? (ENTREPRENEUR INDIA)

Starting up is a challenging journey. The odds are stacked up against you. The chances of failure are significantly higher than success. And that is true the world over.

This is because the startup is dealing with a number of risks – concept, market, product, etc., and the founders have to navigate all these odds to be able to succeed. As my friend RehanYar Khan, Managing Partner, Orios Venture Partners, says, “For a startup to succeed, various functions such as product development, pricing, technology, operations, customer service, marketing, finance and HR management have to be cohesively performed. Execution of each of these elements has a direct impact on the performance of the venture.”

According to Rajiv Sodhi, Managing Director, Godaddy India “In a startup, there are several mainstream and support functions, and if any of these functions is a weak link, the whole venture may derail.”

Even with a great product and a great team, if the pricing is wrong, the startup can fail. Even if the product, pricing, target segment and market are right, and the customer support programme is wrong, the startup can fail. In my experience as a mentor, I have seen that time and again startups focusing on key areas that seem apparent and immediately visible, but falter in thinking about the areas that are not so obvious.

And that’s where accelerator programmes come into the picture. Accelerator programmes are mentoring in a much more structured and longer-term format. An accelerator programme is expected to help startup founders see the bigger picture and help them understand the complexity of doing a business, so that they are better prepared for success. Of course, it is another issue that only a handful of the accelerator programmes end up doing this well.

Accelerators have a responsibility in ensuring that the startup is well positioned to deal with not only seed stage investors, but venture capitalists (VCs) as well. Many times, brilliantly conceived business plans have taken a hit due to lack of funding, simply because they failed to convince VCs to put their money in the second round after the initial seed funding stage is over.

Only 1 per cent to 2 per cent ventures out of all the business plans that VC’s see, get funded.

Does going through a good accelerator programme help?

Chances of getting direct VC funding in India is very low, only 1.4 per cent. This is because startups in India take much longer to mature. They are, therefore, not very viable for VCs to invest in. In fact, because VCs need businesses to be slightly more mature than startup stage, they tend to rely on accelerator-backed companies as their source of deal flow.

Based on data from 2012, accelerators in India have helped fund 89 companies vis-a-vis less than half this number getting funded by angel investors and VCs. So, it is clear that though direct VC funding is little, going through an accelerator doubles the chances!

VCs have woken up to the potential of investing in Indian startups and the figures will soon show an upward trend. In this scenario, accelerators will play a major role.

Accelerators are not just for startups

Contrary to popular belief, it is not just startups that can benefit from accelerators. Existing businesses too can leverage from their expertise and fast-track their way to success.

The good part is that the accelerators will not let you compromise along the way, since what matters most to them is that the foundation of the company should be firmly in place. Even businesses that are in early-growth stages can benefit from a good accelerator programme.

They can work as a perfect springboard if you are looking to expand or diversify and can help take your business to the next level altogether. The case is similar to that of a person who is already health-conscious and fit and regularly goes to the gym. Do they really need a personal coach? You might say ‘no’, but the reality is that it is this set of people who are already very driven and committed to achieve complete fitness and who can benefit the most by engaging a personal trainer. It is these people, who can get the best result and outperform the rest.

For More Details - http://www.ghvaccelerator.com/

Source : EntrepreneurIndia. 

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Why Y Combinator type models won't work in India (ENTREPRENEUR INDIA)

India has seen the emergence of several accelerators and incubators in the past few years. Some of them are doing an excellent job, but many others are still getting their act together. Many of the accelerators and incubators are already running 3-5 batches, and have now started realizing that blindly copying the Silicon Valley style accelerator models will not work in the Indian context.

Most of the accelerators and incubators, who replicated the Y-Combinator model lost precious time, and as is with most organisations, they now find it difficult to completely redesign their offerings. As a result, they end up making modifications on their existing models, which may not have been as effective as perhaps a homegrown model, that is relevant for the Indian entrepreneurial eco-system, could have been.

Mimicking Silicon Valley

India’s entrepreneurial eco-system has often tried to mimic the Silicon Valley, largely because many of our initial entrepreneurs and angel investors hold rich amount of experience in the US – particularly from the Valley. As a result technology, and particularly technology, started becoming the prime sector for entrepreneurial opportunities to pursue. Launching a startup in tech space was easy as it cost less and it was relatively easier to find the risk capital.

As the market and ecosystem evolved gradually, entrepreneurs started exploring newer areas of opportunities. Also, a new breed of students or young professionals started exploring entrepreneurial opportunities. They did not yet have the experience or exposure to business dynamics and needed the mentoring support from more experienced entrepreneurs.

Forums like TiE and NEN did fill in the gap, but serious entrepreneurial ambitions needed more structured and on-going handholding and mentoring. Hence, accelerators and incubators emerged and became a popular first-stop for aspiring entrepreneurs.

Why it won’t work?

Many of the accelerators and incubators tried to copy the successful models from the US, particularly the highly successful Y-Combinator model, but those who copied that model soon realised that the model won’t work when replicated in the Indian context.

Here’s why:

Due to the widespread startup culture in Silicon Valley, many aspiring entrepreneurs already had the experience of working in startups. They understand the challenges, complexity faced and efforts required to get a concept into the market. Hence, Y-Combinator can afford to identify startups, whose ideas and teams have great potential and provide them the rocket-fuel to take off. But, that is not the case in India.

First-time entrepreneurs in India have limited understanding of the dynamics of business; hence, what they need is a foundation that can first help build assistance, and then the rocket-fuel for smooth take-off. Y-Combinator can do it in three-months because most of the entrepreneurs there are business-ready. But in India, precisely for the reasons stated above, our programmes need to be designed for a longer duration – up to a year-long, so that we can help entrepreneurs and give them the time required to become business-ready.

Unfortunately, most of the early accelerators in India run their business models on a three-month basis, which they are now gradually trying to unwind from.

Mentors spend serious time with startups in Silicon Valley based accelerators because there is a large pool of serial entrepreneurs, many of them are between their ventures and have enough time to give back to the next generation. They also have the capital to back teams. But again, that is not the case in India.

We do not have a pool of mentors, who have the bandwidth to undertake a one-on-one deep-engaged mentoring for startups. As a result, our programmes have to be designed with a combination of sessions that are one-on-one and also one-to-many.

The road ahead

Access to markets, B2C as well as B2B is relatively easier now for Y-Combinator companies as it provide their companies a seal of class. In India, we have yet to create accelerator brands, whose portfolio companies are waited with eagerness by the market. It will happen someday soon, but till that happens, accelerator programmes will have to be designed to assist in market access as well.

Portfolio companies of Y-Combinator and other major Silicon Valley accelerators come under the radar of investors the moment they are accepted into the programme. While that is also the case with some of the better-known accelerators in India, most portfolio companies from Indian accelerator programmes fail to find funding. Hence in India, we need accelerator programmes that are designed to prepare companies for Series A funding.

It is good to learn from the best practices of other more successful players. But a different ecosystem needs a different approach that is most conducive for that environment.

This piece is not meant to be a criticism of Indian accelerators. In fact, these early movers are the foundation of the fast-evolving entrepreneurial wave. The intent of writing this article was to open the debate on what is most relevant for India and how can we individually and collectively move towards a stronger entrepreneurial ecosystem, where startups are getting nurtured, funded and are becoming successful, and then return to give-back to the ecosystem.

For More Details - http://www.ghvaccelerator.com/

Source : EntrepreneurIndia. 

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How to raise funding for a prototype? (ENTREPRENEUR INDIA)

In the context of a startup, a prototype should be anything that will help you to demonstrate that not just the product, but also whether the intended users of the product are actually as excited about the product as you are. A prototype is something that allows you to test the various assumptions that you have made for your venture.

A prototype has to be a very basic version of your product – just enough to give your consumers a feel of what you are building or something that will demonstrate that your technology or innovation actually works.

Most aspiring entrepreneurs with ideas often tend to seek angel investors or venture capitalists (VCs), to fund them at prototype development stage. That is, however, unlikely to happen in most cases. Investors investing at a power-point or pre-prototype stage are very rare.

How then should aspiring entrepreneurs deal with the funding needs for even building the prototype? Here are some thoughts:

Keep the costs at bare minimum.

Often entrepreneurs who are at the prototype stage make the mistake of taking on costs like office space, capex like hardware, etc. While a comfortable office is good to have, but at the prototype stage it makes sense to optimise and focus costs only on the key objective – i.e. building a damn good product.

Also, at the prototype stage, it is not necessary to build all the features and certainly not the frills that make the product look good. A functional prototype that helps the intended audiences experience the product and get a feel for the use-case is sufficient.

Take on only those costs that help you deliver on the sole objective of proving that the technology/innovation works and/or that consumer find it useful.

As best as possible, try to bootstrap and make the prototype with your own resources.

Try to build the prototype on your own rather than outsourcing it to an external agency. Angel investors or VCs are unlikely to provide funds for building a prototype. At the very least, they will expect you to go into the market, talk to a reasonable number of customers/users and get the evidence that what you are building is indeed going to be liked by the market. And in most cases, you are likely to need a prototype to get that evidence.

In most cases, I have observed that the costs of building a prototype is really a lot lower than what the entrepreneurs estimate. Often, you will be able to convince a vendor or partner to provide their service/components pro bono or low bono, perhaps with the commitment that you will give them either a higher value after you raise capital or giving them nominal equity in lieu of their services.

Despite keeping costs to a minimum, if you need to raise some capital, try to take help from friends & family.

Family & friends are indeed a relatively easier pool to tap into. There are several examples of entrepreneurs raising their initial capital – very limited fund raise – with small co-investments by a number of people including ex-bosses, ex-colleagues, ex-business associates/partners, family members, relatives, friends, etc.

Bring money from friends and family who trust you and are giving you money for your entrepreneurial journey with mid and long-term returns.

The trick is to manage this round with the level of rigour, maturity, discipline and governance standards as you would do with an institutional investor. Do the documentation well, explain the risks and potential rewards well, help them understand the terms, set clear and easy to understand term-sheets, have a good share holder agreement, etc.

Many entrepreneurs feel shy of asking family & friends. However, it is not as if you are asking them to donate for a cause. You are giving them an investment opportunity in which you are staking your opportunity cost because you believe that the concept will have a good monetary upside.

If family & friends does not work for you, instead of approaching angel investor groups or VCs, try approaching individual investors who may have an interest in your space.

After you explore your first circle of family & friends, instead of angel investors or VCs, it is prudent to explore individuals who may have an interest in your space.

You may also have an opportunity to get some funding from corporates who may have a strategic interest in the product or service you are attempting to make.

For Example - If you are building a healthcare app, someone who owns a pharma company or a hospital may be interested in investing in the venture. Or, if you are building a logistics startup, someone in the retail or logistics space may be interested in the concept.

Put in your own savings

Nothing demonstrates your commitment and belief in the venture than you putting your savings into the game.

In any case, do not raise too much money for a prototype.

Focus on building a good, basic product. Keep it simple. Keep it low-cost.

For More Details - http://www.ghvaccelerator.com/

Source : EntrepreneurIndia. 

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Govt ropes in advisor for stuck telecom projects (The Hindu Business Line)

The Government has roped in Vikram Upadhyaya, Co-Founder of the Indian Angel Network Incubator, as an advisor to projects being undertaken through the Telecom Centres of Excellence (TCOE). The primary objective of roping in Upadhyaya is to ensure that the ideas generated by TCOEs are taken from conception to commercial deployment based on sound business.

The Government had set up TCOEs in a first-of-its-kind public-private partnership in the telecom sector. There are eight Telecom Centres of Excellence across the country working on key issues like technology management, rural application, next-generation network and policy. However, after more than five years of existence, the applications have not been deployed commercially.

“I have submitted a broad framework on how to turn around the TCOEs. I have seen some very good ideas being worked on at these centres. Over the next 12 to 18 months my focus will be on taking some of these ideas to the market,” Upadhyaya told BusinessLine, adding that he has also proposed collaboration between the TCOEs and the Indian Angel Network Incubator.

Upadhyaya has been an angel investor and has orchestrated multimillion-dollar business start-ups, turnarounds and growth ventures. Having worked in Japan in the late 1990s, Upadhyaya is known for his familiarity with the country and will try to interest Japanese in TCOE. Upadhayaya sees his unpaid advisory role as a business opportunity.

Separately, he is planning to start a seed accelerator fund in India with the backing of investors from Silicon Valley. Accelerators help new start-ups companies get off the ground and find follow-on investors through mentorship and a network of potential financiers. Upadhyaya said that India needs an accelerator that brings down the time period for a start-up to get follow-on venture capital.

For More Details - http://www.ghvaccelerator.com/

Source : The Hindu Business Line. 

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