As VCs exercise caution, deals are taking longer to close, with the usual two-three months stretching to five or six. The New Delhi-based mobile services company One97 Communication (Pvt.) Ltd also began fund-raising before the market meltdown and took about six months to close the deal. In December, it raised $15 million in the second round of funding from Intel Capital and Silicon Valley Bank.
Investors examined every variable of the business thoroughly, says the company, including the team, growth projections and plan to tackle competition. “Perhaps we had it easier because it was a mid-stage company, not early-stage, and we were profitable,” says One97’s managing director Vijay Shekhar Sharma. “Even so, I was definitely tense, hoping the VC doesn’t get a mandate from headquarters to go slow on investments.”
Company fundamentals and vintage have gained greater importance with VCs over the last six months. Those with existing revenues and healthy balance sheets are more likely to get funded than ideation-stage start-ups. New Delhi’s GETIT Infoservices Ltd, which raised Rs20 crore from Helion Venture Partners two months ago, is an example of this trend.
The 22-year-old local classifieds company decided to raise venture funding to expand its operations into digital formats available on the Internet and mobile phones. Says GETIT’s chief operating officer Sidharth Gupta, “VCs can understand conservative estimates and can make out unrealistic projections. We demonstrated that our business model could be profitable even in a slowdown and we had a pragmatic balance in cash burn (the money spent in day-to-day operations, salaries, expansion, among others) and growth paths.”
Showing customer traction also helps while making a pitch to investors, say start-ups. Rx HealthCare Magic Pvt. Ltd, a Bangalore firm that runs a health care portal (www.healthcaremagic.com) highlighted the offline component of the business—offering insurance services—while making a pitch to its investors to demonstrate multiple revenue possibilities.
Assessing value: Suvir Sujan, managing director, Nexus India Capital Advisors. Abhijit Bhatlekar / Mint
“We showed very openly that we had big names as our B2C customers. VCs are brand-conscious and big names do assure them,” says founder and CEO Kunal Sinha (B2C is short for business-to-consumer, a model referring to consumer-focused businesses). The start-up, which raised $2.5 million from
Accel Partners two months ago, approached four VCs before finalizing the deal.
VCs play safe
In a slow market, not only are investors getting harder to woo, they are taking more steps to minimize the risk in their portfolios. This includes more stringent veto powers on strategic decisions a company makes in areas of hiring, promoter salaries, buying equipment or venturing into new markets.
“Terms are becoming more difficult in this market,” says Deepak Srinath, co-founder of Viedea Capital Advisors Pvt. Ltd, a Bangalore-based investment banker. “VCs are now a lot more rigid than they were earlier (and) are asking for powers covering all decisions relating to a company’s strategy,” he adds.