Now, hire consultancy services to manage start-up ventures
Bangalore: Sudha Kukreja, owner of six restaurants, including the Ploof and Blanco in New Delhi, took a decade and a half to nurture her eateries into a Rs12 crore a year, multi-cuisine business. Then came the itch. She wanted to go national.
“I want to move things faster now," Kukreja said over the phone. “It took me 15 years to have a restaurant chain."
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/Content/Videos/2009-06-09/0806_Growx Venture_MintTV.flv8c32ad02-5435-11de-a68f-000b5dabf636.flvThe chef-cum-restaurateur wanted to scale up her business and grow one of the eateries—Chilli Seasonss—into a food and beverage company with multiple formats. She didn’t know how and went scouting for an associate who would help set up the company and handle the key management functions of finance, marketing and strategy. That was in early 2008.
In October, Kukreja became a promoter of Chilli Seasonss Food and Beverage Pvt. Ltd, with Sheetal Bahl, a managing director at management consultancy Growx Ventures Pvt. Ltd, as its chief executive officer (CEO).
Growx, a New Delhi-based start-up, has a unique model: It will deploy executives such as Bahl to run entire businesses or manage specific functions in a company, typically a start-up or an early-stage firm, in return for monthly revenue-linked fees and substantial equity holding. When it’s time to exit the businesses, typically in three-five years, the executives return to Growx, but the equity holding stays.
There was no Growx when Kukreja started her hunt for an associate. Bahl was at the time consulting for Glue Design Pvt. Ltd, a retail space and product designer that was looking to float a furniture business.
Focus on expertise: Growx Ventures’ managing director and CEO Ashish Taneja (in the chair) with MD Sheetal Bahl. Taneja and Bahl started the consultancy firm to offer what they call ‘management capital’. Ramesh Pathania / Mint
Bahl and Taneja started Growx Ventures in October to offer what they call “management capital".
“The idea is to allow the promoters to focus on their core technical expertise, while we will take up specialized roles to start, scale up, transition or simply manage the venture’s operations," said Taneja, Growx’s managing director and CEO.
Bahl, who had consulted food and beverage (F&B) firms earlier, became CEO of Chilli Seasonss. “I took over the reins of CSFB (Chilli Seasonss) as I know F&B business through my friends who are running such businesses," he said.
Growx’s monthly fees can run up to 40% of a firm’s revenue. Its equity holding ranges from 5-30%, which will be vested over a three-five year contract period based on a pre-agreed performance criteria.
The start-up consultancy now plans launching a $5-10 million fund for investments in very early-stage firms. Its clients will have the option of raising capital from this fund.
Growx currently has three clients.
For Chilli Seasonss, Growx has set short- and long-term targets, including growing it into a $7-8 million (Rs33-38 crore) company in five years, from its current annual revenue of $300,000.
Its other client is Zolijns Designs, a furniture and accessories firm started by Archohm Consults Pvt. Ltd. Growx is helping it launch a new range of furniture and accessories in India.
Sourabh Gupta, director of Archohm, said the firm provides Growx capital upfront for running the business, but declined details on revenue sharing or the equity stake held by the consultancy.
The third client is BMR Advisors, a mergers and acquisitions (M&A) and risk advisory firm. Growx provides consultancy support in deal origination, due diligence and internal capability development for BMR’s M&A practice focused on the information technology (IT) and business process outsourcing (BPO) industry. Its earnings are linked to its consultancy services and deal closures, but it does not hold any stake in BMR.
“This model allows us to create shorter-term earnings to counterbalance short-term liabilities," said Taneja.
“I would have been happy to have both of them (Taneja and Bahl) on board, but am happy this relationship works very similarly. They are, for all practical purposes, an integral part of our IT/BPO M&A team," said Vivek Gupta, partner at BMR’s M&A practice. He did not disclose the financial arrangement between BMR and Growx.
The Glue Design project is on hold.
Taneja said holding an equity interest in a client such as Chilli Seasonss makes them a committed long-term partner. Besides, their own remuneration is tied with the firm’s success, so there’s no short cut for them. “Our model has relatively higher risks (but correspondingly higher return potential), given our focus on capital growth-related earnings and the nature of the partner firms."
And how does Growx make a difference? Kukreja said Bahl has already struck a “good deal" with a Dutch couple for their bagel business, and has started a restaurant called Bagel Café under the Chilli Seasonss umbrella.
Bahl has also helped launch a new food format called A La Cart, a mobile kiosk that offers pan-Asian street food such as satays and wraps on the go. Satay is a grilled or barbecued street dish made of meat or fish that is popular in South-East Asian countries such as Malaysia and Singapore.
The Growx model isn’t without obvious weaknesses. A major concern is the number of experts the firm can hire to work with each of its clients. Taneja agrees the start-up may face limitations on scalability, particularly in terms of head- counts, due to the involvement of its senior management in its partner firms.
For investors, the worry is about whom they can back when Growx raises capital. “We back people. Here the people are not with the main company, they are with other firms. Who do we fund?" said Sandeep Singhal, director at Nexus India Capital, a venture capital firm.
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