Small entrepreneurs in the IT space frequently run into funding problems because very often they do not start operations as industrialists traditionally do. Usually their starting point is an innovative solution to a problem, one that is simpler, more efficient and cheaper. But, since they are basically one-trick ponies, they invariably run into funding constraints. In particular, they hit roadblocks while trying to scale up their operations.
Funding innovation
Venture capital, angel investors or seed funds have all been around for a long while, catering to the needs of innovators. But one of the biggest problems has been that there is very little information available to both parties — the innovators and the venture funds — about the nature of innovation, about how the “solution” can be scaled up to fit a viable business model, and about how the innovation will pay for the investments. These imponderables, while increasing the risk perception of the investors, also threaten to effectively kill an innovative solution simply because the funder does not find it worthy of investment.
Venturesutra, a Bangalore-based company, recently established a platform to connect entrepreneurs directly with venture capitalists, seed funds and with angel investors.
“Entrepreneurs often struggle to find and reach out to the right investors directly and quickly,” said Abhijit Maheswari, founder, Venturesutra. The company, he said, aims to provide “a simple, easy, one-stop place to search and connect with prominent and active investors instantly.” Investors could directly source deals and efficiently manage financing in the “early” and “growth stages”, he added.
Stringent criteria
Mr. Maheswari said the company launched its public beta in March, became active in April and “gained traction” in May. Since credibility of investors was critical to the credibility of the entire operation, “we apply a set of stringent criteria on venture capitalists (VCs) who want to establish their presence on our platform.” Only those VCs who are registered with the Securities and Exchange Board of India (SEBI) are currently allowed on the platform. Mr. Maheswari pointed out that several VCs from China who wanted to be on the platform had not been allowed. “We wanted to only allow investors from India so that we can have a more rigorous check on their antecedents,” he said.
The platform now has 26 investors. Ten more investors may join in by the end of May, Mr. Maheswari said.
Venturesutra now has more than 200 start-ups and “growth stage” entrepreneurs — those who have already established operations but who are looking to scale up operations. While early stage innovators are those who are looking to attract investments of up to $0.5 million, “growth stage” businesses are those whose requirements range from about one million dollars to about $10 million.
‘Offline mode'
Mr. Maheswari pointed out that the focus on due diligence required Venturesutra to do a lot of work in the “offline mode.”
“In that sense, we have established more than just a platform in which the two sides merely conduct business.” He said the due diligence was critical for the long-term viability of the platform.
Revenue model
How does Venturesutra plan to earn revenues to stay afloat? Mr. Maheswari said innovators who land on the platform have two options. They could either reach out to all potential investors through a “public deal” or they could be selective, reaching out to specific investors who may be interested in their business plan.
While the “public” option was free, the selective approach would require entrepreneurs to pay $100 for three months. Venturesutra does not charge anything for investors to operate on their platform.
Mr. Maheswari, who had earlier been with an investment bank, said the model may be “fine tuned” in the days ahead.
“To be honest, I did not know whether this model will work, but we needed a seamless platform that would also keep costs low.” He said most of the deals done so far were for about one million dollars each.
Mr. Maheswari said the idea had been around for some time. He pointed out that a few years ago some others did try it, but failed.
“They probably timed it wrong,” he remarked. Venturesutra's focus on small entrepreneurs was probably what would be a “key differentiator”, Mr. Maheswari added.
