Entrepreneur February 2011 by Infomedia18

THE 2011 FUNDING SPECIAL

FEBRUARY 2011  VOLUME 2  ISSUE 6  Rs 100

WHO WILL FUND YOU TODAY ODA ? ODAY An insight into who will get investments from India’s best venture capital funds in 2011 Sanjeev Bikhchandani Info Edge (India) Ltd Kanwaljit Singh Helion Advisors

Niren Shah Norwest Venture Partners

Naren Gupta Nexus Venture Partners

CLASSROOMS

Maximize Returns for Investors and Stakeholders

WOMEN ENTREPRENEURS

ALSO:

INSIGHTS

Build a Home Ofﬁce on a Low Budget Get Funding From Friends and Family How to Start Up in Maharashtra

How Hemu Ramaiah Created Landmark and Changed the Way Indians Buy Books Richard Branson on Empowering Employees

table of contents 30

INSIGHTS

FUND FEVER 42 WHO WILL FUND YOU IN 2011?

Are India's top venture capital funds eyeing your sector or shunning it? Find out which sectors money will be pouring into this year—and if your business stands to gain. By Team Entrepreneur

78 THE FUND FLOW

A snap poll to check what Indian VCs are looking for in 2011. By Team Entrepreneur

80 HOW TO WIN OVER INVESTORS IN 3 MINUTES OR LESS

Perfect your elevator pitch to investors with these tips and turn those precious few minutes into some of the most lucrative ones. By Joanna L. Krotz

26 HOWZZAT!! Nandini Vaidyanathan finds that entrepreneurs and cricketers aren’t playing an entirely different ball game. 28 EARNING YOUR CUSTOMER BASE Vijay Anand on earning your customers’ loyalty and providing them a superior experience. 30 ARE YOU LISTENING, SIR? Bharat Banka on the importance of finding out what customers really want. 32 BUYING A SECOND HOUSE Ranjeet S. Mudholkar on the advantages of investing in a second house. 34 EMPOWERING EMPLOYEES

Richard Branson on ensuring that employees have fun at work and are given the authority to take risks.

WOMEN ENTREPRENEUR 36 A LANDMARK LADY

Hemu Ramaiah brought the concept of large format retail for books into India with Landmark. By Shonali Advani

SOCIAL ENTREPRENEUR 38 A MACRO LOOK AT MICRO With MicroGraam, the VC funding model enters the social space. By Shonali Advani

GREEN SIGNALS 40 THE SUCCESS PILL CALLED ‘SUSTAINABILITY’ How the buzzwords of sustainability and corporate responsibility ﬁt into the dynamics of decades to come. By Sejal Sheth

6 Entrepreneur + February 2011

SUCCESS STRATEGIES 82 TEARING DOWN THE WALLS Social media is becoming a powerhouse of a strategic business tool. Find out how these entrepreneurs combined technology with creativity and leveraged this . By Jason Daley

THOUGHT LEADERS 86 IGNITING INNOVATION Ernst & Young’s recent study of “intrapreneurship” reveals how innovative companies are growing fast by sparking creativity among their own.

MONEY 38

100 CREATE A HOME OFFICE ON A BUDGET Get comfortable and get to work with these low-budget tips for your home office space. By Alyson Krueger 102 GET FUNDING FROM FRIENDS AND FAMILY Having your friends and family invest in your startup could make investors more interested in doing so, too. By Martin Zwilling 105 PREVENTION FOR THE PEOPLE

Shape Up The Nation, a unique social network that promotes health and wellness, is drawing VCs like moths to a ﬂame. By Gwen Moran

114

CLASSROOMS 106 FINANCIAL STRATEGY FOR YOUR

STARTUP Tips to raise capital, streamline cash ﬂows, and maximize returns for your stakeholders. By Rana Kapoor

109 PRE-INVESTMENT DUE DILIGENCE The importance of conducting ﬁnancial and legal due diligence to minimize risks. By Ved Prakash Arya 110 DEVELOPING A SOCIAL MEDIA STRATEGY No matter which phase of growth your company is in, the megaphone of social media can take you ahead further and faster. By Rajiv Dingra Entrepreneur + February 2011 7

table of contents

‘HOW TO’ 112 SET UP AN INDUSTRY IN MAHARASHTRA

TECH DEPARTMENT 88 MAMBO NO. 5

The Nokia E5 has much to offer entrepreneurs and business professionals. By Ankush Chibber STARTUPS

92 HOW SMES CAN PROFIT FROM THE

114 THE RIGHT BLEND

TELECOM BOOM Telecom trends that could have the cash registers of small businesses ringing off the hook. By Mahesh Choudhary

94 THE INSIDE SCOOP Simple steps to help you save time and money on your new website. By Mikal E. Belicove 95 TIME ON THE RUN

Keep track of your billable hours while on the move with these mobile apps. By Ericka Chickowski

REGULARS 10 FEEDBACK 11 RESOURCES 14 NEWS IMPACT 18 SME DOCTOR 22 STUMPSPEAK 123 SHELF LIFE 130 BACKSTAGE 8 Entrepreneur + February 2011

In contrast to specialty coffee chains, Amuleek Singh’s Chai Point is a unique and hygienic alternative to the streetside chaiwalas. By Shonali Advani

120 BRUSH WITH SUCCESS 96 3.0 HAS YOUR BACK

Speed and power efficiency make the 3.0 USB standard a boon for businesses. By Jonathan Blum

98 ORGANIZED CHAOS Gist.com helps your organization get organized using customized social networks. By Jason Ankeny

Nikhil Nanda, MD, JHS Svendgaard, went from wanting to start his own brand of toothbrushes to founding a leading contract manufacturing company for the dental care industry. By Pranbihanga Borpuzari

SPEND IT 124 BEAUTY OF THE BEAST

Get behind the wheel of the Ford Endeavour, an SUV that will traverse any road with ease. By Pranbihanga Borpuzari

126 THE RIGHT DEGREE COVER DESIGN

NIRMAL BISWAS

Two One Two is Mumbai’s latest ‘hot’ spot for absolute culinary indulgence. By Sriya Ray Chaudhuri

resources [Info that’s handy]

NEXUS CONNECT

E-SUMMIT 2011

IT Bombay’s Entrepreneurship Cell (E-Cell) will be conducting the Entrepreneurship Summit (E-summit) 2011 in February this year. The summit provides a platform for aspiring, budding and successful entrepreneurs to interact and find information and inspiration to run their enterprises. It aims at creating a networking hub for people from diverse domains and regions across the nation. Among the distinguished speakers who will be participating in E-Summit 2011’s panel discussions and single speaker sessions are Tulsi Tanti (MD, Suzlon Energy), Ronnie Screwvala (Founder, UTV Group), Shashi Ruia (Founder, Essar Group), R. Sriram (Founder,

Crossword) and Rajesh Sawhney (President, Reliance BIG Entertainment). Events at the summit include the Business Mentoring Hub, which aims at helping aspiring entrepreneurs sharpen their business ideas, the Startup Expo, the Eureka! 2010 Finals where the top 10 teams battle it out, and Vultures Nest 2.0, which gives startups the opportunity to pitch their business to investors. Date: February 6, 2011 Venue: IIT Bombay Tel: 9769071573 E-mail: sachin@ecell.in Website: www.ecell.in

iWEEKEND, MUMBAI

intensive weekend of entrepreneurship will take place in Mumbai on February 4-6, 2011. At iWeekend, entrepreneurs and professionals of varied profiles will come together in an environment that fuels innovation and entrepreneurial thinking. Participants will select three business ideas and turn them into reality by working together to develop a business plan and a prototype—in just one weekend. iWeekend is aimed at people from diverse professional backgrounds, including technology, design, marketing, business, finance, law, etc., but who are connected by their enthusiasm

for technology, the Internet and entrepreneurship. Among the mentors taking part in the event are Mahesh Murthy (Founder, Pinstorm), Sahil Parikh (Founder, Deskaway.com), Satish Kataria (MD, Springboard Ventures), Saurabh Agarwal (Director, Springboard Ventures) and Bipin Chandran (Editor, Entrepreneur). To register for the event online, log on to www.iweekend.org/mumbai/en/participate. . Date: February 4-6, 2011 Venue: IIT Bombay E-mail: mumbai@iweekend.org Website: iweekend.org/Mumbai

TERI AGRI-BUSINESS PLAN COMPETITION

he Energy and Resources Institute (TERI), in collaboration with the Welingkar Institute of Management Development & Research and Mumbai University, will be organizing a business plan competition and an open discussion for management students in February. The competition is a prelude to TERI’s main event on agribusiness, KrishiDhan-2011, which has been scheduled to take place in April this year.

The competition will provide management students the opportunity to test the waters of the promising agriculture sector and identify professional avenues. Among the proposed list of judges are Rana Kapoor (CEO, YES Bank) and Vijay Kalantri (MD, Balaji Infra Projects). . Date: February 26, 2011 Venue: Welingkar Institute, Mumbai Website: www.teriin.org

Leading early-stage fund Nexus Venture Partners’ very first edition of Nexus Connect will be held in Mumbai on February 18, 2011. The event gives entrepreneurs an opportunity to spend a day with the entire Nexus team, creating an ideal platform to brainstorm new ideas in connection to their current businesses, seek answers to their business challenges, and discover financing alternatives. In addition, attendees who meet the criteria for seed investment could get funded under the Nexus Seed program. This recently launched seedstage funding program has been set up to fund high potential entrepreneurs who are building technology and internet companies. Nexus plans to invest Rs. 20 lakh to Rs.2 crore each in up to 50 companies over the next five years. Entrepreneurs who would like to participate in Nexus Connect can write in at plans@nexusvp.com. Eight to 10 companies will be selected to attend Nexus Connect. Date: February 18, 2011 Venue: TBA E-mail: plans@nexusvp. com Website: www.nexusvp. com

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 11 To Subscribe, visit www.entrepreneurindia.in

women entrepreneur

Lady A LANDMARK

36 Entrepreneur + February 2011

With Landmark, Hemu Ramaiah introduced the concept of large format retail for books in India and brought the customer into focus. By Shonali Advani

he’s a woman with clear-cut choices. She wanted to pursue graduation only if she got literature as a subject, start her own venture by age 30 and quit by 50 to enjoy the good life. Hemu Ramaiah has successfully tickmarked all of the above on her life’s to-do list. The reasons are plenty—passion, focus, perseverance and guts. The ex-founder of Landmark chain of stores and current founder of Shop 4 Solutions Pvt. Ltd, a niche retail consultancy firm, Ramaiah has been a game-changer in the space of retail and distribution since she started her entrepreneurial journey in 1987. “Books formed my world though no one else read in my family,” says Ramaiah. In 1977, while in Chennai’s Stella Maris College, she started working part-time at Taj Hotel’s book shop to understand the trade better. Post graduation, she took over full time and continued in the same line for eight years, opening more book shops across different hotels. “The first thing I did was to change the prices to MRP and open the market to the local crowd,” she recalls. The industry then was monopolized by two distributors—India Book House (IBH) for British titles and India Book Distributors (IBD) for American titles. Chennai had only one book store, Higginbotham, and most book shops has an over-the-counter format. “There was a gap between what distributors bought, usually a publisher’s recommendation, and what customers wanted,” she says. The situation increased her desire to open a bookstore and she set up Landmark, incorporating every lesson that she had learned in those eight years. Funded (Rs.12 lakh) by her brother and Ramaiah, the 5,300 square feet store, in the basement of an office building, was large format, self-service, air-conditioned and with a customer-friendly ambience. She rented the space on Nungambakkam High Road at Rs.4 per square foot, and went ahead without a name board and frontage, critical in today’s retail environment, on the belief that book lovers would find the store. Photo© Dipti Desai

“All I did was focus on inventory, service and the business,” Ramaiah recollects. Indian families, she observed, shopped together. So, she allocated 65-70 percent of space for books, (a conscious format even today), then incorporated sections for toys, gifts, cards and music a few years later, so there was something for everybody. “I wanted to get the reader into the store and convert the non-reader,” she says. Ramaiah’s business decisions have always been customer-centric, so she taught her staff to let customers browse for hours on end. “People came in to hang around, and it became a community place for all,” she smiles. The store had another novelty. Computerized inventory and billing—a first for any bookstore. It was a tough call, but again, on pure instinct she outsourced the job to two young IIT graduates who developed customized software, used even today across outlets. The risks were worth it because by March 31, 1988, Landmark had clocked in Rs.60 lakh as revenues. “Everything I did was by instinct. I had never even seen a store abroad, so I was not pre-conditioned,” she notes. 1991-’92 was a crucial time in Ramaiah’s life as an entrepreneur, because IBD decided to turn retailer with its store Fountainhead. This meant it gave itself priority pricing and supplies. Landmark’s stock was coming in late and Ramaiah was dealing with complaints for the first time. IBH, on the other hand, had a distributor (East West Books) for the south and Ramaiah used this as her golden opportunity. “I asked them if they wanted to start importing and distributing American books, in addition to British books,” she says. Backward integration was the only way to sustain a supply chain for Landmark and she set up Westland Books in 1993 as a distribution company. In her true gutsy spirit, along with a colleague, she set off on a jaunt to book fairs in Los Angeles and Frankfurt that year to get accounts. Their optimism was met by rejection as every publisher was ‘happy’ with current Indian arrangements. After much persistence, she got two appointments, one being from Random House in New York. Ramaiah went with two orders—one of all titles imported and another of all the titles they wanted and had not been imported. The 6,500 titles totally was still a small order for Random House. A few negotiations later, she

GETTING BOOKED! 1987: Landmark launched in Chennai 1991-’92: Coimbatore store opened (franchisee format) 1993: Sets up Westland Books 1995-’96: Revenues Rs.15 crore-Rs.16 crore 1999: Kolkata store opened (JV format) 2000: Spencer Plaza store opened, 40,000 square feet (2nd store in Chennai) 2005: Landmark employee base touches 1,300 2005: 75 percent stake sold to Tata Group 2008: Balance 25 percent sold for undisclosed sum

got the deal. How? She went as a distributor and upped the quantity. “That account opened; and we never looked back,” she smiles. By now Ramaiah was wearing two hats— retailer and distributor. Landmark started taking single copy orders from the net, delivered in two weeks from the U.S. to customers at free shipping. The company’s structure was also evolving with specialized departments and the interiors got a radical new look with every new outlet. It was also India’s first retail store to get an ISO certification. Clearly at its peak, Ramaiah got the confidence to expand outside; she opened another company-owned store in Bengaluru. Cut to circa 2005—it was time to cut off. Ramaiah made a list of potential buyers and sold 75 percent of Landmark (Rs.105 crore) to the Tata Group. She sat as CEO for three years, then sold the balance 25 percent in 2008 for an undisclosed amount. “It was a cultural fit,” she says. In 33 years, she took her first long vacation to the U.S. with her daughter. Since the sale, she’s been spending time on her latest venture Shop 4 Solutions, and as venture partner at TVS Capital Funds Limited. “I’m sitting on a private equity table but am in total empathy with the entrepreneur because I can see his view much better than the others,” she laughs. Ramaiah also engages in pro-bono work for the ecosystem on the side. And what is her view of the current generation of entrepreneurs? “Over-confident, some hare-brained ideas and unrealistic valuations,” is her quick retort. Her advice to today’s entrepreneurs? “Stay customer-focused, grow to your optimum only, think of your exit; don’t build yourself an office but visit your shop floor!” she signs off. Entrepreneur + February 2011 37

social entrepreneur

A MACRO LOOK AT MicroGraam is bringing the VC model of funding enterprises to the social space. By Shonali Advani

A SOCIAL INVESTMENT: Rangan Varadan 38 Entrepreneur + February 2011

fter working for over 20 years in financial services, Rangan Varadan found himself veering away from the corporate world towards social development. When Varadan, Co-founder, MicroGraam, met serial entrepreneur Sekar Sarukkai from Silicon Valley, there was a meeting of minds. “I wanted to address the need of the un-banked segment—where anyone can invest in any venture,” says Sarukkai, Co-founder MicroGraam. So, MicroGraam was launched in April 2010 with a simple goal—to enable people to invest in other people and do it in a manner where borrowers pay the lowest rate with the ultimate vision of micro-venture creation. US-based organization Kiva’s peer-to-peer lending platform piqued Varadan’s interest. “We worked on this from both the borrower and investor’s side,” he says. In addition, MicroGraam was looking to improve the microfinance way of working which charges a high rate of interest to borrowers due to operational costs. “We wanted to ensure a borrower is charged not more than 15 percent,” explains Varadan. This, he hoped, would lower the overall cost to people. Partnering with NGOs was the way forward. The logic was simple—to sell any product to rural India, the cost is high; therefore sharing the distribution channel was important. NGOs being the best channel for microcredit, MicroGraam came up with a process to identify NGOs who are ranked across governance, areas of social impact, micro credit experience and management. “Our emphasis is on governance; whether it’s a one-man show or has good board/trustees,” says Varadan. MicroGraam visits the field two-three times a month to understand the impact NGOs and bonding borrowers have with field staff. “We rank lending opportunities on a scale that is published on our site. We have a 100 percent repayment rate,” explains Sarukkai.

T MICRO NGO Junglescapes, working on implementing ecology-based alternate livelihood options for forest dwelling communities, partnered with them in October 2010 for its eco-chulha project in Bandipur, Karnataka. The NGO trained two local village youth to fabricate and install the chulhas, so it becomes an alternate livelihood option for the community, generating a monthly income of about Rs.2,500 for fabricators. In November 2010, MicroGraam disbursed a working capital social loan of Rs.10,000 to both fabricators, repayable in 18 months. “The loan was disbursed in two weeks and the entrepreneurs have installed 40 chulhas since,” says Ramesh Venkataraman, Founder, Junglescapes. For buyers, the NGO is encouraging women SHGs to secure loans and buy chulhas, each costing Rs.1,200 (Rs.600 of which is given as a subsidy by Junglescapes). Venkataraman says the main reason for choosing them over an MFI was low interest rates, 7 percent in this case. MicroGraam’s work also extends to creating new market linkages for rural enterprises, the biggest challenge for them till date. It has tied up with some craft companies to find markets, including an online portal. It also liaisons with design students from premier institutes looking to work with rural micro-enterprises by adding contemporary designs to local crafts to better sale prospects. “We want to bring microventures, market linkages, and micro-credit together,” states Varadan. On the side of micro-venture, MicroGraam has two pilots, one being a dairy. An SHG in Kolar has bought 10 cows on a loan of Rs.3 lakh given by a social investor. The milk will be sold to cooperatives. NGO plays an important role here in terms of monitoring the enterprise, looking at accounts and overall management. The dairy business, Varadan feels, is capable of giving even 20 percent returns, if done right. MicroGraam’s idea is to encourage a venture and bring in a micro VC who will share in the P&L. “We don’t want to restrict ourselves to borrowing, but want to bring in equity at a micro level,” mentions Varadan. The challenges here lie in identifying social investors since the concept is still nascent in India and the perceived risk is high as it comes Photo© Dipti Desai

sans guarantees. “Initially, Infosys was my captive audience and then we found more social investors through road shows,” says Varadan. The bigger hurdle was local politics, especially during election time, where rural folk get swayed by politicians and stop paying back loans. The social entrepreneurs had the tough task of educating investors on the segment’s pitfalls. “Investors have to look at this as a separate asset class where there is an absolute return and then a social return,” points Varadan. A good three to five percent can be discounted as risk premium here, the duo says. “The regulatory climate for foreign peer to peer investments is also a challenge,” adds Sarukkai. Nevertheless, the entrepreneurs see the new generation of employees as future social investors. So far, 50 percent of investors have been known contacts. “We want unknown people to believe in us and invest,” he emphasizes. It is also tapping the student community at IIM, Bengaluru, for potential investors. MicroGraam’s latest products are on the education side and it has partnered with EduBridge in Mumbai and Vidya Poshak in Dharwad. The latter, a graduate finishing school, trains students from disadvantaged backgrounds in presentation, English and other soft skills required to secure a job. MicroGraam gives out loans to students taking up the three month program (course fee costs Rs.15,000) to be repaid once a student secures a job. So far, Vidya Poshak has received a loan of Rs.4.65 lakh for 30 students and is expecting next loan of Rs.3.75 lakh for 25 students of the March 2011 batch. “MicroGraam provides loans at 8.5 percent interest, which is low when compared to other institutions,” says Venkatesh N, VP (Education and Training), Vidya Poshak. “In case of government banks, Vidya Poshak keeps 50 percent of loan as a security deposit and the interest rate is 10 percent, while with MFIs, it’s over 18 percent. Students have to give 10 percent as group deposit with original marksheets,” Venkatesh explains. From a long term perspective, the social enterprise is strengthening its board. It is also launching chapters of MicroGraam in different organizations as part of their CSR arms as well as a marketing initiative for itself.

COST-WISE REVENUES: Rs.90,000 (April to Dec 2010) EXPECTED TO BREAK EVEN BY: March 2012 AMOUNT OF MICRO-CREDIT DISBURSED TILL DATE: Rs.45 lakh NO. OF MICRO ENTREPRENEURS IMPACTED ACROSS SHGS: 228 across 40-45 SHGs

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 39 To Subscribe, visit www.entrepreneurindia.in

green signals THE SUCCESS PILL CALLED

‘SUSTAINABILITY’

Sustainability, corporate responsibility, responsible business: These are terms which caught our attention towards the end of the last decade and which will continue to gather even more momentum in this decade. By Sejal Sheth

uzz words, jargon and strategic definitions aside, what is this whole concept of ‘sustainability’? In simple terms, it’s nothing but doing what’s right for the business in the long term. It may mean sacrificing some shortcuts to realize immediate business outcomes but there is no arguing that in the long term this approach always wins. It’s almost akin to doing your karma as per dharma in a way that does not hamper the interest of any stakeholder group.

WHO ARE STAKEHOLDERS? Stakeholders are those groups of interests who can get affected or can themselves impact the enterprise in a significant way. Similarity between the ring and sound of the terms shareholder and stakeholder leads many to believe that they are interchangeable. However, it’s important to note that shareholders are only one amongst the many significant stakeholder groups for any enterprise. The usual combination involves customers, employees, vendors, community and investors. Many entrepreneurs fear stakeholder interaction and engagement as they believe the results will be similar to the trade union lockouts of the 80s. But it’s actually trying to have a dialogue with stakeholders to understand their expectations, delivery potential and thereby be able to take some pragmatic steps leading to a stable and sustainable enterprise. For example, if some of the bottled water companies decided to have a stakeholder dialogue with their consumers to try to map the concerns and if environment turned to be high on their list, then they could re-look at their packaging or perhaps their delivery 40 Entrepreneur + February 2011

model altogether. This could lead to some exceptional marketing innovations. It could lead them to think of distribution through mobile water fountains at public places, saving on lots of bottles, giving tremendous opportunity for branding and being able to provide a relevant consumer solution.

PROCESS-DRIVEN OR MATRIX-BASED APPROACH One of the important concepts of sustainability is defining materiality basis of the stakeholder engagement. So, the onus of deciding which issues/concerns are reasonable and need to be addressed lies with the company itself. A matrixbased approach is often followed for tracking sustainability as then the benchmarking on regular intervals becomes process-driven and starts seeping into the company culture. If one were to really look at a micro rendition of the word ‘sustainable’ in the context of enterprise, it would mean ‘optimization and efficiency’. And that is essentially what every enterprise looks for as that results in long term profits and also in a sustainable enterprise. Just like every critical factor for scale-up involves the cost factor in the short term but operating profits in the long term, likewise with sustainability too. But the entrepreneur now really needs to fast forward. Needs to identify future areas of competencies which can be clubbed as ‘sustainable/green’ initiatives today, but will lead to a key differentiation and core competitive advantage in the near future.

GETTING THERE Trend analysis: You can start by doing an

green signals

SOCIALENVIRONMENTAL Environmental justice Natural resources stewardship Locally and globally

Natural resource use Environmental management Pollution prevention (Air, water, land, waste)

ENVIRONMENTALECONOMIC Energy efficiency Subsidies/ incentives for use of natural resources

SUS STAINABILITY

Standard of living Education Community Equal opportunity

Proﬁt Cost savings Economic growth R&D

Stakeholder engagement driven innovations: Empower stakeholder groups—customers, vendors and employees—specifically to think ‘sustainable’ and facilitate the process which will lead to ongoing innovation which will advance the sustainability journey. Interestingly, companies stumble upon sustainability as a roadblock imposed by legislative compliance. However, if the company takes upon itself to be geared up for the most stringent compliance of global standards, it automatically also enhances its pref preference as a leading supplier in the industry. Pharmaceutical generic production companies will vouch for this. Many big companies are progressing rapidly in their journey of sustainability. As they do so, greening of the supply chain becomes crucial. When that happens, the entrepreneurs who are servicing these companies come under the scanner and are asked to start becoming ‘green.’ In case the business has already opted to become more sustainable in small bits and pieces, it is much easier and far more cost effective than to implement changes at one go. An example of this is evident in the garments, apparels and accessories vertical. Industry pressure from international NGOs is increasing on cleaning of the supply chains in this space. This entails eliminating child labor, introducing fair wages and cleaner and greener methods of production. Needless to say, the ‘exporters’ who had adopted ‘sustainable’ practices are seeing their order books swell season to season. Packaging costs are an emerging worry area for several global companies especially in the retail segment. If an entrepreneur supplying to these companies starts focusing on ‘packaging sustainability solutions,’ it will lead the competitive space with cost effective and

THE THREE SPHERES OF SUSTAINABILITY

environmental scan of the industry and its settings. This will give you clues to what kind of sustainability initiatives are being practiced in the sector globally. Whilst a mere replication will not yield results, a considered approach will lead to strategic direction. Local impact: Follow that up with identifying the local context and specifically the constraints under which a company operates. These constraints will themselves lead to innovative solutions.

ECONOMIC-SOCIAL Business ethics, Fair trade, Workers’ rights SOURCE: UNIVERSITY OF MICHIGAN SUSTAINABILITY ASSESSMENT 2002

innovative solutions resulting in significant lowering of costs. In many instances, the retail giants expect their global vendors to try and re-use their bulk packaging. There are many entrepreneurs today, who are making a fortune out of recycling waste itself.

CONCLUSION Sustainability has come with a bang and is here to stay till it becomes an intrinsic part of every company’s DNA. It is akin to the quality revolution of the 80s which was debated, discussed and finally integrated into the company culture in such a way that now it’s impossible to imagine a world without quality. Sustainability will also improve company dynamics so that it can progress to the next level with minimum impediments. The earlier the entrepreneurs adopt and practice it, the more the advantages—as it will lead to the next round of innovations which is most ‘relevant and crucial’. So entrepreneurs—don’t stress over this concept. Just go ahead and embrace it. It is as simple as doing good karma, which will always result in long-term profits. SEJAL SHETH is CEO, Green Evangelist, a sustainability consulting company.

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 41 To Subscribe, visit www.entrepreneurindia.in

cover story

42 Entrepreneur + February 2011

WHO WILL FUND YOU IN 2011? FUNDS ARE BACK AND ARE BULLISH ABOUT THE INDIAN MARKET. HOWEVER, CERTAIN SECTORS ARE PREFERRED AND SOME ARE AN ABSOLUTE NO-NO. HEAR FROM INDIA'S TOP VENTURE CAPITAL FUNDS WHERE THEY ARE GOING TO PUT THEIR MONEY. By Team Entrepreneur

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 43 To Subscribe, visit www.entrepreneurindia.in

cover story

Abhijit Ray Director  UNITUS CAPITAL

1. WHICH SECTORS PROMISE TO BE HOT IN 2011? Financial services delivery, education, rural distribution, micro insurance and renewable energy. 2. WHICH SECTORS ARE NOT HOT FOR 2011? Rural BPOs. 3. WHAT AREAS WILL INVESTORS FOCUS ON THIS YEAR? Companies with innovative entrepreneurs having a professional management team and a strong business model with proofof-concept. This should be coupled with potential to massive outreach and scalability, probably with disruptive technology. 4. WHAT FUNDING TREND DO YOU FORESEE? Investors would look at ‘tranching’ of investment, based on fund requirement and milestones. 5. WHAT KIND OF VALUATIONS WILL TAKE PLACE? Valuations would be reasonably good and much more stable. 44 Entrepreneur + February 2011

6. WHAT KIND OF COMPANY IS THE BEST BET FOR YOU? We would like to work with companies which can increase reach with scalability and create a strong distribution network, probably using disruptive technologies. 7. WHAT IS THE BEST FUNDING OPTION THIS YEAR? Many investors would prefer to put in money as equity with convertible options based on a performance matrix on a 12-24 month time horizon. Also, mezzanine finance would be on the plate with convertibility options for the future. 8. WHAT WILL IT TAKE TO WIN INVESTOR MONEY IN 2011? Disruptive technology with a good business model; an innovative entrepreneur with a business background. 9. WHAT IS THE CURRENT POLICY ENVIRONMENT? It is reasonably conducive. With implementation and stabilization of GST and DTC, the environment will be better. The government is taking welcome steps like amendment of the Companies Act to make the investment environment better. 10. WILL 2011 BE A GOOD YEAR FOR EXITS? Some exits will happen; probably trade sale to more mature private equity players. Photo© Dipti Desai

Alok Mittal

it will depend on which companies are more compelling, not only in terms of the space it operates in but also in terms of the idea, team and strategy.

MD  CANAAN INDIA

1. WHICH SECTORS PROMISE TO BE HOT IN 2011? The tech-enabled space. Within that, we are seeing two specific areas which are interesting. One is e-commerce, which saw a fair bit of investment in 2010; the trend will continue. The second sector is 3G and BWA. Companies which are leveraging these infrastructures in 2011 will become more interesting. Technology, education and healthcare are the other sectors which promise to be hot this year. 2. WHICH SECTORS ARE NOT HOT FOR 2011? Within the scope of what we do, nothing much has died. Internet, mobile, offshore services, software products and payment technologies will continue to be viable areas. In the tech space, MFI looked good these past few years but is looking increasingly cloudy now. It will depend on how regulations shape up in that sector. 3. WHAT AREAS WILL INVESTORS FOCUS ON THIS YEAR? There are three sides to our business. On the portfolio side, we have made 10 investments and are getting into the cycle when exits are viable. In 2011, we may get an exit but expect our portfolio companies to progress towards exits. We have been fairly steady with 2-3 investment every year and that is by and large what we will continue to do. Thirdly, the interest we get in India from our investors has improved a lot over the last threefour years. Depending on what kind of exits we have, we expect 2011-2012 to be the tipping point for VCs in India.

7. WHAT IS THE BEST FUNDING OPTION THIS YEAR? The answer is the same as above. For non-asset based startups, bank financing is hard to come by, so they would need to go to equity financiers and risk financiers. It can be from angel investors to VCs, but that is the food chain for them. 8. WHAT WILL IT TAKE TO WIN INVESTOR MONEY IN 2011? The noise level will be high and in the early stage, I don't see the supply of capital increasing dramatically. So, the competition for capital may go up, in which case, entrepreneurs need to come up with plans that are differentiated. 9. WHAT IS THE CURRENT POLICY ENVIRONMENT? The current policy environment has not changed a lot. 10. WILL 2011 BE A GOOD YEAR FOR EXITS? The anticipation is it will be a good year. The markets are still doing well and in certain sectors M&A activities are reasonably strong. There is more hope and expectation here than predictability. The good thing is there is a pipeline of good companies.

4. WHAT FUNDING TREND DO YOU FORESEE? To the extent we can forecast, it will be similar to what it was in 2010. 5. WHAT KIND OF VALUATIONS WILL TAKE PLACE? Depends on which end of the market you are talking about. Most of the investments that we do are first-round investments and there are no prior institutional investors before us. Here, the valuations have been fairly stable. Even in 2010, which was an appositive year from the investment standpoint, these valuations did not jump up significantly. Largely driven by the fact that the number of VC firms at that end of the market are not going up, valuation should be stable. Growth stage investing is getting richer and that may continue this year. 6. WHAT KIND OF COMPANY IS THE BEST BET FOR YOU? At the sector basis I have already mentioned, those which are exciting appeal to us; after that, it is a bottom’s up approach. So, Photo© Arko Mukherjee

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 45 To Subscribe, visit www.entrepreneurindia.in

cover story Gaurav Saraf Director  EPIPHANY VENTURES

1. WHICH SECTORS PROMISE TO BE HOT IN 2011? The internet and digital media space. The rollout of 3G and proliferation of smartphones and tablets makes things very interesting. The growth of the Indian consumption appetite is expected to continue. Therefore, sectors with high discretionary spending, such as retail and auto, continue to grow at a fair clip. Businesses which bring efficiencies to corporates and consumers in this space are likely to attract investment. The demand for food, education and healthcare continues to stay strong. Companies which enhance agricultural productivity, provide quality affordable education and set high standards in health monitoring are high on investors’ radars. 2. WHICH SECTORS ARE NOT HOT FOR 2011? Given some uncertainties in the regulations for the microfinance sector, funds would be wary of investing in new MFIs.

The CRO space also seems to have cooled a bit due to the high fragmentation. 3. WHAT AREAS WILL INVESTORS FOCUS ON THIS YEAR? Defensibility is an attribute that has become more critical. There have been several investments made in the past looking at large, addressable markets with low barriers to entry. This led to fragmentation, which in turn lowered potential returns. To avoid such situations, investors would look for higher differentiation and barriers to entry. Besides this, VCs are looking at similar attributes of businesses as they always have—strong management, value proposition and large, addressable markets. 4. WHAT FUNDING TREND DO YOU FORESEE? We expect greater number of investments in the angel and early stages. This is because there are many such organizations which have been recently launched and so there is more capital devoted to this asset class. 5. WHAT KIND OF VALUATIONS WILL TAKE PLACE? Valuations in angel and early stage deals tend to be range bound because of the vast number of assumptions involved in making the projections. We don’t expect any major changes. 6. WHAT KIND OF COMPANY IS THE BEST BET FOR YOU? Difficult to point out any one attribute but, in general, any business that can demonstrate a clear value proposition in the sectors [mentioned in my first answer], backed by highly motivated individuals, and sharing the attributes mentioned in the third answer, would make for a great investment opportunity. 7. WHAT IS THE BEST FUNDING OPTION THIS YEAR? Self or friends and family finance is always the best option! However, VC has several benefits which can’t be disregarded. 8. WHAT WILL IT TAKE TO WIN INVESTOR MONEY IN 2011? The business must have a capable management, quantifiable value proposition, proven revenue model and sustainable differentiation. 9. WHAT IS THE CURRENT POLICY ENVIRONMENT? Among sectors where VC funds tend to flow, save for education, policy is not a hurdle. 10. WILL 2011 BE A GOOD YEAR FOR EXITS? It appears that equity markets will be stable in 2011 as the U.S. and European economies show more signs of life. We do expect that several funds waiting to exit will finally be able to take their companies public this year. Increased liquidity on the stock exchanges should also bode well for M&A activity.

50 Entrepreneur + February 2011

Photo© Md Nasir

Hemir Doshi

Co-founder & VP  IDG VENTURES INDIA

1. WHICH SECTORS PROMISE TO BE HOT IN 2011? Scalable technology companies that cater to Indian and emerging market need gaps, like healthcare and education. Software products for emerging markets, SaaS and cloud-based models, IT security, mobility and 3G-based ventures and online-offline (hybrid business models). 2. WHICH SECTORS ARE NOT HOT FOR 2011? Pure cost arbitrage-based commoditized IT services, clones of e-commerce successes. 3. WHAT AREAS WILL INVESTORS FOCUS ON THIS YEAR? Market opportunity is immense. Success will be driven by a team that can execute and realize that opportunity. Look for a solid team that can deliver here. Offerings that demonstrate on-the-ground knowledge, capital-efficient models, exit-ability in 5-7 years. 4. WHAT FUNDING TREND DO YOU FORESEE? Private equity industry will grow rapidly. In the 2007 peak, private equity industry contributed 3.5 percent of U.S.A. GDP; whereas in a developing country like India, it was 1.2 percent then and only 0.3 percent in 2009. So, there is ample room for growth. Confidence of long-term investors in India is high. Consequently, first rounds, next rounds, exits will be active. Investors are appreciating the ‘India’ model and not doing a copy-paste of developed market strategies. Funds raised in 2005-’07 period will start looking at exits in line with typical holding period. 5. WHAT KIND OF VALUATIONS WILL TAKE PLACE? There is a bubbling up of valuations in some segments. Deal do-ability will get impacted. 6. WHAT KIND OF COMPANY IS THE BEST BET FOR YOU? As always, sectors and companies that we understand well. Long-term investors who stray away from their knitting are more likely to ‘overpay’ and also be unable to ‘value-add’ on the board. Five of our 11 companies have already been successful with next rounds. So, the strategy and criteria for 2011 remains largely unchanged. 7. WHAT IS THE BEST FUNDING OPTION THIS YEAR? For early-stage entrepreneurs, the good news is that angel networks are panning out very well. So, look for good quality seed money. The VC component of the private equity industry will Photo© Neha Mithbawkar

increase substantially as the country progresses and funding environment matures. 8. WHAT WILL IT TAKE TO WIN INVESTOR MONEY IN 2011? Depends on who you choose to raise from. If you offer a compelling value proposition, then the VC is trying to ‘win’ you. Strike a balance between valuation and value-add. In this environment, many funds are willing to give unrealistic valuations based on unrealistic scale projections. It will come back to haunt both the fund and the entrepreneur. 9. WHAT IS THE CURRENT POLICY ENVIRONMENT? Improving in some regulated sectors and resulting in an increase in private equity participation. 10. WILL 2011 BE A GOOD YEAR FOR EXITS? Going by history, yes. Exit activity had peaked in 2007 with strong public market environment. In the 2004-’09 period, exits gave 4-5x average returns. This is expected to increase in the next five year period. Large domestic and international companies have equally contributed to M&A activity in India. They will acquire sun rise/disruptive businesses with high growth revenues and footprint. This will create a culture of serial entrepreneurs. Scaled businesses will go for IPO in such markets and not be keen to sell out. PE funds will also provide exits to VCs.

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 51 To Subscribe, visit www.entrepreneurindia.in

money department [Less Is More]

10 tips for creating a comfortable and professional work space. By Alyson Krueger

BE CREATIVE WITH YOUR SPACE. Renovating an entire room can be costly. Instead of completely converting the space, consider using a screen to set off one corner for work. Otherwise, set up shop in an isolated, sparsely used spot, such as an attic or basement.

GO GREEN.

Look into smaller computers, electrical outlets, and phone chargers that save energy. Don’t forget to turn off lights and unplug chargers when you are not using them, and recycle paper. You will help the environment while cutting costs.

100 Entrepreneur + February 2011

DON’T RUN TO BIG, CHAIN OFFICE STORES FOR SUPPLIES.

Consider cheaper options like Walmart and The Dollar Store for basic items such as papers, pens, filing cabinets, and bulletin boards.

USE WHAT YOU ALREADY HAVE.

Look around your house for much-needed office items. Desks and lamps can often be found in attics or spare rooms while smaller items, such as staplers and notebooks, may be buried in closets from school days past.

DECORATE THE OFFICE YOURSELF.

The advantage of working at home is having the freedom to make your space your own. Be creative; hang pictures of family and friends, frame inspiring quotes, or hang your kids’ artwork.

Imaging© Arko Mukherjee

or many companies, offices are a thing of the past. Colleagues communicate via instant messages and bosses use tools like Skype and Base Camp to delegate tasks. Physical work spaces have become less important and, as a result, more people are now working from home. Working from home, in fact, can be wonderful; you have the option to wake up later, avoid morning commutes, stay in pajamas, and get tax write-offs on rent. It can also be challenging. There are more distractions, such as television, family members, and household chores. Supervisors aren’t around to keep an eye on you, and you may feel less inclined to work to at maximum capacity. A home office is the best of both worlds. It is the room in your house reserved for all things business. Shut the door to buckle down, but wander freely into the kitchen for snacks at will. Here are 10 tips for creating an efficient home office on a budget.

HIT THE THRIFT STORES AND FLEA MARKETS.

BARTER OR TRADE WITH NEIGHBORS.

A AVOID LANDLINES.

Having a landline in addition to your cell phone can be costly and unnecessary. Use a cell phone for all correspondence. Instead of having a fax machine, buy a printer that has scanning capabilities.

If you don’t already have furniture, visit flea markets and thrift shops to purchase items. Many antique pieces are affordable and can add a sophisticated feel to your home office.

SHOP THE SALES.

Take your time setting up your office; you don’t need every item at once. Make a wish list of everything you need, prioritize the items, and only buy them when they are on sale. ©Entrepreneur Entrepreneur Media, Inc. All rights reserved.

Find items you need by posting ads on Craigslist or putting up bulletins in community organizations. If you don’t have extra items to trade, consider offering your professional services.

MAKE YOURSELF A D.I.Y .Y .Y Y.. EXPERT.

Instead of hiring painters, electricians, and furniture assemblers, do everything yourself. It will be a fun way to learn new skills, and you will save a lot on these otherwise costly services.

To read more, grab theFebruary issue of Entrepreneur Entrepreneur++ February 2011 101 To Subscribe, visit www.entrepreneurindia.in

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Founder of Dell Inc, is betting big on small businesses to drive his company to higher growth zones

HOW TO: 1. Get Environmental Clearance 2. Tread the Leveraged Growth Path 3. Secure a Mining License 4. Start Up in Stealth Mode

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class rooms [Investment Issues]

PRE-INVESTMENT DUE DILIGENCE This is essential to ensure money is parked in the right ventures. By Ved Prakash Arya

ue diligence refers to the caution and prudence that one would show in managing one’s own money or the money of someone else. In order to make an informed judgment about a potential investment, the investor would need to carry out extensive research and analysis to identify the potential risks and plan for means to mitigate them. This entails comprehensive investigation and analysis of the qualitative and quantitative aspects of the business proposal, i.e. the funding requirements and the future performance, profit projections etc. Before initiating the due diligence process, the investor quickly scans through the opportunities to ensure they meet the investment criteria. This is done by asking the venture’s entrepreneurs to submit an executive summary based on a prespecified format the investor provides. The information provided in the summary is a prerequisite for any due diligence and hence should be well organized, concise and clear. The summary should include the following elements: Description of the business, stage of development, key goals of management, details of product/service, whether proprietary, patented, etc, details of company’s founder/CEO, target market size, growth rate, competition, financial results, current financing status, level of active/passive investment sought, investor appeal and exit exit strategy for returning investors’ capital. The summary allows for a preliminary evaluation of the venture. Once the investor is satisfied with this evaluation, a business plan and documentation package is proposed. But before reviewing the business plan, the investor investigates the entrepreneur and the management team. This is done through a soft evaluation through face-to-face meetings as well as a formal background check by engaging a professional corporate investigation firm to check on court proceedings, litigations and criminal records, if any. Credit and debt checks, education and credential checks are also carried out by these firms.

LEGAL DUE DILIGENCE This is performed to ensure legal matters have been correctly and completely addressed. The investors request a comprehensive list of documents to understand the legal standing of the venture. The checklist of legal documents includes the following: Key contracts, employment agreements, minutes and consents of the board of directors and shareholders, confidentiality and invention assignment agreements with employees, corporate charter and bylaws and intellectual property-related documents.

PAST FINANCING AGREEMENTS AND SHAREHOLDER AGREEMENTS Due diligence typically take 4-6 weeks to be completed. But it is essential because once disbursement is made, the capital is tied up for a long time and there is a possibility that the projections are not met and that more capital would need to be invested at a later stage to keep the operation running. Moreover, due diligence provides a complete insight into risk assessment, risk mitigation and residual risk when evaluated against the kind of assets that justify the venture. VED PRAKASH ARYA is MD and CEO, Milestone Capital

FINANCIAL DUE DILIGENCE Business plan diligence is followed by analysis of historical financial statements and review of past operating data. This helps gain confidence on existing and projected financials. Review of cash budgets helps the investor assess the company’s credit and debt collection policies, other financing activities, including identifying when cash would be required to avert a potential liquidity crisis. Tax-related matters are also highlighted in the financial due diligence. For a company in business, investors are guided by past financial data; for a startup, they go by industry standards.

To read more, grab the February issue of Entrepreneur Entrepreneur + February 2011 109 To Subscribe, visit www.entrepreneurindia.in

back+stage

people you should ask

for money

before you go to a VC Because VCs are… let’s face it… too busy for you. And these guys are easier. By Ankush Chibber

1. Your government service-retired father, because his provident fund is a mini treasure. And he still falls for your puppy face. 2. Your investment banker brother, because he knows a good bet when he sees one. And you can get him drunk to see yours. 3. Your family money-rich uncle, because he is the reason you don’t have money in the ﬁrst place. And your dad’s a government servant. 4. Your successful model sister, because her career is going to be really short. And she needs to make some good investments for her future. 5. Your girlfriend, because what is love if not gifting each other! And if you have played it well, her pop should be loaded. 6. Your wife, because this will happen if you have to successfully implement #5.

130 Entrepreneur + February 2011