|
|
| Home > Past Events |
| What Investors look for in a Business Idea |
|
“What Investors look for in a Business Idea”
The objective of this panel discussion was to give students a flavour of what venture capitalists and bankers look for in investment proposals that come their way. The members on the panel were:
Mr. Vijay Angadi, Director, ICF Ventures Pvt. Ltd.
Mr. A.R. Gokulakrishnan ,VP, UTI Bank Ltd.
Mr. K. Vijayaraghavan, MD, Sathguru Management Consultants Pvt. Ltd.
Prof. Ramachandran, WCED moderated the discussion.
The discussion focused on what the Venture Capitalist (VC) and the Banker look for in a new venture and in an entrepreneur, the aspects considered when appraising the project, and the support a new venture can expect from a VC and a Banker. A summary of the discussion on each of these aspects is presented below.
The Venture
VCs do very few deals annually. They average about four deals an annum despite evaluating over 2,000 business plans that are brought to their attention. VCs prefers investing in equity of ventures addressing a large potential market with excellent growth prospects. Investee companies are usually early movers to ensure that investments are not unduly affected by mistakes made. VCs also prefer investments with a low cash burn rate so that dilution in equity is minimised.
The banker usually provides debt to ventures and is very careful in making investment decisions as he bears the brunt of the downside but has no share in the venture’s upside potential. While the growth prospects, profitability, intensity of competition and the robustness of the business model are important, the banker is most comfortable in making investment decisions if past experiences in dealing with the company or person are favourable.
While the VC predominantly looks for market defining and disruptive business ideas, the banker is quite happy to support well-managed and sustainable businesses that are not necessarily founded on breakthrough ideas. However, the aspects looked into in assessing the prospects of the business are similar.
The Entrepreneur(s)
While the banker examines the experience and the integrity of the entrepreneur(s), the VC looks beyond the entrepreneur and evaluates the capabilities of the core management team, preferring to invest in younger teams. Apart from analytical ability, endurance, commitment and honesty, the VC would be happy to see at least some prior start-up experience in the top management team. As building a sustainable enterprise can be a very frustrating experience the VC assesses passion for the idea in the team.
The Appraisal Process
While a banker assigns considerable importance to the financial numbers and assesses the potential profitability of the venture and its ability to repay debt, the VC assesses the potential valuation of an enterprise and takes into account the impact of aspects such as the burn rate and the need for additional rounds of funding in making this assessment.
The Support Provided
The VC can be a very good sounding board, provide access to resources and markets, and help bring in operational discipline. The banker, on the other hand, is usually a friendly bystander, intervening or helping only if inclined to do so. |
| Back |
|
|
