Need to advice friend about Venture Capitalist

[X-Machine]

T-Bhpians, i need your help. One of my very close friend has a big project on hand, and he needs decent amount of 'funding' for it.
Now the problem is that his proposal has been rejected by 3 Banks due to unsupportive finance. This is because, his company is just about a year old and he has'nt had any major income/turnover as such.
So i and a couple of friends advised him to lookout for Venture Capitalists. Now,we guys dont know of any such firms, except Indiabulls or ILFS. These are big companies, and would certainly demand a higher share of his company, with all the management decision rights etc.

He himself has invested a lot of money into setting up this entire project, and initiate it. He has already got clients and is quite confident of doing well. There are other BIG players jumping into this business with an investment of over 2000 crores from private financial institutions.

Now, a couple of questions:
1) Are there any viable VCs?
2) What are the advantages/ dis-advantages of a VC?
3) Since Banks are out, VC or Private Finance is his only option. Which one should he go for?


Please co-operate guys. We are trying to get as much info as possible to help him out. Any leads would be appreciated.
Thanks much in advance.

X

[khaadu75]

Its very tuff to suggest anything till one doesn't know more details about the biz . There are a lot of VC's in this country willing to put money in a project that does make even a lil sense to them .

Wish you guys all the best ....

[hellspawn]

well,the data you have provided is insufficient to provide any leads.data like company's name,the business that it is into,returns expected,market share etc have to be provided to tell yu whether vc's will invest in it.
though like khaadu said,vc's will buy into anything these days.

[eclectix 1st]

Give basic data like:

Nature of proposed business
Background / Experience of your friend
Proposed Size of Funding required
Geographical location of the proposed business setup

[ankur]

Hi,
I have had a fair amount of experience dealing with VCs both in the country and outside having gone through the whole dotcom boom+bust .

VCs are only going to be interested in your business if it qualifies on 2 grounds, first it needs to be operational and making money (VCs will normally not put in seed capital) if not atleast the promoter needs to have invested something already. Secondly they need to see a clear way to be able to sell it to someone else or take it public so they can get out of the business. You need to make these 2 things perfectly clear to them at the start or they wont even talk to you.
You cant take money from a VC to start a business. If they do invest you can bet they will take most of the company and management if they choose and why shouldnt they. If you want to avoid that, get the business rolling by getting loans or an angel investor and ONLY when the business is running you should approach a VC.

The days of investing in a business plan are long gone my friend.

cheers.

[eclectix 1st]

Hi Ankur
I beg to differ (slightly) from your view point.

There are quite a few VCs who will invest on an idea, as long as its a saleable commodity.
At the same time, it all depends on the person's ability to sell the idea to the VC

[BaCkSeAtDrIVeR]

ICICI bank has a venture capital arm. Google for details

[rangaraj]

Couple of options:

1. Depending on the stage of the company and the amount of money required, you could approach angel investors. There are quite a few in mumbai (if that's where you pal is based)
2. Approach TiE - they have an entrepreneurship accelerated program (EAP), where the charter members can mentor your pal..
3. The challenge is to get to prove your friends company and the business potential is worth investing in..

PM me if you need help in bangalore, or may be able to give you pointers if you can give more info..

[ankur]

Originally Posted by eclectix 1st

Hi Ankur
I beg to differ (slightly) from your view point.

There are quite a few VCs who will invest on an idea, as long as its a saleable commodity.
At the same time, it all depends on the person's ability to sell the idea to the VC

If your experience is different i cant argue but i havent heard of a single instance of an idea getting seed funding from a VC. And i mean a professional VC company not just an investor.

cheers.

[X-Machine]

Thanks for the prompt reply guys. Well here is a brief of his business.

He has recently forayed into Digital Media i.e Mobile & Internet Advertising, Outdoor LCD Advertising etc. His investment is already in the range of 20-25 lacks. Now that he has really stagnated his finance, he needs help to further diversify and extend his reach to the Out of Home(OOH) Market by aquiring more locations.
He's already operating at 6 prominent locations in Mumbai, and has a contract for 40 more locations all over India. Money is the only hitch for expansion.
His clients are Hindustan Unilever, Cadbury's, Microsoft, Sony Pictures, White Feather Films, T-series, Yashraj Films, Honda, Chevrolet & Kingfisher etc.
His competitors in this field are Times Group, Future Group & about 3-4 more companies who are already in this business and cracking good deals with investments in the range of 25crore each.
He requires a funding of only around 2-3 crores to place his company in a different league, and the expected returns are quite high as well.

So the plan is just not on paper. Its executed. He has invested, and needs further finance. It is certainly a saleable product, otherwise other big companies would not be investing such high amounts in this business. I personally do feel this business is BIG.

Example: An Ad Spot (30 sec) on TV costs about Rs. 60,000-Rs. 2,00,00. Compared to this, he is selling spots for a very low price.

X

[ankur]

Originally Posted by X-Machine

Thanks for the prompt reply guys. Well here is a brief of his business.

He has recently forayed into Digital Media i.e Mobile & Internet Advertising, Outdoor LCD Advertising etc. His investment is already in the range of 20-25 lacks. Now that he has really stagnated his finance, he needs help to further diversify and extend his reach to the Out of Home(OOH) Market by aquiring more locations.
He's already operating at 6 prominent locations in Mumbai, and has a contract for 40 more locations all over India. Money is the only hitch for expansion.
His clients are Hindustan Unilever, Cadbury's, Microsoft, Sony Pictures, White Feather Films, T-series, Yashraj Films, Honda, Chevrolet & Kingfisher etc.
His competitors in this field are Times Group, Future Group & about 3-4 more companies who are already in this business and cracking good deals with investments in the range of 25crore each.
He requires a funding of only around 2-3 crores to place his company in a different league, and the expected returns are quite high as well.

So the plan is just not on paper. Its executed. He has invested, and needs further finance. It is certainly a saleable product, otherwise other big companies would not be investing such high amounts in this business. I personally do feel this business is BIG.

Example: An Ad Spot (30 sec) on TV costs about Rs. 60,000-Rs. 2,00,00. Compared to this, he is selling spots for a very low price.

X

The business being operational is a good sign and the fact that he has business in the pipeline is a big plus. What is his competitive advantage ? What is he doing that someone else cannot ? Playing devils advocate here, how does he plan to compete with the big boys ? The companies are not investing in him, they are paying for a service. They will just as likely pay someone else for the same service, why would they continue to use his services ? Just a lower price is not a long term strategy.

You dont need to write the answers here but he needs to have answers to these clear. And like i said in an earlier post, what is the exit plan for the VC ?

And just a small addition here, VCs will normally not invest a small amount like 2-3 crores. You need to look for small investment companies/banks like SIDBI (lookup on google).

cheers.

[eclectix 1st]

Thats true, what you need is a angel Investor.

[X-Machine]

Hi Ankur,

The business being operational is a good sign and the fact that he has business in the pipeline is a big plus. What is his competitive advantage ? What is he doing that someone else cannot ? Playing devils advocate here, how does he plan to compete with the big boys ? The companies are not investing in him, they are paying for a service. They will just as likely pay someone else for the same service, why would they continue to use his services ? Just a lower price is not a long term strategy.

Well, he seems to be prepared with the answers. Ive checked with him on that.

You dont need to write the answers here but he needs to have answers to these clear. And like i said in an earlier post, what is the exit plan for the VC ?

Im completely ignorant when it comes to VCs/Loans etc. Inshallah, never needed a loan, nor do i intent to apply for one. So please, what should the exit plan be?

And just a small addition here, VCs will normally not invest a small amount like 2-3 crores. You need to look for small investment companies/banks like SIDBI (lookup on google).

He is fine with more investment. But a minimum of 1 crore is his requirement.

Originally Posted by eclectix 1st

Thats true, what you need is a angel Investor.

Sorry eclectix, but what is an angel investor?

X

[eclectix 1st]

X-Machine

An angel investor, is an affluent individual who provides capital for a business start up, usually in exchange for convertible debt or equity.

[ankur]

Originally Posted by X-Machine

Im completely ignorant when it comes to VCs/Loans etc. Inshallah, never needed a loan, nor do i intent to apply for one. So please, what should the exit plan be?

An exit plan is the way a VC will make money. Ideally by selling their stake at a premium to another investor or by a public issue where the VC can sell their stake in the stock market. You need to show a clear plan to the VC on how they can exit the company.

Originally Posted by X-Machine

He is fine with more investment. But a minimum of 1 crore is his requirement.

This will not impress a VC, you need to know EXACTLY how much money you need and what you will do with it. Saying we will take whatever we get is not a sound business plan.

Originally Posted by X-Machine

Sorry eclectix, but what is an angel investor?

An angel investor is someone who will put in smaller amounts (like the amounts you need) in a company at an early stage or even at the business plan level. This is usually a friend/relative with deep pockets or a professional. The main diff between angel investor and VC is the angel investors will not normally interfere with your business and let you do what you want. VCs will pretty much manage your business and if they think you are not worthy, they will replace you with a professional manager.

cheers.