Investor Outlook: Seed Funding Needs to go Beyond the Money
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The venture capital (VC) network in India is on rapid expansion mode, but so is the number of businesses dying every second day in the cluttered startup space. In most cases, entrepreneurs as well as their investors fail to see shortcomings of the business model, which ideally should be sensed during the seed funding stage.
Exits and acquistions from heavily-funded starups is swiftly becoming the trend owing to bleeding losses by these ventures. VCs generally keep a keen eye on how their money is being spent, but with the current crop of overnight fundings, few are able to sense the bottlenecks in these startups that need to be addressed before they turn cancerous.
Be mentors and not lenders
"Funding is just the beginning. Investors need to be mentors at least till a point the venture is able to gain substantial ground," says Amit Somani, Managing Partner, Prime Ventures, who started the fund with two of his partners after successful leadership stints at Makemytrip , Google and IBM. "This is a major reason why we like picking up ideas that can be nurtured and stay with them till the pre-series round of funding," he adds.
Many Indian startups in 2016 that shutdown, specifically in the foodtech and e-commerce sectors, never broke-even after series of fundings. While some investors pulled away at the right time with either a sale or shutdown, Somani feels much of the damage happened at the seed funding stage as problem were not recognised early enough.
Less is more
While many VCs have taken aggressive route to do as many investments they can or splurge big amounts overnight, Somani believes Prime Ventures is not running in the rat race. The fund believes in investing in a maximum of four ventures a year, and give them detailed attention.
“We don’t see ourselves as an incubator, and try to take on only that much on board which we can our time and attention to,” says Somani. Pointing out how some of the startups in their early stages sit right with them in the same office Somani says, “Just pumping in the money is not enough. As investors you need to take keen interest on where the operation and expansion is heading. Sometimes that may mean harsh criticism and giving a reality check, but it needs to be done."
Prime Ventures currently operates a Rs 300 crore fund in India and has invested in 17 startups so far since inception of which 14 are alive and well-running. The firm mostly focuses on tech-driven companies and is backed by a clutch of wealthy individuals and institutional investors from Silicon Valley, New York, Hong Kong, Europe and Singapore.The fund however, says it shies away from regular overcrowded categories in the startup space.
“We don’t look for clones but believe in sponsoring innovation,” says Somani.