Go Public to Raise Capital, Advises Former Infosys CFO
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Former Infosys Chief Financial Officer, investor, advisor, philanthropist and Chairman at Manipal Global Education Services – Mohandas Pai speaks on what should matter to young businesses when it comes to raising capital, cash burn, building network and listing
There are more than 300 small businesses that have raised around $4.5 billion by listing on the Indian stock exchanges. If start-ups want to raise capital, entrepreneurs can dilute 10-15 per cent of their stake and raise capital via going public. There are plenty of companies that have given exit to private equity into the market. Entrepreneurs should be able to hold on the stock and sell it to their private equity and then list. In the US, many companies have grown by getting listed early on and raising capital.
Entrepreneurs should participate at various startup events where the entire ecosystem gets together. They are a great place for young entrepreneurs to display their business, learn and connect with each other. These events are very important in building the ecosystem. The more they are, the better it is because many entrepreneurs who are less than 25-year-old don’t have experience of running a business. They are mostly techies turning entrepreneurs using technology to build a business. What they need is a great network around them to help them raise money, partner and seek mentorship through connections.
DON’T MIX CAPITAL AND INNOVATION
Whether you are a start-up or a physical store, don’t compromise on a great business strategy. Sooner or later, you would have to look at your cash flows. They should not focus on capital-based innovation. Start-ups must understand that India is a high price sensitive market. Since start-ups don’t have money and resources like their counterparts in Silicon Valley, they must learn to become frugal in spending along with having better technology at lower cost.
Unless you have an addressable market outside India you should register, access human capital and list in India itself, instead of any other country. There is no logic in registering outside India, raising tons of foreign capital and then asking the government for a subsidy to stop foreign companies. It is a ridiculous idea. Companies that are listing on foreign exchanges in Singapore and the US are making a strategic error. The biggest benefit of listing in the home market, particularly for small business, is the word of mouth it spreads and the heavy publicity about the company for its performance on the stock exchange through media coverage. Moreover, you continue to be a part of the local ecosystem and get great brand equity without burning any money.
(As told to Sandeep Soni)
(This article was first published in the May issue of Entrepreneur Magazine. To subscribe, click here)