Changing Tech-tonics of VC land
Venture capital funds are shedding their single-minded focus on technology startups and looking at non-tech sectors such as food & retail.
THE dotcom boom had a lasting impact on the fund-raising scene in India. While bank loans were the primary source of capital earlier and venture capital an increasingly attractive option later, it was during the time of the internet bubble that the rules of the game changed forever. It was not uncommon for venture capitalists to decide funding over lunch with an entrepreneur, sometimes before the plates had been cleared. This led to a mushrooming of tech ventures and the eventual failures, but it also nurtured some very innovative businesses. The losers in this race, some say, were the entrepreneurs looking to start businesses in conventional sectors without the allure of the World Wide Web. Only a small proportion of these business aspirants got funding and others had to make to do with money from friends and banks.
Not any more. Funding for technology startups has reached a more mature stage and venture capital houses now take a much more discerning view of business models. A mere website will not get money now. Old world concepts such as cash flow are back in the reckoning. And early stage investors are also beginning to attach more importance to non-tech ventures, especially the evergreen ones such as food and sectors gaining from the country’s economic rise such as retail. Other sectors including alternative energy, whose importance will be understood in the coming years, are also finding favour.
Arun Natarajan of Venture Intelligence, which tracking the funding industry, says that there has been a very clear shift among the investing community in the last three years with 20% of the VC funds going into the non-tech entrepreneurs. “Three years ago if somebody talked about funding an non-tech entrepreneur, one would find it strange,” but now it is increasingly becoming part of the strategy of a fund provider, he says.
Retail chain Subhiksha was an early bird, winning capital support from ICICI Venture seven years ago. It has obviously been a successful bet for the investor. This sort of strategy could help VCs mitigate some of the risks involved in excessive reliance on technology businesses. It also opens up vistas to sectors that will rule the next decade, just as tech businesses did in the current one.
India’s growing cities are bustling with examples of the new investment paradigm. The Shanghai-like skyline of Gurgaon is peppered with the name boards of Yo China, a Chinese fast food chain that claims to offer affordable eating. Its success in raising capital from Matrix will enthuse fast food entrepreneurs (or wannabes?) to try their hand at their own ventures too.
In the southern city of Bangalore, where technology start-ups are not far behind autorickshaws and flower vendors in number, fast food chain KaatiZone is rolling chappatis for the rushhour commuter. It packs the common Indian bread varieties with tasty stuffings and sells them under a stand-eat-and-run model. Erasmic Investment Ventures, which provided early capital for this chain, is helping it scale up the number not just in Bangalore but in other cities as well. KaatiZone’s founder Kiran Nadkarni says he wants to set up a nation-wide network with international standards.He says a pleasant ambience, good quality food and hygiene should be able to attract the increasingly discerning Indian customer. “Food business is a low entry barrier segment but with high mortality,” he says.
Mom and pop stores have been the mainstay for the Indian household for decades, but this is the age of organised retailing. With big names such as Reliance and Bharti becoming shopkeepers, an ecosystem of vendors serving them has also been created. Like retail outfit firm Dovetail which is riding on the burgeoning demand for quality shopping space. Erasmic has backed this venture also.
Things are just beginning to hot up for Dovetails, says managing director S Sundar. The company had a turnover of Rs 15 crore in 2005-06 and Rs 25 crore in 2006-07. The
heady pace of growth currently sustains a staff of 150, but the orders are growing the day, putting pressure on him to expand faster. “Sometimes our customer asks us
to provide the fitouts for 50,000 sq ft in a week’s time.” Further, the company is also looking to diversify into designer furniture.
Erasmic’s Prashant Prakash says venture capital support has been important to Kaati-Zone and Dovetail not only for the money but also the rigour of corporate discipline that the relationship brought to the managements.
So what kind of non-tech companies attract venture capital funding?
Right now, the hottest thing going around is the India story. The economic upsurge, the loose cash that middle class households want to be seen burning and a furious expansion of consumption are all the underlying themes that VCs want to take advantage of. Businesses built around the domestic market, identifying a niche pain point to address and having the ability to scale up are likely to get the cheque. While investors may look at any business model worth pursuing, service oriented businesses with less capital needs are the chosen flavour.
In technology start-ups, the exit is often an acquisition or a public offer of shares. This could happen in several years or just in a few months. But in non-tech ventures, the rules are slightly different. Venture capital funds play for the medium term here. A three to five year horizon is common. So, it is not enough just to have a cool idea (like a video uploading site or a social networking service). The entrepreneur also has to make that cool idea work, build size and consolidate revenues and take the business mainstream.
These are still early days for non-technology businesses in the age of venture capital funding and the key bridge to be crossed is true corporatisation in terms of processes and systems, says Kanwaljit Singh of Helion Ventures. Many of these businesses are not new to the country, but have been run in the traditional, unorganised manner for years. To develop modern business models for these businesses and bringing in innovation and higher quality would be a challenge. There are many steps that these new businesses will have to go through before being gaining full acceptance among the VC community.Singh says education and health sectors, besides food and retail, could be the areas that VCs would be watching out for great ideas to come from.
As the world’s liplock with technology and internet easing a bit, both entrepreneurs and investors are taking more notice of other sectors. The time was never as ripe as it is now, with the economy booming and rules liberalised. From now on, all it takes is a flurry of ideas that will change the way we eat, shop, learn and live.
Venture capital funds are shedding their single-minded focus on technology startups and looking at non-tech sectors such as food & retail.
THE dotcom boom had a lasting impact on the fund-raising scene in India. While bank loans were the primary source of capital earlier and venture capital an increasingly attractive option later, it was during the time of the internet bubble that the rules of the game changed forever. It was not uncommon for venture capitalists to decide funding over lunch with an entrepreneur, sometimes before the plates had been cleared. This led to a mushrooming of tech ventures and the eventual failures, but it also nurtured some very innovative businesses. The losers in this race, some say, were the entrepreneurs looking to start businesses in conventional sectors without the allure of the World Wide Web. Only a small proportion of these business aspirants got funding and others had to make to do with money from friends and banks.
Not any more. Funding for technology startups has reached a more mature stage and venture capital houses now take a much more discerning view of business models. A mere website will not get money now. Old world concepts such as cash flow are back in the reckoning. And early stage investors are also beginning to attach more importance to non-tech ventures, especially the evergreen ones such as food and sectors gaining from the country’s economic rise such as retail. Other sectors including alternative energy, whose importance will be understood in the coming years, are also finding favour.
Arun Natarajan of Venture Intelligence, which tracking the funding industry, says that there has been a very clear shift among the investing community in the last three years with 20% of the VC funds going into the non-tech entrepreneurs. “Three years ago if somebody talked about funding an non-tech entrepreneur, one would find it strange,” but now it is increasingly becoming part of the strategy of a fund provider, he says.
Retail chain Subhiksha was an early bird, winning capital support from ICICI Venture seven years ago. It has obviously been a successful bet for the investor. This sort of strategy could help VCs mitigate some of the risks involved in excessive reliance on technology businesses. It also opens up vistas to sectors that will rule the next decade, just as tech businesses did in the current one.
India’s growing cities are bustling with examples of the new investment paradigm. The Shanghai-like skyline of Gurgaon is peppered with the name boards of Yo China, a Chinese fast food chain that claims to offer affordable eating. Its success in raising capital from Matrix will enthuse fast food entrepreneurs (or wannabes?) to try their hand at their own ventures too.
In the southern city of Bangalore, where technology start-ups are not far behind autorickshaws and flower vendors in number, fast food chain KaatiZone is rolling chappatis for the rushhour commuter. It packs the common Indian bread varieties with tasty stuffings and sells them under a stand-eat-and-run model. Erasmic Investment Ventures, which provided early capital for this chain, is helping it scale up the number not just in Bangalore but in other cities as well. KaatiZone’s founder Kiran Nadkarni says he wants to set up a nation-wide network with international standards.He says a pleasant ambience, good quality food and hygiene should be able to attract the increasingly discerning Indian customer. “Food business is a low entry barrier segment but with high mortality,” he says.
Mom and pop stores have been the mainstay for the Indian household for decades, but this is the age of organised retailing. With big names such as Reliance and Bharti becoming shopkeepers, an ecosystem of vendors serving them has also been created. Like retail outfit firm Dovetail which is riding on the burgeoning demand for quality shopping space. Erasmic has backed this venture also.
Things are just beginning to hot up for Dovetails, says managing director S Sundar. The company had a turnover of Rs 15 crore in 2005-06 and Rs 25 crore in 2006-07. The
heady pace of growth currently sustains a staff of 150, but the orders are growing the day, putting pressure on him to expand faster. “Sometimes our customer asks us
to provide the fitouts for 50,000 sq ft in a week’s time.” Further, the company is also looking to diversify into designer furniture.
Erasmic’s Prashant Prakash says venture capital support has been important to Kaati-Zone and Dovetail not only for the money but also the rigour of corporate discipline that the relationship brought to the managements.
So what kind of non-tech companies attract venture capital funding?
Right now, the hottest thing going around is the India story. The economic upsurge, the loose cash that middle class households want to be seen burning and a furious expansion of consumption are all the underlying themes that VCs want to take advantage of. Businesses built around the domestic market, identifying a niche pain point to address and having the ability to scale up are likely to get the cheque. While investors may look at any business model worth pursuing, service oriented businesses with less capital needs are the chosen flavour.
In technology start-ups, the exit is often an acquisition or a public offer of shares. This could happen in several years or just in a few months. But in non-tech ventures, the rules are slightly different. Venture capital funds play for the medium term here. A three to five year horizon is common. So, it is not enough just to have a cool idea (like a video uploading site or a social networking service). The entrepreneur also has to make that cool idea work, build size and consolidate revenues and take the business mainstream.
These are still early days for non-technology businesses in the age of venture capital funding and the key bridge to be crossed is true corporatisation in terms of processes and systems, says Kanwaljit Singh of Helion Ventures. Many of these businesses are not new to the country, but have been run in the traditional, unorganised manner for years. To develop modern business models for these businesses and bringing in innovation and higher quality would be a challenge. There are many steps that these new businesses will have to go through before being gaining full acceptance among the VC community.Singh says education and health sectors, besides food and retail, could be the areas that VCs would be watching out for great ideas to come from.
As the world’s liplock with technology and internet easing a bit, both entrepreneurs and investors are taking more notice of other sectors. The time was never as ripe as it is now, with the economy booming and rules liberalised. From now on, all it takes is a flurry of ideas that will change the way we eat, shop, learn and live.
Article Resource:
Author: Thimmaya Poojary is the Chief Editor in the The Economic Times, Mumbai and the article appeared in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".
Author: Thimmaya Poojary is the Chief Editor in the The Economic Times, Mumbai and the article appeared in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".
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