Clearstone Ventures: Financial Services in Focus.

Among the several cross-border funds operating across the Silicon Valley in the United States and India is Menlo Park-headquartered Clearstone Venture Partners, which has some well-known successes from its portfolio that includes Paypal and Overture. But the fund says it doesn’t follow a copycat approach and has kept its investment focus in India different from its strategy overseas. 

While oversees investments focus more on consumer internet and enterprise technologies, in India, says managing director Sumant Mandal, the fund is interested in consumer facing services covering a broad spectrum of sectors ranging from financial services and retail to telecom and entertainment. 

The Fund

Clearstone has three global funds under its management. Indian investments are being made out of the third $215 million fund raised in 2005. So far around $15 million has been invested cumulatively in three Indian firms and an equal amount set aside for follow-on investments in these firms. 

Its portfolio is pretty diverse compared to the average Silicon Valley fund, and its investee companies in India are BillDesk, a payments service provider, Digibee Microsytems, a mobile phone maker with facilities in Chennai and Bangalore, and Games2Win India, an online gaming company founded by serial entrepreneur Alok Kejriwal. Kejriwal is among the few entrepreneurs who made a success of their internet business when dotcoms were going bust in 2000. 

Clearstone has co-invested in all three companies. In Games2Win, its most recent investment made in March 2007, it has co-invested with Silicon Valley Bank which is a minority investor. In Digibee, it has co-invested with SIDBI and in Billdesk along with State Bank of India. “Where the other investors bring some complementary value, we are not against co-investing. In Digibee, we saw value in co-investing with SIDBI because it brings credibility with banks here,” says Clearstone director Rahul Khanna. 

Currently, the fund has offices in Mumbai and Bangalore in India. Khanna is based in India. Sumant, who works from California, travels to India every quarter. The fund is expanding its team in India. Apart from the US, it has operations only in India. 

The Sweet Spot 

The fund, while looking out for investment opportunities in business and entrepreneurs with potential, doesn’t confine itself to any single sector or sectors. “While we have a global fund, the themes are quite different,” says Khanna. 

The fund prefers to invest in consumer-facing industries, be it in electronics or lifestyle, because it believes they have the capacity for scale and high growth. 

One of the areas which it is currently exploring for potential investments is retail financial services. Apart from the sector, it looks at the track record of the entrepreneurs and whether they have relevant domain experience. The average period for which it stays invested in a venture is about five years although it could be longer in some instances. 

It expects to make another one or two investments out of its global fund in India. Its next fund, which it plans to raise in early 2008, will have around $100 million earmarked for India. This fund will also be global fund with a corpus of $300 million - $400 million. 

Mandal says the Clearstone is open to smaller investments as well in early stage companies and the investment size could range from half a million dollars to $20 million. In the US, its fund has helped build many companies right from the idea stage, although that has not been the case so far in India. 

Sumant Mandal Managing Director Clearstone Venture Partners 

Company Overview

Clearstone Venture Partners is a venture capital firm specializing in seed and early stage investments. It also prefers to make later round investments in highly successful companies already backed by other venture capital firms with whom it has prior relationships. The firm seeks to invest in technology markets, including software, consumer, enterprise infrastructure, enterprise computing, storage, communications, optical communications, data center, enterprise software, security, wireless, micro-processors, imaging and transformative infrastructure, semiconductors, advanced optics, and consumer and business Internet sector.

With in enterprise software it focuses on New application models & service oriented architectures (Web Services), open source solutions, web-based application delivery models including “software as functional media”, and Microsoft exchange as a platform for enterprise collaboration. In consumer sector the firm seeks to invest in mobile phone applications, wireless multimedia, social networking applied to commerce, and where there is a broad intersection of technology & consumer activity. 

Within communications it focuses on IP telephony, seamless wireless: integration of cell & WiFi, and services. In data center segment the firm seeks to invest in virtualization & utilization for scalability and performance. It prefers to invest in companies located near its offices. For earlier stage businesses, the firm seeks to invest in companies located within a one-hour plane flight of its Bay Area or Southern California offices and for later stage companies, it prefers to invest in Continental United States. 

The firm also seeks to invest outside its region, with a local partner with whom it has previously invested, if it receives a promising proposal. The firm prefers to invest between $3 million to $15 million and could go for further investments in special situations. It seeks to be the lead investor and take a board seat on its portfolio companies. Clearstone Venture Partners was founded by Bill Elkus in 1998 and is based in Santa Monica, California with additional offices in Menlo Park, California and Maharastra, India.

Financial well-being.

Financial well-being

IS YOUR startup spending unwisely, taking on orders it cannot execute or sitting on underutilised assets? Monitor the following ten parameters continuously to ensure the financial health of your company.

1. What are your assets?

Yes, yes, we all know that assets are the things that a business owns. Tracking your equipment, furniture, real estate and other holdings should be easy. But to have a true idea of the value of your business, you also have to track changes in the value of those assets. More than one small business has found itself located on a piece of land that’s worth more than the business itself. Similarly, you also will want to track the declining value of assets such as computers and office furniture.

2. What are your liabilities?

Again, on the face of it, this is easy — liabilities are what you owe. But what you owe isn’t always as obvious as a bill from your landlord. Payroll taxes are a liability that you might be able to put off on a monthly or quarterly basis, depending on the size of your payroll. Loans are a clear liability, but in repaying them you’ll want to be able to track how much of a payment is applied against principal and interest.

3. What’s it costing you to produce what you sell?

If you’re buying a finished item for resale, this is relatively easy. It’s trickier if you have to calculate all the factors, such as labour, that go into manufacturing a product.

4. What’s it costing you to sell what you sell?

Advertising, marketing, labour, storage and the catchall category of overhead — it’s useful to know how much it costs you getting a product out the door as well as what it costs you in creating it.

5. What’s your gross profit margin?

This is calculated by dividing your total sales into your gross profit. If your gross profit margin is staying consistent or trending upward, you’re probably on track in terms of adjusting your prices appropriately to reflect changes in what you pay for what you sell or produce. Being able to track a declining margin can give you a headsup that you must adjust your prices or your costs. In the worst cases, of course, your gross profit and your profit margin disappear altogether. At that point, you’ll be like the fellow who lost money on every sale but figured he could make it up in volume. Don’t go there.

6. What’s your debt-to-asset ratio?

This ratio can let you know how much of the stuff you have in your company is actually owned by someone else — your lender. Having this ratio climb can be a bad sign — it can happen as part of a major expansion, but it can also indicate that you’re getting in over your head.

7. What’s the value of your accounts receivable?

This is the money that you are owed. Value of being able to track it: If accounts receivable are on the rise, you may be getting a warning that the folks you sell to are starting to stumble. That’s especially true if your accounts receivable, as a percentage of total sales, are increasing.

8. What’s your average collection time on accounts receivable?

This is probably one of the most aggravating pieces of information for cashstrapped businesses, because it tells you how many days you’re acting as “banker” for the people who owe you money. To calculate it, you’ll need to know your average daily sales and then divide that number into your accounts receivable.

9. What are your accounts payable?

The flip side of accounts receivable. An increase in your accounts payable may merely reflect a policy of taking a little longer to pay bills, or of a larger amount of purchases overall. But an increase that hasn’t been planned or managed can be an internal warning that your company’s financial strength is waning.

10. What’s happening with your inventory?

There are occasions, even in this just-in-time business world, when building up a significant inventory can be a good thing. If prices for items you sell or use in production are relatively low, putting some of your money into inventory may make sense. Being able to track your inventory, and how long it takes to be sold or turn over, can tell you whether business is increasing or slowing down. It also tells you how much money that might be used for other payments or investments is tied up in this unproductive asset.

Reference:
(Adapted from Microsoft’s Small Business Centre website)

Beginning Of A New Financial Year.

IT’S THAT TIME OF THE YEAR TO PAUSE & MARCH ON

Start-Ups Need To Realise The Potential The Beginning Of A New Financial Year Brings And Gear Up To Tap It.

THE passing of March is the death of weariness and the birth of April the start of hope all over the world. Centuries ago, Geoffrey Chaucer opened his Canterbury Tales expressing his love for the sweet showers of April and the drought of March that pierce to the roots. For businesses, it is the end of the financial year, time to close old books and open new ones. It is when one squares off pending transactions, be they receipts or payments, evaluates performance, takes stock of inventory, realigns talent pools and makes strategic corrections. While big corporations have evolved time-tested models to take advantage of the changing of the fiscal baton, first-time entrepreneurs often tend to overlook the opportunity that March-April present to renew themselves.

Running a start-up from her basement in Bangalore, Rashmi, the 26-year-old founder of Rage Chocolatier, is one such entrepreneur. Her company, which is run by an eight-member team, is about to see its first year-end. She, like almost every entrepreneur that ET spoke to, was not fully prepared for the event. Fortunately for her, she had the mentorship of her father to guide her through her first year. “What we did was simple. All the bills we paid were put in one file and all the sales receipts were put in another. Now we are gathering them and running them through Tally, an accounting software. We have just got a CA to look into it, but I’ve realised that I need to hire a permanent CA to look into this all year round.” Keeping track of stocks and money is a full-time job by itself.

Keeping your tax record updated is important, not only to be taken seriously by potential business partners, but also to keep regulatory headaches away. The IIMA team that founded Ten-ADay has also just hired a CA. The Mumbai-based company is also set to see its first financial year draw to a close. The company produces preparation material for the Common Admission Test. The company is looking at collecting income and professional taxes from its employees as it hasn’t been done yet, says co-founder Vishal Prabhukhanolkar.

Calling in the CA only at the year-end seems to be a common practice. This is usually because of oversight. Apart from this, a start-up that’s strapped for cash is working on a lean team. The team is usually just meant to focus on the company’s offerings. But unless systems are put in place for corporate governance early on, things might just get unwieldy when the business grows to the mature phase.

Ideally, start-ups need to focus on governance from day one and not just at the year-end. This includes keeping the books in order. “A system of governance does not generate revenue and, therefore, people don’t focus on it. Putting everything on paper is essential as it will give you credibility. This is a year-long process,” says Bharati Jacob of Seedfund. She has invested in a couple of start-ups and says she noticed that at the nascent stages, the focus tends to be on here-and-now and not on long-term things like orderly books.

Not all first-time entrepreneurs are looking at last minute book-keeping. “On the accounting front, there isn’t much to do if you’ve kept your accounts in order since day one,” says Sriram Vaidyanathan. He and his partner run a coffee shop that seems to cater to the techie crowd in Bangalore. They are about to see their first year-end as well. For his coffee shop, BrewHaHa, he says this time of the year is good to review and refine their offerings.

Veteran entrepreneur and founder of Ferns ‘N’ Petals, Vikas Gutgutia, recalls the days he set sail with his venture 12 years ago. He says he neglected simple things like collecting bills during the venture’s initial years. This made book-keeping difficult. “When you start a business and success is coming your way, it is very easy to lose sight of keeping accounts. Two to three years down the line you begin to see that you need to pay as much attention to the accounts as the business itself.” Things have come a long way since this company started out with just Rs 5,000. Today, a consultant ensures transparency in its Rs 60-crore business.

National Entrepreneurship Network (NEN) executive director Laura Parkin says, “This time of the year is a really good time to pull out the weeds, as it is usually the time for year-end financials. It’s a good habit to have an end-of-year meeting to review performance. You can look at your key-performance indicators and resources based on this cycle.” NEN helps facilitate entrepreneurial-related programmes in over 200 education institutions across the country. Key performance indicators for the organisation are active members, activity levels and dropout feedback.

During the past three months Mohit Dubey, the founder of CarWale, looks at whether his company has met the milestones that he set 12 months ago. He then goes to his clients to check whether they have any left-over budget that could be utilised. This is his first yearend as well. With the Budget speech around the corner he has his ears peeled for auto-related recommendations from the finance minister.

Experts say March is the time that entrepreneurs must take a step back from their business and look at the overall form and structure of their organisation. The business must be a clean financial entity, getting payments on time, paying out its own liabilities on time and developing a system to do this throughout the year. Tax evasion may be appealing in the short-run, but can keep a company from growing into a major force over the long term. Spending a few extra bucks on organising the financials will pay over time, they say.

Next, it is also the time to reward top performers and weed out the bottom of the pile. Companies must evolve objective systems for performance appraisals so that when a two-person team becomes a 200-people company, the management does not lose sight of who is doing what and how well.

It is also a chance to work out new tactics. Tax rates may change, taking away one benefit but bringing in another. The government may announce schemes to support economic activity and a start-up must lie in waiting for business opportunity in them. This period is more like the periodic servicing that a car might undergo, when jerky parts are fine-tuned and essential systems topped up. The onward journey can be that much smoother.

Article Resource:
Author: Jacob Cherian 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".