Managing your Finances: The Money Man.

Managing The Money Men

Money, it’s a crime. Share it fairly but don’t take a slice of my pie —Pink Floyd.

They might as well have been singing this song for professional investors who invest seed capital in businesses that are now ready to bloom. But to bloom, these businesses need more capital and these investors are not excited about it as they do not want to get diluted and lose control. They also don’t want professional investors into the business as it dilutes their stakes. This affects the business models and many times companies with good business models simply fold up.

RK Reddy, when he moved out of Fractal Analytics blamed the fallout on this phenomenon. “It is happening everywhere in India. Getting funding for new ventures for young businessmen is not easy in this country. It is not like the US where even venture capitalist help you in your funding requirements before you are even a graduate. India in this respect still has a long way to go,” he says. Mr Reddy is the co-founder of Fractal Analytics who moved out to start on his own along with another partner due to the difference with the investor in Fractal Analytics.

When Mr Reddy passed out of IIM-A, he and his friends thought getting professional investors to invest in their ideas will be easy. They were from the same batch of IIM-A and had enough work experience to get seed capital. But that was easier said than done. He and his friends had a tough time talking to investors and then finally ended up with a professional investor who invested the initial seed capital to start Fractal Analytics. No venture capital or institutional investor was interested in putting the seed capital.

Another services firm founded by a group of professionalsturned-entrepreneurs thought they had solved their one of the most pressing problems when they finally found a business group willing to fund their start-up. But like any relationship that goes through different phases, this one hit a rough patch a couple of years into its existence. On one hand the entrepreneurs had everything they asked for — investors who were on the board but did not interfere in the daily functioning and the strategic decisions were taken by the management team. “This is one of the biggest nightmare for an entrepreneur. But we were very lucky in this,” recollects one of the founder-promoters.

However, on the other hand, a passive investor was not the ideal recipe for growth. As the entrepreneurs soon found out as they grew bigger. Now they needed more management bandwidth and from professionals who could bring in more than money to the table.

The choice was a difficult one. Either the founders or the investors had to dilute their stake and make a compromise. Expectedly, the investors were unwilling to dilute their holdings. At this stage, the company could’ve gone the Fractal way with the founding team and the investors going different ways, and one of the members of the founding team chose to do exactly that. Frustrated by the slow pace of growth when its peers where growing much faster through acquisitions, one of the members moved out.

A solution was reached a year and many months later when the investors finally agreed to sell part of their stake and the company was able to get in an investor who would take the firm to the next level. “Had we done this earlier, we could’ve probably grown much faster. But sometimes you simply have no choice but to be patient. Indian culture is different from the American culture,” says one of the founders who stayed on.

Venture capital firms face these problems on a regular basis where they see a clear conflict between the promoter and the investor. These firms though invest in companies at the seed capital levels, they do it only if that sector is in vogue. In many cases these firms do not want to take a contrarian view and prefer to go with the trend. “Many venture capital firms will not have issues investing into a firm that is into social networking but will not invest into a business that is based on knowledge or hard skills,” says an entrepreneur who has moved out of a firm to join the competitor.

VCs on the other hand do not like to be tagged based on trends or any other parameters. Each and every venture capital firm operates differently and works in terms of domain expertise. If they do not understand the business they simply want to avoid the investment. In general they prefer businesses that are already on a growth path than be the seed investor.

“Individual investors work well when it comes to seed capital or absolute start-ups. Their requirements and expectations are different.

But when the company is on a growth path, institutional investors work better for the firm. These new investors are in a better position to help and guide the firm as compared to individual investors,” says Alok Mittal of Cannan partners, a firm that provides venture capital. When there is a VC there is a healthy board process which is absent in the case of an individual professional investor. Getting the VC funding at initial levels or seed levels is not easy in a country like India. Good business models will suffer in the hands of individual investors and this may kill entrepreneurship in India. Though VCs are saying that they are looking at good business models which require seed capital, these firms are more interested in how fast a company can be taken public and latch on to market capitalisations while the trend is hot.

Like Mr Reddy says: “Before I start something on my own, I will first look at the quality of investor. Everything else comes later.”

Article Resource:
The article appeared in The Economic Times, Mumbai in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

Bowling change at the right time.

Cricinfo Founders Seamlessly Shift From A Web Portal To Publishing

SOME might call it entrepreneurship in reverse gear. But what did Badri Seshadri and K Satyanarayan, founders of cricinfo.com, do after they sold their immensely popular cricket website to Wisden? They did not start another online venture hoping to hit pay dirt the second time. They did not become technology gurus and hit the lecture circuit. They did not even stay on at Cricinfo as employees. They went back to the old economy and started publishing books.

Over the past four years, the Chennai duo have shown that innovation need not be confined to the online world, but can happen even in a seemingly routine business such as book publishing. They have sought to change the rules of the game in publishing, bringing in new ideas in the way Indian language books are conceived, presented and distributed.

“We had reached the stage, where, from shareholders, we had become employees. We could have been comfortable working at Cricinfo. But we wanted to run, build and manage things of our own,” says New Horizons Media co-founder and managing director Badri Seshadri.

After discussions and research, they decided to focus on the vernacular language publishing business. While climbing down from the internet high horse was one radical decision, to get into the challenging domain of regional language publishing was another. “The journey was like this; we wanted to work in the area of knowledge, in Indian languages. The online scope wasn’t great and, therefore, offline. If offline, then publishing rather than a newspaper or a magazine,” adds Mr Seshadri.

Analysis showed that one could be a publisher by spending very little money. “If I have to print 1,000 copies of one title, it will not cost me more than Rs 30,000 to Rs 40,000. Small books, with our relationship and all, will cost not more than Rs 5,000,” says Mr Seshadri. The end result was New Horizons Media, which brings out titles in Tamil, English and Malayalam.

Badri Seshadri (L) & K Satyanarayan Founders, New Horizons Media

At first glance, it seems impossible to visualise the transition from an exciting sports venture to a traditional regional publishing business. But, Mr Seshadri’s office cabin, at least, manages to bridge the gulf between the online and the offline worlds. When we caught up with him, the 36-year-old IIT alumnus was busy tracking the India-Australia match on his laptop, while his desk was littered all over with titles from New Horizons’ stable.

Casually dressed in T-shirt and tracks, Mr Seshadri’s wry sense of humour and candour is an antithesis to the stoic and serious image that one has of a publisher. Over the next hour, however, he donned the hat of a story teller as he took us through the plot, the protagonists, the story and the screenplay of a venture titled, ‘New Horizons Media’.

“When we examined the kind of non-fiction works in Tamil in 2003, they were invariably works on horoscopes, cooking, herbal remedies and numerology. Cooking was fine, at least, you can make something out of it, but the rest were complete frauds. The author’s background was unclear, but this category ruled the roost in 2003,” says Mr Seshadri.

Though a few books went beyond the astrology and cookery themes, the sales remained low. “They were not selling because they were written in hard-core, needlessly complex language. It had massive footnotes and mega introductions running to 70 pages. All this is great for academics, but had no use for common readers,” Mr Seshadri adds.

In a way, this inherent problem helped the company decide its content and theme. The founders decided to be completely contrarian and churn out more content in the non-fiction and knowledge-oriented category. This included biographies, political histories, finance and business. Interestingly, their best seller to date, is a title Alla Alla Panam, (Amass more money), an introduction to stock markets and has so far sold 60,000 copies.

The next challenge came in finding people to pen books based on the chosen themes. For this, the company tapped teachers, bank and IT employees already writing for magazines. And the writers had a simple brief — swallow the idea, use all available information and present everything as easy-to-digest stories.

Since starting in 2004, the company has brought out more than 600 titles in Tamil, Malayalam and English. Its imprints include Kizhakku and Prodigy. “Kizhakku is right now our leading publication, but we expect Prodigy to beat it,” Mr Seshadri said.

Traditionally, publishers meet sales requirements by stocking their books in Government libraries and selling the rest to local bookshops. According to rough estimates, there are about 600-800 bookshops in Tamil Nadu. On an average, if bookshop sales generate Rs 10 lakh per month, annually, the publisher would end up making only a crore. “We simply re-invented ourselves and started stocking books in existing outlets such as grocery stores, restaurants and medical shops,” Mr Seshadri said. This model of distribution currently accounts for 30% of revenue, but is expected to go up to 50% over the next year. The company is venture funded by Rajesh Jain of Emergic Ventures.

Article Resource:
Author: Chandra Ranganathan 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".