Eureka! '08 Mentors' Meet - SJMSOM, IIT Bombay - Anand Lunia
Sunday, December 7, 2008 by Abhinav Maurya
As finalists in Eureka!'08, the biggest business plan competition in Asia, me and my friend got to attend two immensely outstanding workshops on the business of business. Both of them were conducted at the Shailesh J. Mehta School Of Management, IIT Bombay.
The first was by Mr. Anand Lunia, Executive Director and CFO of Seedfund. A lanky guy, he became a VC after growing and selling many businesses of his own. One of his businesses was sold at 60 million dollars and I'm sure many of the participants hoped (prayed?) that they may have such luck with their startup.
Anand explained the Venture Capital business building up the idea of VC funding, its hows and whys from scratch. Right from Premoney, Postmoney to the intricacies of valuation and dealing with a VC, he covered it all.
Here are some notes from his lecture that might interest a person working on a business plan/startup:-
The first was by Mr. Anand Lunia, Executive Director and CFO of Seedfund. A lanky guy, he became a VC after growing and selling many businesses of his own. One of his businesses was sold at 60 million dollars and I'm sure many of the participants hoped (prayed?) that they may have such luck with their startup.
Anand explained the Venture Capital business building up the idea of VC funding, its hows and whys from scratch. Right from Premoney, Postmoney to the intricacies of valuation and dealing with a VC, he covered it all.
Here are some notes from his lecture that might interest a person working on a business plan/startup:-
- The VC fund is usually expected to give 3x returns. So pervasive is the 80-20 rule that it finds its way here too. Out of every ten ventures funded with VC capital, only two succeed. Since these successes must compensate for the failures of the remaining part of the investment, they are expected to have an ROI of 10x. Since all ideas/teams invested in seem exceptionally great (that is why the investment gets done), here is no way of knowing at the time of investment which of the lot is going to succeed. Hence the VC's have to maintain exceptionally high hopes from every venture, pray for the success of each, and plan for preventing the failure of any of the investments.
- The three main criteria for assessing a business plan are team, market and product in that order.
- Any business plan needs to be backed up by a strong team. The various factors that are used while judging a team are academic background, professional track record and its relevance to the plan at hand, the motivation of the team as demonstrated by the groundwork already done for the success of the plan, etc. Often the team factor outweighs the other considerations when VC's are considering a plan. Anand said that at Seedfund, a business plan is evaluated by five independent VC's. Even if the plan is rated B by some VC, the team must get a rating of A by all the VC's. This is because a good team can make more out of a good plan than a mediocre team out of a great plan.
- The market for your idea has to be big. It should be usually atleast around a hundred crores or more for a VC to look into it. Less than that, it is better to go in for angel investors, loand from banks, relatives, etc.
- If the product rests on confidentiality of the idea, then the claims to IPR better be good. But it is not necessary that you need to have a great idea to make a difference. It is the execution of the idea that makes an idea a million-dollar proposition. So take a good idea (you can pick somebody's brains; there is no copyright on ideas!) and get down to making it work better than your competitors.
- Often a business plan will state that the team is working on so niche a project that it does not have competition at all. This spells bad news for the plan as the VC's figure out that a niche with no competitors will mostly have a very small market size. This can greatly dissuade VC's from investing in the plan.
- Every once in a while, an idea will come along that will bank upon its niche as its USP. For example, Google which was turned down by more than 10 investors when it applied for seeding. But more often than not, VC's expect their investments to have a predictable way of capitalizing on an untapped market. While this spells problems for plans which seek to actualize niche ideas, it can actually help the planners by pitting them against critical VC's whose advice can help in polishing the plan so that the market traction is better once the idea is put into practice.
- It is important to actually collect feedback on your customer sales presentation and/or conduct market surveys in order to test if there exists a need for the product/service you're trying to sell. This can often help in determining other factors that may be of importance and may even change the USP of what you are trying to sell.
- The valuation of a company is directly proportional to the size of the market it is trying to capture.
- It is the relevance of your academic/professional knowledge and experience that counts while your plan is being considered for valuation by a VC. There is nothing as deluding as self-valuation on the basis of academic/professional pedigree.
That's more or less the gist of the lecture. There was also a minor session on the documentation involved while raising money for a venture and negotiating with a VC. It involved the term sheet, VC rights, entrepreneur rights, shareholders' agreements, share purchase agreements, due diligence, and questions of the governing board and vetoes.
Though I've yet to grasp a lot about the details of valuation and negotiation, Anand's lecture was immensely helpful to me and the other participants as an introduction to valuing our ideas, polishing our business plans, and avoiding common pitfalls while pitching to a VC.
Though I've yet to grasp a lot about the details of valuation and negotiation, Anand's lecture was immensely helpful to me and the other participants as an introduction to valuing our ideas, polishing our business plans, and avoiding common pitfalls while pitching to a VC.
Posted in:
Anand Lunia,
Business Plan,
Eureka'08,
IIT Bombay,
Seedfund,
Venture Capital
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Congrats on getting through to the finals at Eureka. And Excellent post- very informative and helpful. You should send this along to the folks at our e-cell.
Thanks Aditya. And we've an ecell? News to me!
Seriously, I heard of an ecell in the weirdest circumstances. After seeing immense enthusiasm from the TY people for the IBM Open Mind Challenge, I was trying to tell our HoD that VJTI needed an ecell like IITB to tap and channelize all the innovation in the college. That was when I was told that an ecell already existed. I did not pursue it after that.
I would be glad if you could tell me where its offices are and how it functions.
Yes, we have an E-Cell. It apparently has a predictably outdated website: http://vjtiecell.com/
It does not have any offices per se, it's a student thing. This is the first year of its existence, so they are understandably having teething problems. I might be able to connect you to the folks behind it in college sometime perhaps, I do not have the new secretary's number/email address.
Hey abhinav
kushal gupta here...
hi! and congrats for being in the finals of Eureka.Ur post is very good and I thank u for dat.
what happened wid ur venture?...were u successful in convincing the VC?..
and are u participating in the Power of ideas of The Economic Times?