Dear readers, this post is the first in a series with investors, to provide a platform where entrepreneurs in Bengaluru can engage with investors. I am pleased to start this series with Subrata Mitra, General Partner, Erasmic Venture Fund, an early-stage fund based in the city. Read on to know more about the fund and get some insights into what they are looking for when they invert in companies. Subrata also shares some of his thoughts on the entrepreneurship scene in this city.
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Question: How did Erasmic get started and why did you decide to fund early stage ventures?
Answer: We started Erasmic primarily to work with US/India cross-border companies; especially those that, were in a "differentiated services" area, had a strong founding team that knew how to acquire customers, but needed help with operations. Over a period of time, we started working with Indian companies that needed market access, and funding. Thus, we made the first few investments (which were done as an investment club), and kept going from there.
Question: Do you have a vision for the fund that you would like to share with us?
Answer: We envision becoming the best early-stage fund in India, with a vibrant seed program.
Question: You come across many entrepreneurs and select only a handful to support and fund. What would make a startup pass through the first meeting with you? When and how do you decide that a company that has come to you is not suitable for funding?
Answer: Generally, if the team seems strong and they have something unique (either product or service), with a significant target market, we’re interested to discuss more.
There are few factors that may result in us not moving forward with an investment proposal; e.g.:
- Our ability to value add beyond investment
- Our assessment of the risk to reward ratio
- Quality and background of the founders
- Complexity of the capital structure
- I/P related issues
- Our evaluation of the potential market size of the business
- Entry and exit barriers
- Quantum of funding needed
Question: What are the common mistakes that you come across when you look at startups? Any suggestions on how these could be addressed, considering the constraints that most early stage companies have?
Answer: Possibly the key one is to understand that VCs are primarily interested in businesses which provide options for a reasonable exit in a given amount to time. E.g., annuity/cash-flow based businesses generally are hard to invest into from a Venture perspective.
Question: How do you value add?
Answer: In many different ways, for instance – help refine the product/service, provide access to markets, Key hires, Operational management. Lot of times (especially if the startup is in the seed stage), we help by taking more operational & planning roles
Question: Going ahead, what do you think of entrepreneurship in Bengaluru?
Answer: We think the prospects are very strong. More recently, we have seen that the startup teams are getting stronger, which is a great starting point for any company. Also, given that VC interests in Indian companies is on the increase, the amount of money/funding available is looking better each day.
At the same time, it’s not an all-out rosy picture. Lots of investments have happened hoping that large exits are around the corner. However, that part of the eco-system is yet to get sorted out. Similarly, the companies being started don’t necessarily have a good local market in all cases; Indian eco-system is not geared towards using/buying products and services from local smaller companies yet.
Question: Anything else you would like to add which could be of interest to our readers, who consist of entrepreneurs, wanna be entrepreneurs and others who are just curious to understand how an angel investor works.
Answer: Entrepreneurship can really change the way that India plays into the Global economy in the near future. We have already started seeing the initial signs of people who are willing to take a risk and do something different. At the same time, valuable companies are built over long periods of time, and require strong management teams with prudent business & product vision & ability to morph as the environment changes. While we suggest our investors to be more patient, we would like to see more and more people pursuing ideas because they feel good about their long-term prospect, not just to make money in the short term.