One of the key challenges in the early stage of any venture is deciding how much capital is needed to get a business started and then running on a continuous basis. Capital is the oxygen for a business run out of it and its dead. Getting access to capital is one of the biggest challenges for an entrepreneur. In my fifteen years as an entrepreneur, I have seen both sides of the coin as an entrepreneur seeking to raise capital, and also as an investor providing capital to ventures. (Ironically, the one thing I’ve not succeeded in is raising external capital for my own ventures!)
Capital comes in various forms. There is early stage (seed) capital, which is needed to get the venture started. This mostly comes from the entrepreneur’s savings, or friends and family, or angel investors. Then, there is the next stage where once the basic ideas are validated, capital is needed for ramping up the venture. This is where venture capital companies come in. The next need for capital is for growth this can come from private equity or from the capital markets. Capital can come in as equity or debt, or a combination of both. Banks typically provide debt financing for ventures. My understanding of capital is related only to the world of high technology. Here debt is rarely used for financing an early stage business.
In India today, there are opportunities aplenty for creating new ventures in a variety of fields. Entrepreneurs have ideas, but the challenge invariably boils down to the capital needed for the venture. I have met many entrepreneurs and companies seeking to raise capital over the past couple of years. Given that I am an entrepreneur myself and my desire to limit investments to areas which I understand and in companies where I can add value, I have come to the conclusion that we need to think of a radically different approach to fulfilling the capital needs of the growing entrepreneurial class in India.
The basic outline is as follows: we need to create a stock exchange where entrepreneurs can raise small amounts of capital. Think of this as a micro version of the BSE and NSE. Listed companies can issue new stock at will. Investors can invest small amounts of capital. There are no stringent listing requirements. Companies will need to be transparent in disclosure of their operational plans and financials. I will elaborate on this idea a little later in this series. But first let us dig a little deeper into the core issue of ventures and their capital needs. I’ll outline my experiences first.
Tomorrow: Me as Entrepreneur
TECH TALK Ventures and Capital+T