When I started my first venture, my business partner and I invested our savings (about $30,000 in 1992) from our time working in the US. A couple of years later, most of that investment was gone and we were nowhere close to profitability. There was ‘cash burn’ every month. We were in a downward spiral. That was when we decided to shut that business down. With some seed capital from my family, I re-started and that was how IndiaWorld was born. The starting capital was small less than Rs 10 lakhs.
In IndiaWorld, I realised that I needed to get a revenue stream going rapidly. The starting capital would last a short time. So, while building the portal, we started doing website development in India to ensure some regular revenues. Advertising was still a little way off in the future. As a result, we turned cash positive on a month-on-month basis in less than two years. We also made sure we kept costs low. Since it was hard to earn the cash, we were very careful in how we spent it!
I also realised that at some point of time we would have to raise external capital if we had to grow much more rapidly. I spoke with a number of venture capitalists but somehow the deal never closed. At times, they rejected me. At other times, I didn’t like the terms on offer. The pressure on me to accept terms that I deemed unfavourable was a lot less since we were profitable and I did not have to worry about meeting payroll every month. In fact, as time went on and advertising revenues started coming in, we had a healthy surplus every month which we reinvested back in the business for growth. And so it was that when I sold IndiaWorld, we had not raised any external capital.
This time around in Netcore, I have invested my own capital in the company. We have two businesses a revenue-generating messaging business, and an investment-hungry mobility business. The cash the mobility business needs is much more than the revenues being generated. So, we end up with a net deficit each month. Over the past few months, the messaging business has shown good growth. The mobility business has great promise in the future. But I still expect that we are at least 18-24 months away from cash breakeven for the company as a whole. And during this period, we will continue needing capital.
I have had offers from venture capitalists for an investment. But I have not accepted for a number of reasons. First, I want to ensure that we can prove the business model in the mobility business. We have many new ideas, and while I am optimistic that these will generate accelerating revenues over time, we are still not there yet. So, till I perceive that there is risk in the venture, I feel much better putting the risk capital. I don’t want someone else to say that they lost money because of me. Secondly, Netcore is at times a testbed for different ideas that I get. Not having external investors (excluding our own staff we have an ESOP plan that covers all staff) lets me try out ideas without having to justify potential future benefits.
So, in my case, in IndiaWorld, I ended up unable to raise venture capital. In Netcore, I have decided not to raise capital for the time being. IndiaWorld was seeded with capital from the family, and in a way, so was Netcore. The difference between the two ventures is that Netcore’s ambitions are much bigger and so are the cash requirements. I am less tense about generating immediate profits in Netcore than I was in IndiaWorld. Two ventures many years apart, two different stories.
Tomorrow: Me as Investor
TECH TALK Ventures and Capital+T