With venture capital (VC) funding expected touch $ 1 billion in 2010, VC firms are hunting for start-ups with good teams and scalability. In an interview with FE’s Debojyoti Ghosh, IDG Ventures India Advisors’ founder & MD TC Meenakhisundaram talks about the funding scenario and what entrepreneurs should do to get funded.
THE SECTORS THAT ATTRACT MAXIMUM FUNDING IN 2010 COULD BE: MOBILE VAS THAT LEVERAGE 3G OPPORTUNITIES, CLEAN TECH AND HEALTHCARE IT & BPOs THAT LEVERAGE THE US HEALTHCARE REFORMS
How do you see start-up funding shaping up this year?
VC funding was about $500 million in 2009, down from the peak of $950 million in 2007. It has begun to move from the last quarter of 2009, which contributed nearly $275 million or about 55% of 2009 funding. VC funding in the first quarter of this year was $ 130 million, nearly three times that of Q1 in 2009. It is important to note that even during the global financial crisis from October 2008 to September 2009, the average deal size continued to remain between $5 million and $6 million.
Which are the sectors that will attract more funding this year?
Technology sectors generally contribute 60.75% of the VC investment. The following sectors are expected to attract maximum funding in 2010:mobile VAS that leverage 3G and data opportunities, clean tech focusing on energy efficiency and management, cloud-based delivery of SaaS platforms addressing global markets and healthcare IT and BPOs that leverage the US healthcare reforms.
Among IT start-ups, what business models are normally preferred by investors?
Business models follow the solutions that are provided. In case of enterprise software markets, it depends on the customer size. So, even now, we can find both software companies that follow the licence fee model as well as those deliver the services over the cloud on pay-per use model being funded. It is not a one-size-fits-all approach to evaluation of the opportunities for investment.
What should entrepreneurs do to attract funding?
In addition to the key criteria used by the investors to evaluate investment opportunities, entrepreneurs need passion in pursing their vision. They should have integrity the ability to attract and build a team of people who are better than themselves in the respective functional areas and speed of action.
Most of all, they should be able to scale themselves with the growth of their companies and markets. They should be able to let goof the urge to micromanage as was done in the early days of the company once functional and business leaders are brought on board. This is one area where most of them fail.