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September 23, 1999


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Havaldar explains VC options for the Net entrepreneur

Email this story to a friend. Priya Ganapati at Pragati Maidan

Back to IIW '99 index The talk of money does strange things to people. Despite the lack of air-conditioning, over 250 delegates sat in a closed hall listening intently to a session on financing the Net media by Abhay Havaldar from the venture capital giant Draper International.

Fanning themselves with brochures that were available throughout the venue delegates braved the heat to listen to Havaldar explain about the different finance options for the Internet based companies.

Havaldar said, "There is a vast opportunity for companies to build upon. The Net is the biggest shift in technology that has happened. You, as an individual, have a choice to do what you want with it. If you decide not to do anything about it then it means that you have taken an active decision about it. Not doing anything is not an option. One day you'll have to be a part of the Net so it makes sense to be an early adopter."

He suggests that the value for the companies lies in execution, which is about increasing the momentum for the products or services.

"I suggest you go in for a head start right now as there are not too many barriers. But remember if the platform is global so is the competition," Havaldar said.

Indian entrepreneurs frequently complain that the lack of proper venture capital in the country is one of the reasons why there are few start-ups in the country. Havaldar explains the problems faced by venture capitalists.

"The reason that Indian entrepreneurs are not doing well is because there is not enough venture capital. And the VCs are saying that there are not enough bright ideas in the country. It is a chicken and egg story," Havaldar protests.

He is emphatic that companies need to constantly innovate to keep up with the changes in technology. "If you don't seek global dominance or if you think that you have arrived then it leads to complacency. And then that's the end. You have to prepare for growth. Public markets seek only that," Havaldar explained.

He warned that entrepreneurs need to be prepared for either a sell-out or an initial public offering. "You have to remember that you are a owner of a business. At some time someone's going to offer to buy you out. You have to decide whether staying independent is more valuable to you. It is important to be able to value your company in a dispassionate manner," Havaldar elaborated.

Listing out the different parameters that should be considered when it comes to making a choice between a sell-out and an IPO Havaldar said, "You sell out when you need access to deep pockets. An IPO gives you access to capital markets. If you plan to go for an IPO you need to keep your balance sheet squeaky clean. There is always more status and ego attached to an entrepreneur who has gone for an IPO."

He warned that once a company goes for an IPO there is a fishbowl effect. "The moment you do an IPO the entire world's eyes are on you. An IPO is not an exit strategy. There is a life for an entrepreneur post IPO," Havaldar added.

Havaldar elaborated, "If you are in the Net business you have to go for equity money. Do not take a loan fund. Even if it takes more time, find a partner that will come to you on the same term as yours. But do not take the equity option for something like brand building."

Havaldar explained that there are two kinds of investment that VCs usually make: "The first one are deals that are faster, better and cheaper. These are easy to evaluate and work on proven business models. The second are the hard to evaluate deals with few proven business models. Here partnerships are the key and you require to be patient and brave. Money in these cases can come only from VCs."

Back to IIW '99 index Summarising, Havaldar told the attentive audience "It is not just a question of how much money you ask. It also depends on who you ask, how do you ask and how much you ask. Getting funding is a continuous process for the Net entrepreneur."

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