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Start-ups ride the Cloud!

September 8, 2014 Leave a comment

business_start_up

 

Cloud computing services (SaaS, PaaS, IaaS) offered by various market players have over the years reduced the TCO for many Industry players. Although, about ten years ago when the cloud services started becoming popular, the reigning thought was that only smaller and mid-size industry players will move to the cloud. The bigger players will still prefer the ‘on-premise’ option. But, today we see even largest players in their segments availing the advantage of the cloud services to keep costs in control by paying-on-the go rather than incurring capital expenditure upfront.

‘Pay-as-you-go’ cannot me more beneficial to anyone else but start-ups. We all know that start-ups work on shore string budgets and would it will be foolish for them to spend on something which they are not using right now. Computing capacity is one such item on the list of start-ups. Why should a start-up pay for a storage space which it is not using? They would love the idea of expanding the storage space as their storage needs expand. This is one example of many instance where the costs for start-ups have been drastically brought down by the Cloud service providers.

A recent survey of 550 start-ups by BestVendor found out that majority of start-ups prefer using cloud-based resources for various activities- QuickBooks (71%) for accounting, Google Analytics (70%) for BI, Salesforce.com (59%) for customer relationship management, and Dropbox  (39%) for storage and backup. 

Reduction on up-front costs:

 A report on statistics on start-ups by O’Reilly Media shows that companies can save up to 30% in IT costs over a three-year period employing cloud resources versus on-premises equipment. This is a compelling proposition for the startups who would like to extract the maximum out of every penny available. The first three years are again very crucial years for a start-up. If the start-up is able to save 30% of its expenditure on IT- why should it think twice?

Fixed costs vs variable costs:

Every organization likes predictability. Larger organizations might be able to predict their future needs for various resources based on their empirical data of the past, but same is not the case for a start-up. One never knows how the demand for various resources needs to pick up (or go down). Cloud services help one to convert majority of the fixed costs on IT into variable costs. Now, that is what brings predictability to the forecasts for a start-up. One can ‘order’ storage space, processing space, number of email IDs etc on the go.

One of the biggest concerns earlier on cloud services was reliability of the provider. But, today, many big players in the IT industry today provide cloud services. The presence of Google, Amazon, Microsoft, SFDC etc. has brought a strong factor of reliability and security to cloud services. Majority of these companies have a strong focus on start-ups and its prudent for start-ups to explore these resources. Why not use these cloud resources on offer and save some precious dollars for your start-up?

 

MuSigma- The wonder kid of Analytics, raises $108 million.

December 30, 2011 Leave a comment

In one of the biggest Private Equity deals for a startup in India, Mu Sigma closed a $108 million investment round lead by General Atlantic.  Earlier in April 2011, Sequoia Capital had invested $25 million, now has $50 million invested in Mu Sigma.

The pattern in which General Atlantic invests in companies (generally it picks up 15-20%), the investment puts the total valuation of the Mu Sigma at about $500 million.

Mu Sigma, started by Dhiraj Rajaram in the year 2004, is in the business of Analytics and Decision Support. The company is touted as the wonder kid of the emerging market of business analytics and research and helps organizations solve high-impact business problems/decisions.  It provides business intelligence, econometric tools and predictive modelling services to help clients such as Microsoft and Dell take major business decisions ranging from new product launches to decoding customer reaction.

Mu Sigma employs 1,500 in Bangalore, Chicago (where it is based) and a few other cities in the US.  The company has grown rapidly since its founding in 2004, in fact, its 2008-2010 revenue growth of 886 percent earned Mu Sigma a spot in the Inc. 500 list of America’s fastest-growing private companies.

The best part here is that Mu Sigma is already profitable and will use the capital to expand its operations and reach in the sunrise market of business analytics.

Company website: http://www.mu-sigma.com/

Its raining investments for e-commerce start-ups!

December 26, 2011 1 comment

According to a recent report, there will be 237 million internet users in India by 2015. With the increased penetration of internet and increasingly busy lifestyles, companies are betting heavily on e-commerce. Recent years have seen scores of e-commerce portals mushroom in India. Not withstanding the expected hyper-competition in the e-commerce space, investors are still interested in funding such ventures. Here is the list of some recent investments done in the e-commerce space:

Pepperfry: Norwest Venture Partners have invested $5 million in yet-to-be-launched PepperFry. PepperFry is proposed to be a portal for pocket friendly deals on lifestyle products such as clothing, furniture & home decor, precious & fashion jewellery, lifestyle accessories and personal care.

Fetise.com: Mumbai based fetise.com has secured a $5 million funding from Seedfund. Fetise is an e-commerce portal for men and deals in apparels, shoes and fashion accessories from leading international labels.

Freecultr: Sequoia Capital has invested $4Mn in apparel and accessories e-commerce startup FreeCultr. FreeCultr provides lifestyle apparel and accessories featuring casual T-shirts, polos, tunics, sweaters, cardigans, denims, pants and footwears.

Zovi.com: Deep Kalra (founder of MakeMyTrip) invested $5.5 million in Zovi.com, another online apparel retail portal.

Fashionandyou.com: FashionAndYou raised $40Mn in it’s third round of funding led by Norwest Venture Partners and Intel Capital. In a related exercise, DealsandYou.com, Fashionandyou.com’s sisteer concern and founded by Harish Bahl raised $17Mn Mayfield Fund and Norwest Venture Partners.

Valyoo Technologies: IDG Ventures has invested $4Mn in Valyoo Technologies Pvt Ltd, which runs e-commerce businesses for eyewear (lenskart.com), watches (watchkart.com) and bags (bagskart.com). The firm is looking at raising another $20Mn in it’s next round of funding by February or March next year.

eShakti.com: IDG Ventures has invested $3Mn in online fashion retailer – eShakti.com Pvt Ltd for a minority stake. Presently, Chennai based eShakti exports custom made desinger clothes to the US and is in the process of launching the firm’s Indian brand Zapelle. The company will add accessories including belts, bags and jewellery to it’s product line in the next six months.

Some of the recent recipients of investments have been online portals selling baby care products. Recently hoopos.com has secured investment from Helion Venture Parnters. Babyoye.com also raised $2.5 million from Accel Partners and Tiger Global. Firstcry.com raised $4 million from SAIF Partners this April.

*The data has been sourced from Deal Curry.

How to Balance Stake Dilution and Investment

September 19, 2011 Leave a comment

{This article originally appeared in Wall Street Journal’s online edition and can be accessed at: http://blogs.wsj.com/indiarealtime/2011/09/07/chief-mentor-how-to-balance-stake-dilution-and-investment/ }

Let’s face it, raising money for a startup in its early stages is time consuming and challenging. The entrepreneur’s venture needs funding in order to survive and expand, but it is risky for investors to put money into a business that is only in its early stages. The whole process can get pretty frustrating.

Before searching for funding, entrepreneurs need to know, or at least have an idea, of how much money their venture needs. The entrepreneur may know the amount of money needed to keep the show running, but there might not be enough matrices–such as customer figures and sales forecasts–in the early stages to justify the figure. There is no single answer or fixed formula to calculate the required amount. To further complicate things, most entrepreneurs overvalue their ventures and hence feel that the investor is pressing for a hard bargain, or leaving them shortchanged.

Here are a couple of important factors that entrepreneurs should keep in mind when raising investment:

Quantifying the required investment: The funding that a startup receives comes in waves [or rounds or series], which are dependent on the milestones set up for moving the business from one stage to another. Milestones in the early stages could include designing and preparing a prototype, setting up a production and service location, having customers who have used the product and can vouch for it, and breaking even. The amount of investment should be enough to take the venture from one milestone to the next. Remember, investors become stakeholders, and they want to see how their money is being used.

To provide a clear picture to investors, calculate all the expenses and investments to be incurred during a specified period. Try to break up the costs into as granular level as possible—such as the amount of money required to set up a prototype, investment required to procure office space, the first manufacturing facility or a service center–so that it’s easier to defend your decisions with the investor. To be on the safe side, and to meet any eventuality, build a margin of safety, or a buffer amount, in the calculation. On a broad level, the investment required should be money needed to take the venture from one milestone to the next, plus the buffer amount.

For each of the line items in the break up, have a justification and the value that the cost will bring to the venture. The justification of these costs will help in proving the claim of the entrepreneur on the return on investment.

Stake dilution: Once the entrepreneur has an investment amount in mind and has identified the source of funding, the actual process for investment starts. But the money doesn’t come free. While the entrepreneur sees the value in the business, the investor also sees the risk attached to it. Investing in a startup is a big risk, so investors will look for a big reward as well. The investor will ask for a stake in the venture.

The next question for the entrepreneur is: How much stake should be diluted? Again there is no fixed formula for calculating this. The textbooks say the stake diluted should be in accordance with the valuation of the venture. The amount of money invested on the valuation gives the percentage stake to be diluted. But the reality might be different.

A key rule of investing in new ventures is: The one who holds the gold, makes the rules. If the venture is started by a serial entrepreneur with proven credentials in his earlier ventures, more money can be raised with smaller stake dilution. On the other hand, a venture capitalist who, along with the required investment, is able to bring in mentors and much needed access to contacts and customers, can demand a bigger stake for smaller investment.

A word of caution: Although entrepreneurs are desperate to have investment in the early stages, they should be very careful about the amount of money they raise. This is because the cost of investment in early stages is very high. One has to dilute a substantial chunk of stake in return for the investment. Even if the investor is willing to give out more money than required, don’t fall for it. My advice to the entrepreneurs is to take the money required only for moving from one stage to the next. If the next milestone is achieved, the cost of investment will be lower. Then you can raise bigger amounts for less stake dilution.