01.06.07
Seeding Dollar Dreams? Not Yet
INDIA is witnessing a lot of entrepreneurial activity in the last couple of years attracting investor interest in the process. Despite 2006 being a blockbuster year with as many as 299 deals worth $7.5 billion being transacted in the overall venture capital/private equity space, the country is yet to see traction in the seed stage funding category.
Seed stage, say experts, is that period between angel funding and series A funding by a VC firm. Research firm Evalueserve in a recent report said: “Early stage VC investments in India can be classified into seed, series A and Series B investments depending upon their value. While seed stage is funding up to $900,000, series A is $ f million to $3 million while series B is between $3.5 million to $9 million.” The report adds that seed stage deals from a high of 74 in dotcom boom year of 2000 has been declining to single digits in the last couple of years. 2005 saw just 5 deals in this space.
2007, however could bring in some much needed cheer to startups with a couple of funds focusing only on seed capital. These local seed funds have come in to fill the gap between ‘friends and family’ funding and foreign VC funding. While Bangalore based Yadathur Holding sprung up about three years ago, names like the Mumbai based Seedfund, Bangalore based Erasmic Ventures and Mentor Partners are now doing the rounds. The last three were set up in the latter hali of 2006.
Bharati Jacob, managing partner of Seed fund says: “There is a need for funds to help companies set up. Funds like ours help them access money and convert their dream to reality.” While the role of the fund depends on each company and entrepreneur, she says Seedfund which is backed by some of the big funds and investors can provide services like technical expertise, create network of contacts, finetune business idea through strategic inputs and guidance and find and hire a management team etc.
That the mentoring aspect is key in the seed stage isbome out by Erasmic General Partner, Prasanth Prakash’s statement: “We are playing in a space where startups need mentoring and finance between angel funding and Series A funding. We work closely with entrepreneurs and optimise their equity with amounts like $500,000.” He has an explanation for the very few funds focusing on this stage people are hesitant to take it up because the mentoring aspect is very tough while there is also a higher amount of risk.
For these newly setup funds, the response has been fantastic. Erasmic is getting at least 34 business plans a week while Seedfund has received about 200 plans since November, 2006.
Stating that Erasmic typically would invest between $500,000 and $800,000, Mr Prakash said: “We have raised $7 million for seed stage investments. We have already invested in two companies Position 2 Marketing, a search engine marketing firm and Holiday IQ, a neutral travel portal. Erasmic plans to fund at least seven to eight companies including these, from the first fund.”