Raising funds for your startup? Get the right capital structure

Many startups in India do not have an idea of how the capital structure of their company will affect them and their company. Adding debt can be a smart way to retain a higher ownership of the company and meet government regulations in certain sectors (Flipkart and Myntra received ED notice for allegedly exceeding the foreign equity stake holding beyond what is permitted). Companies must use debt to finance capital equipment/expenses and expensive venture equity for product development and as a bridge between operational income and expenses. Raising debt is more challenging and may require collateral and personal guarantees, but is worth the extra effort.

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How to get into a VC firm in India

The people structure at VC firms is very different from conventional companies and professional firms. There are more people at the top than at entry and mid levels. At the top are general partners or GPs, they have raised the money and have the check book, these are people who have in their past lives been successful entrepreneurs or professionals with several years of experience at top consulting/investment banking firms. The middle level is principals/VPs who have a top notch MBA either from top IIMs or Harvard/ Stanford and a few years of experience, these guys head teams of entry level analysts, legal and core finance professionals to assist the partner by recommending investment opportunities and serve as an extra pair of eyes on the portfolio companies.

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Exits for Indian VC investments: Tough Luck

“How do you spot a VC in a party?” “He looks for the exit, when he enters the party hall” It’s a popular joke I heard at the PE/VC conference at Oxford.

Most common exit options for VCs are secondary sale, acquisitions and IPOs. Secondary sales are not popular for LPs who might have invested in both the sell and buy side VCs and end up losing on the transaction charges. Only a few Indian firms are product driven, most are growth/market stories and do not look attractive targets at their valuations. Unlike their US counterparts, Indian companies are conservative and do not acquire companies to hire top talent. The last exit option is through the IPO route, this is the most expensive exit option due to the high transaction costs.

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