What started off as an exercise to draw up a tool-kit for entrepreneurs as part of the CII national council on innovation and entrepreneurship, got transformed into a handy manual for start-ups in India, using Indian examples and the local context.
The Manual for Indian Start-ups: Tools to start and scale-up your new venture is, in the words of two of its authors – Vijaya Kumar Ivaturi, popularly referred to as IVK, founder and CTO of Crayon Data, a big data analytics firm, with vast years of corporate experience behind him, and Sriram Subramanya, Chairman and Managing Director, Integra Software Services, an entrepreneur and an angel investor –meant for entrepreneurs in the first three years of starting their ventures. “It is like a living document targeting entrepreneurs in the first three years of their journey, something that they can refer to. It is not a substitute for a lawyer or a chartered accountant whom they will hire for advice,” says IVK.
Relevant for entrepreneurs
What makes the book relevant is that it deals with issues right from the stage an entrepreneur getting an idea to starting a business to building the team to forming the actual venture to getting the help of mentors or advisers to protecting intellectual property rights to marketing to raising funds. For each of these issues, the authors have explained what needs to be done, given a template for some of the agreements and have spoken to entrepreneurs who have narrated their experiences. This is what makes the book interesting and relevant for an entrepreneur. A key issue it deals with is the founders’ agreement, setting out in detail the roles and responsibilities of the founders as quite often more than one founder with equal rights leads to problems and their power equations determine how decisions are taken. Invariably, problems arise among founders when the venture is set to scale its business when each founder has a different view on how to do that.
Apart from IVK and Sriram, the manual has been authored by Meena Ganesh, Managing Director and CEO, Portea Medical, and a serial entrepreneur; Alok Mittal, co-founder and CEO, Indifi, a platform for enabling debt finance for small businesses, who was a venture capitalist and is an angel investor; and, S Sadagopan, Director, International Institute of Information Technology, Bengaluru.
IVK says there are many books setting out the basics for start-ups, but all of them are written with an American mindset and context. “Some of them are applicable in India, but when it comes to the operating level, we are quite different,” he adds.
He says that a large number of entrepreneurs, because they are performing multiple tasks, do not maintain any records. They just tend to jot down on a piece of paper how much they have invested and what they have spent without having any records. This will become a problem when they go in for a fund raise, even at the seed stage. In the US, because a majority of the start-ups go through accelerators or incubators, there are proper systems in place even in the initial years. In India, accelerators and incubators, which are like finishing schools and ensure that there is functional completeness, are becoming popular only now.
Both Sriram and IVK say founders should themselves go through the clauses of the various agreements and hire lawyers and chartered accountants to help them understand some of the clauses. For instance, investors in the ventures have something called affirmative voting rights, which are crucial.
While the founders take day-to-day operational decisions, investors are extended affirmative voting rights under which the founders or the board of directors cannot take a decision without the express approval of the investors. Then there are reserved matters, for which too the investors’ sign off will be required. When they are getting a lot of money, says Sriram, the young entrepreneurs tend to agree to a lot of conditions. They should negotiate right at the beginning and ensure clarity on all issues, and once something is agreed upon, they should implicitly follow it. Adds IVK, the entrepreneurs will sign because they need the money.
He also warns entrepreneurs against blindly accepting money from an investor that is prepared to give a higher valuation than others that have valued the venture. There will be a claw back clause. If the venture does not meet milestones, the founder will end up giving more of the company. If this continues, the entrepreneur will end up losing the company completely to the investor. “It is a serious matter. If somebody is giving a high valuation, you should be really thinking why,” he adds.
That is why, says Sriram, entrepreneurs will be better off engaging an investment advisor and a corporate advisor, and the entrepreneurs should take a judicious decision based on their advice.
Fund raising, according to Sriram, should not be the goal of the entrepreneurs. They should always focus on their vision and seek to achieve traction for this vision. They should look to achieve break even at the earliest and then scale, and once this happens, all other things will fall in place.
According to Sriram, the manual becomes more relevant because of the huge number of jobs that need to be created in the country. Entrepreneurship is one way of generating jobs. The ecosystem in the country is falling in place. There are a lot more seed and angel investors than there were a decade back, more incubators and accelerators are coming up, gradually government policies are falling in place. The manual is meant to help speed up the pipeline of entrepreneurs. What needs to be done is to inculcate entrepreneurship in schools and colleges, maybe even tweak the curriculum to achieve this, adds IVK.