Bangalore: "dearly departed, we are gathered here to mourn the passing of a life so carefree, a future so prosperous, a time so cheerful and a promise so wonderful. Those were the words of a vc during a presentation at NASSCOM e-biz 2001 recently. and those were the days when vcs outbid each other for deals, when journalists actually seemed to love them and when they went to sleep, they were clueless but happy. But now, according to Mahesh Murthy, CEO of Mumbai-based passion fund, a surviving vc, it's all about a world of living hell where the devils of down rounds are followed by the Satan of write-offs. All we are confident of earning these days is a 5 per cent on dollars in Mauritius," he says with a touch of wry humour. Knock, knock - here goes the first nail in the coffin. Vcs are looking at investments of Rs 24 crore ($5 million) or more and not start-ups at that. So, for a 25-35 per cent stake the project size should be Rs 70-100 crore. Even at high multiple of 10, revenues will work out to at least Rs 7 crore. So, there has to be a run rate of 1 crore a month, which means that a company should have typically 100 plus people, profitable (only grown through accruals). So, where on earth does one find a start-up with these financial credentials? knock knock - then comes the second nail in the coffin. A vc announces an investment in a public, listed company, at twice the market price of the stock. Maybe a private placement? and, that too in a down market? or in a well-traded stock, at a huge premium? and, all this by a venture capitalist? "When did our vc tribe start behaving like a mutual fund? maybe, after uti?" Murthy asks in a droll voice. The third step, the door of the coffin opens or closes and if the sinners are going to save themselves. They will if they follow these commandments, Murthy pointed out. You got to know what you are into - if you don't know optical networking, stay clear. Be unique or you are dead. or if you are slow, you die too. Be stingy - everyone seeks more than what they need. Discount every ask by 50 per cent. And starve the founders, well not literally but don't give them $4,000 a month. Hire, no young glib mbs - when they start talking about opportunities cost, allow them to seek other opportunities. Cut down overheads, crappier the office better the performance. don't advertise. don't pay for alliances. `Try to break even in one year - can't a firm not earn $25 by 12th month - Kirana shops earn more, by the way. And always look for exit signs. The highway is fine, but how do you get off? and has one got enough decent contacts to make acquisitions work? or an iPod on Nasdaq? forget it. If you think a base listing is easy, ask up (that's Ketan Parekh, by the way). well, there is always resurrection round the corner, right?
This piece was originally published in Times of India.
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