Seed Capital From Angel Investors: Pravin Gandhi, Seedfund – Mumbai, Bangalore, New Delhi, India (Part 4)

By guest authors Irina Patterson and Vandana Upadhyay

Irina: How many people do you have working in your incubator now?

Pravin: We have four outside advisors who work once a month or once a week, with these companies depending on the requirements. We have somebody who understands retail, somebody who understands the Internet, or somebody who understands media. The appropriate people get assigned to the companies.

We provide them with a physical space in Mumbai and the idea is that they shouldn’t stay there for more than nine months.

Irina: How many entrepreneurs are in the incubator right now?

Pravin: We have two companies in the incubator right now and hope that a third will begin next month.

Irina: You give them seed money. How do they usually spend this money?

Pravin: We generally start with the first tranche of $100,000 to $200,000 to do a proof of concept.

For example, we have a chain of dental clinics. They will use the money to do three pilot clinics and figure out what is the right unit cost for each clinic; what is the customer preference; what sells.

We have another company in the incubator that is doing comics. They have unique properties in comic books, and they have developed some characters. So, they are using the seed money to figure out how they are going to make money in their business. The idea is to help them get out and to get their content to be popular and do a good job with whatever they have.

Irina: When you invest in companies, do you consider their valuation?

Pravin: Yes. There is always valuation. We are reasonably fair people, but at the same time obviously since we are early-stage investors, we do take a largest chunk of equity.

Typically our investments will be around 30% to 45% ownership. If entrepreneurs are too focused on their valuation, we don’t invest in them. They need to assesses the value that we could bring in and if their comfortable with the deal, then we invest.

Irina: Do you think about exits when you invest?

Pravin: Typically, we don’t expect to exit for about five years, so that discussion doesn’t happen early in the game. We may start the process at the time when we are closer to that potential exit opportunity. We also believe that if you have created a good company, the exit opportunity will come on its own. It is for the ones that are so [new], we have to work a little harder to find the exit for them.

Irina: When should entrepreneurs seek funding from you? At what state of their business development should they be?

Pravin: As I said, they must have a viable idea. Obviously, we would love to have something that is already working on the ground, but it is not a necessary condition.

What is more important than anything else is that there is a team that can execute. Most of the stuff in India is going to be around execution. So, the team has to have people who understand execution challenges and are able to meet them.

Irina: When you evaluate your potential investment, do you look at the size of the market?

Pravin: Very often, the availability of data in this country is quite poor, and it is very challenging to find data. We do know what is missing in the market place. For example, if you are doing dental clinics, it is not that the dental clinics are not needed. It would be lovely to have more dental clinics and people need dental care. So, the challenge then becomes how well you execute and find consumers who come to you.

If it is an Internet play, we do research on how many consumers or users are there and topics like that. Some basic research goes on, but not a lot because you are the first one to do it.

Another criterion we have is, Can we take a leadership position very quickly in that whatever we invest in? For example, with our investment in CarWale, it was by far the biggest car portal [in India]. Some seven other car portals has been launched,  but CarWale was by far the biggest by a factor of 10 to 20 in terms of unique visitors and revenue.

This segment is part 4 in the series : Seed Capital From Angel Investors: Pravin Gandhi, Seedfund - Mumbai, Bangalore, New Delhi, India
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