Clarity of goals and good team are crucial to attract funding: Sunil K Goyal YourNest Angel Fund

It’s time to ride the entrepreneurial boom, Sunil Goyal tells ET Wealth. He also talks about the key factors that can help a start-up secure funding and the investment opportunities for HNIs.


In India, people are leaving cushy, salaried jobs to become entrepreneurs. Has this trend begun to pick up? Yes, the entrepreneur culture in India is picking up fast. The number of applications in the angel network have shot up from 50 a month in the past two years to 300 a month now. Besides, entrepreneurs boasting 8-10 years of work experience are coming forward to help newbie entrepreneurs. This is the best model for seeding and the investor circle looks forward to such combinations. They are also being helped by mentors from the industry and professionals from various companies.

Which parameters do you use to evaluate a start-up for funding?

There should be clarity in goals and thought process. A good team is crucial. The entrepreneur must play the role of an operating head and build a strategy. The team must have a technology head, a long-term technology strategist, as well as a sales and business development head. Such a dream team is rare to find, but if we realise we have found one, we go for it. We have devised a concept called SMART businesses, where S stands for one specific goal at a time; M stands for measureable, that is, the business and its growth should be measured on a key performance indicator; A stands for attainable, where the team must believe that the goal is achievable; R stands for realistic business model, which shows the customer’s trust; and T is for tangibility, which is linked to being a realistic business model.

Which is more important, an innovative idea or a sound business plan?

The first one is far more important, but it’s crucial for it to be supplemented by a good team. An idea may be fresh, not innovative, but if it comes from a good team, then secondary issues like recruiting and team building can be pruned along the way. We don’t even look at P&Ls and balance sheets initially, because it might turn obsolete in a span of 3-6 months.

How can an early-stage venture get noticed by a venture capitalist?

The key element is the USP of the company—why the entrepreneur thinks he can do it better than the others. Also important are his knowledge of entry barriers in the sector and the intellectual property that can be patented or retained by the company, which will give it an edge over its peers. Of course, the competitive streak in the industry and awareness of the level of risk that can be taken counts. Good customer reviews are a plus.

Tech and IT seem to be venture capitalists’ favourite sectors when it comes to funding. Is there scope for other sectors?

There is no bias towards a specific sector and technology is imperative in all the sectors these days. We are on the lookout for realistic projects (by first generation entrepreneurs) that are scalable due to the technology and business model. If a model does not get consumer attention within 2-3 years of inception, it would seem far-fetched to fund it.

Global players with high valuations are entering the e-commerce space in India. Is e-retail a sustainable business model?

Any model backed by a realistic production chain, delivery mechanism and customer service is sustainable. Funding for such models may be delayed, but if they can satisfy their customers, they will witness the 2011 valuations. Last year, everbody wanted only the top three players in each sector. The fourth to sixth in line found it tough to get funding. They may still find it tough unless they demonstrate sustaining power.

Is e-retail a bubble waiting to burst?

Falling company valuations do not signal a bubble burst. It happens when a sector is written off in the market. This is not the case for e-commerce retail. There may be a slowdown for some time, but the funded businesses are going to nurture and take over the market share. For the ones that are awaiting funds, venture capitalists are going to wait for sometime before they can allocate the capital, unless they come forward with a differentiated business approach.

Investing in start-ups is being sold to HNIs as an opportunity to make money. How good an investment idea is it for them?

In India, we don’t have more than 600 angel investors. Compare this with the US, where out of 6 lakh, only 2.5 lakh were actively investing in 2010. However, HNIs in India are doubling every 2-3 years. They are over-exposed to real estate, but are looking at newer avenues to earn high returns and aspiring to be mentors or angel investors. It is important that they are given an offering where they can commit a lesser amount. Since early-stage funds are locked for 6-10 years, only the affluent can stick on for that long. We advise investors, who have a net worth of a million dollars, apart from their property, to invest 5-10% of their capital in start-ups. It is easier for them and they are coming forward to do it.

Why is India not seeing good consolidation and success stories of good exit strategies?

India Inc has not seen consolidation (large companies acquiring smaller ones) at the rate at which we have witnessed it in the US. Hunger for growth pushes the Indian corporate sector to look outward at acquisitions when their internal processes don’t give them newer growth ideas. It’s during this period that consolidation will take place. The moment these consolidations begin, start-ups will see better exits. Moreover, any exit given by a private equity buyer will not be as lucrative as the one given by a strategic buyer because the latter has the balance sheet and core knowledge to support and build the business.

How can the Indian start-up environ approximate that of the Silicon Valley?

In the Silicon Valley, most people enter B-schools only after they have acquired a work experience of 4-5 years. Compare this with India, where we see more freshers entering B-schools. One cannot appreciate what is being taught at these management schools unless one has slogged in a business set-up.

What’s your advice to other venture capitalists and angel investors?

India needs more angel investors. Risk capital for India can now come from within India. For investors in the industry, who have a risk appetite and have made money from the booming Indian economy, it is time to earn higher returns or sustain these by riding the entrepreneurial boom. Hence, they should be looking at allocating money in this alternate asset class.