August 20, 2010

"Can Capital be a Curse?" - Article by Sanjay Anandaram

This article originally appeared in the Financial Express. Reproduced with the author's permission.

The CEO naturally looked downcast as he pondered the imminent shutting down of his company which had a well known brand and enjoyed a reputation as a maker of high quality, well designed products. The management team seemed energetic and enthusiastic. Yet why had things had come to such a pass?

“I think we had too much easy money,” said the CEO. I asked him to explain what he meant. “When we started the company, the team, the concept, the business model and the market opportunity were all very attractive to investors who, flush with capital from freshly raised funds, were eager to make investments. Given this interest, we raised funds at a very attractive valuation in less than 45 days and without having to answer too many questions. We believed we were unstoppable. We set up a great office in a not inexpensive part of town, created a very informal and casual culture with flexi-times, set up excellent infrastructure to enhance productivity and hired the best. It seemed like we were the darlings of the media as well. Our launch event was very well attended and our products were exceedingly well received – everyone appreciated the quality, the innovative design, the choices, the colours and our commitment to society. You see, we’d also promised to donate a certain percentage of our sales to the under-privileged. Soon we signed up distributors to sell our products as well.”

Then what happened?

“Well, the market started slowing down and we didn’t see it soon enough. We kept insisting that the market had yet to fully appreciate our products, business model and goals. That the market would soon learn to value high quality, top designs and the choices that were on offer. However, to keep sales ticking, we were forced to drop prices. To still keep making money with our cost structure, we convinced ourselves that we had to have higher volumes of sales. To achieve this, we had to go national – more distributors and retailers, more warehouses, more sales and support people, more procurement and manufacturing, more marketing, more investment in IT systems and the like. And of course, all this required more funds. We had no problem in raising this additional financing with no real questions being asked, yet again. Our story was so attractive! Board meetings were casual and friendly without too many questions being asked. I was essentially given a free hand.”

“But we hit a wall over the next 18 months. Actually, several walls. Our receivables position was becoming alarming as distributors and retailers were facing a credit crunch, our procurement costs were still very high, logistics and warehousing costs were not reducing, attrition in sales was increasing, only some designs were selling while we had a huge inventory of unsold designs, export orders had got rejected on account of damages in transit and some big retailers were very keen to renegotiate sales commissions and payment terms. Our board was getting concerned since we were also running low on cash. Existing investors provided additional funds, this time as a loan to be converted into equity when we raised more money later. This time they asked more questions and ensured that the loan had certain covenants attached. Unfortunately, this money too proved too little as we were unable to successfully negotiate the changed market circumstances. Investors were very upset and refused to provide any more capital. They were realizing how quickly the money had gone down the chute – they hadn’t bothered asking too many questions or trying to understand the costs, product, business model and pricing issues. We too were busy trying to build great products, designs and brand without worrying about fundamentals. There was too much money that came our way too easily. We didn’t have to work hard to justify our business plan. There was therefore no discipline and rigour. Investors were carried away as well with the team and plan and the promise.”

Easy come, easy go is an old saying. If something’s not been really earned but been almost handed over as an entitlement or a gift, its value tends to get undermined over time, sometimes very rapidly as in the above example. There are enough examples all around of all types of businesses that have lost their way because they came into too much money without being questioned and without having to really work hard in a disciplined and focused manner.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at The views expressed here are his own.

August 02, 2010

Cleantech Investors Set Sight on Solar, Water Related Cos.

Catalyzed by new government policies favouring Solar Energy and multiple demand-driven opportunities for water-related companies, Private Equity & Venture Capital firms are focusing keenly on these Cleantech sectors, reveals a new report from research firm Venture Intelligence.

Private Equity and Venture Capital surveyed recently by Venture Intelligence, a leading research firm focused on Private Equity and M&A deal activity, selected chose Water & Wastewater Engineering, Energy Efficiency, Waste Management & Recycling, Energy Infrastructure, Pollution Control and Cleantech in Manufacturing/Industrial Environments as among their favourite sectors within the industry. The survey results are published in the in the newly released report from Venture Intelligence titled “Private Equity Pulse on Cleantech”.

In addition, expert articles by both PE/VC investors and advisory firms in the report, point to rising investor interest in solar energy. Citing how the accelerated depreciation incentive has helped India to become one of the top players in wind energy, Parag Sharma of KPMG says the new government policies relating to Solar Energy are set revitalize that sector. “The large solar capacity addition plans by centre and state governments ensure that there is a lot to play for and for a lot of players,” he writes. Rama Bethmangalkar and Siddhartha Das of VC firm Ventureast point out that, with technology rapidly bringing down the cost, there are already many applications - be it powering remote villages, cell phone towers, or street lighting - where solar already is the least expensive source of power. Kalpana Jain and Sandeep Negi of Deloitte highlight how with the launch of the National Solar Mission, provides an investment and revenue generating opportunity of over US$ 40 billion across the solar value chain from polysilicon manufacturing to generation.

The article by Shivani Bhasin, CEO of PE firm India Alternatives, points out how, from a private equity perspective, Cleantech presents both “good news and bad news”. The “good news” is that the market is huge and growing fast. The installed generation capacity from renewable energy has increased over ten-fold during the last decade and will continue to grow steadily, leading to an investment requirement of US$20 Billion over the next few years. The “bad news” is that certain aspects of Cleantech are still reliant on government subsidies and the gestation period for Cleantech projects may be longer than the average holding period of private equity funds.

The Aloe Private Equity article on the waste management and recycling opportunity points out how, as nearly 10 million Indians subscribe to a new mobile phone line every month, the amount of waste batteries will become tremendous. A battery is made of very valuable materials, and new techniques are emerging to recover the maximum proportion possible. The article also says that it is important to integrate and capitalize on existing systems while building the waste management models of the future. One should not see the informal sector as a direct competitor to a formal sector in its infancy, but rather as the basis on which to start a comprehensive scheme, able to access a very wide market more rapidly.

Writing on the carbon credits opportunity, Ritesh Banglani of VC firm IDG Ventures India points out how while India’s role in the carbon market is currently very small compared to the size of its economy and its power industry, its registered carbon credits is expected to grow to 33% by 2012, by when it is also expected to be the world’s fastest growing CER supplier. In addition to the global carbon trade, a large domestic market is expected to come up in the next 5 years with the introduction of two new domestic cap-and-trade programs. Banglani feels there are several significant opportunities for Indian services companies in every part of the carbon value chain - from Carbon Advisory to IT Services for the segment.

In his interview in the report, Sagar Gubbi of Ecoforge Advisors says the sectors within Cleantech that are likely to generate the most interest among investors include Renewable Energy generation projects, particularly grid-connected Small Hydro, Wind, Biomass and to a smaller extent Waste-to-Energy and Solar PV projects. He points out that the opportunities for start-ups is more in providing services that feed into renewable energy generation, off-grid renewable energy and in the green lighting sectors.

In her article, Charandeep Kaur of Trilegal points out the key regulatory changes that private equity investors in the solar sector should watch out for. She also highlights how the newly introduced Renewable Energy Certificates (RECs) mechanism would be changing the economics of renewable energy projects.

For the convenience of entrepreneurs, the report provides a listing of investors and advisory firms with a special focus on Cleantech.

The report can be downloaded from

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