Venture Capital

Assignment

Submitted By :
Kanika Ohri
Roll no-16028
Problems faced by Indian Start-ups these days:

1. Market Problems
It is the problem of being little or no market for the
product that is being introduced.
There is not a compelling enough value proposition, or
compelling event, to cause the buyer to actually commit
to purchasing.
The market size of people that have funds is simply not
large enough.
2. Location
India is a place of varied culture and taste, thus, every
product might not be welcomed equally by every region
A survey found out that 42% of the failed start-ups
attribute their failure to the lack of their market need
3. Business Model Failure
Entrepreneurs assume that by building an interesting web
site, product and service, customers can be acquired
easily. It is possible for first few customers only.
In many cases the cost of acquiring the customer (CAC) is
actually higher than the lifetime value of that customer
(LTV).
They do not focus on questions like- Can they find a
scalable way to acquire customers; Can they then
monetize those customers at a significantly higher level
than the cost of acquisition

The CAC / LTV Rule

CAC must be less than LTV; where

CAC = Cost of Acquiring a Customer

LTV = Lifetime Value of a Customer

Computation of CAC:
To compute CAC, we take the entire cost of sales and marketing
functions, (including salaries, marketing programs, lead
generation, travel, etc.) and divide it by the number of
customers that have been closed during that period of time.
Computation of LTV:
To compute LTV, look at the gross margin associated with the
customer (net of all installation, support, and operational
expenses) over their lifetime.
The Capital Efficiency Rule
It is important to recover CAC in less than 12 months.
4. Poor Management Team
As per a survey, 23% of the failed start-ups had the wrong
team
They are often weak on strategy and building a product
They are usually poor at execution, which leads to issues
with the product not getting built correctly or on time, and
the go-to market execution will be poorly implemented
5. Cultural views and lack of infrastructure support
Infrastructural support such as incubation and funding are
not easy to find in India
Irregular power supply, telephone reception network, etc.
can be a hindrance to the growth of any business
Corruption free environment, friendly regulations, good
connectivity, healthy environment, efficient logistic
support, can help a great deal in attracting investor in the
country
6. Running out of Cash
Management might fail to achieve the next milestone
before cash ran out
Many times it is still possible to raise cash, but the
valuation will be significantly lower

When to hit Accelerator Pedal

Data is available that conclusively shows the cost to
acquire a customer
Ability to monetize those customers at a rate which is
significantly higher than CAC
7. Product Problems
Most of the time the first product that a start-up brings
to market wont meet the market need
The product might be way off base
8. Absence of mentor
Young entrepreneurs usually have unique ideas however
they lack experience
Industry insights, market knowledge, business experience
is important to materialize the idea. Mere ideas cannot
propel start-ups
9. Fragmented Market and the Dearth of Domain
Knowledge
The largely unorganized and fragmented market in India
stands as one of the biggest hurdles for start-ups on their
way to success
It is not easy to build a strategy to move ahead and
capture the larger market
One must cultivate a strong domain knowledge
10.
Reinvent Constantly
Customers today are very adaptable to change
The need is to constantly reinvent and come up with a
service to be able to match up customer expectations
11.
Third Party Growth Decelerators
The influence of external organizations is one of the major
issues
It includes businesses, incubators, institutes and all such
organisations which are trying to control, manage, take
advantage for their events, brand or just numbers

Difference between an accelerator

incubator and roles of each:

and

an

An accelerator takes single-digit chunks of equity in externally

developed ideas in return for small amounts of capital and
mentorship. Theyre generally truncated into a three to four
month program at the end of which the start-ups graduate.
Role of an accelerator-It offers start-ups low cost space,
business services talented employee and contacts who
can help find customers and partners in exchange for a
small stake.
An incubator brings in an external management team to
manage an idea that was developed internally. Those ideas can
gestate for much longer periods of time and the incubator takes
a much larger amount of equity.
Role of an incubator-The companies that are part of an
incubator can share the same facilities and share on
overhead expenses, such as utilities, office equipment
rentals, and receptionist services that help to save
operating costs. Incubators can tap into their networks of
experienced entrepreneurs and retired executives, who
can provide management guidance and operational
assistance.

Top incubator in India

Angel Prime

Location: Bengaluru AngelPrime is focussed on start-ups in

the middle that need seed capital, it invest in not more than
3-4 companies a year.

Founded In: 2011

Focus Area: Mobile internet, ecommerce and tablet/mobile
app
Funding: USD 200K- 600K
Notable Start-ups: Ezetap, HackerEarth
AngelPrime brings ideas and entrepreneurs together,
fueling this with much-needed mentorship and seedcapital
to
rapidly
create
successful
start-ups.
AngelPrime is the brainchild of serial entrepreneurs
Bala Parthasarthy, Shripati Acharya, Sanjay Swamy
who have a proven track record of launching and scaling
very successful companies in India and the USA from
scratch. AngelPrime is filling a key gap in the Indian
start-up eco-system enabling entrepreneurs to focus
on building great companies while relying on an
entrepreneur-friendly, been-there, done-that set of
committed co-founders, advisors and mentors whose
incentives are squarely aligned with company success.

Top incubator abroad

Y Combinator

Location: Mountain View, Calif.

Founded in: 2005

Notable Start-ups: Dropbox and Airbnb
Y Combinator has a natural perhaps unfair advantage
over others because it has been around longer than
many others. Therefore, its companies have had more
time to grow. Y Combinator has also been popular
among investors, judging by the types of deals that are
getting done for its companies. For its most recent
batch of companies that pitched to investors in March, a
select few start-ups were trying to raise convertible
notes at caps of $10 million, $12 million or even $15
million.

Y Combinator established itself by bringing in talented

technical founders and encouraging them to build a
start-up and launch it in three months.