The India entrepreneurship scene is vibrant and diverse, but founders expecting to raise capital in this bustling market should expect to deal with local investment terms. As a scout for Unitus Seed Fund, we receive various proposals from entrepreneurs pitching. More often than not, there is a disconnect between the entrepreneur’s and investor’s expectation.
While there is no standard definition for the term "early stage," the term as typically defined in Indian venture capital applies to startups with <USD $200,000 of revenues and/or <12 months of operation. Exceptions always exist, as for some of the following rules.
Here are 3 thumb rules that early stage entrepreneurs could follow to increase their chances of investment in India:
Expect to Offer 10–30% Company Equity
Most sophisticated investors will take a minority stake at an early stage. <10% will not remain significant after further rounds of funding while >30% will take the moral incentive away from the entrepreneur. Indian investors typically make bets on ventures within this range.
Expect a Valuation of USD $1 - 1.5 Million
In conjunction with the stake % and the valuation, one should expect to raise $100,000-$450,000. The exact number depends on various factors but it boils down to a table top negotiation between the two parties. This means that if your venture is looking for a smaller or larger investment from venture capital investors in India, you may have a harder time negotiating these terms.
Expect a Founder’s Monthly Salary of USD $500 - 2,000
Factors such as number of founders, years of experience, and relevance of experience will decide the exact number, but these are the terms typical to founders in India. Investors fairly expect that maximum portion of the money invested should go towards scaling the operations. The entrepreneur's primary compensation is keeping a larger stake in the venture to continue aligning investor and entrepreneur goals to grow the value for his or her eventual liquidity event. Of course, for Western readers, this type of salary can go far in India.
It is alright to raise money with some buffer, but the investor will make sure that every penny is accounted for and the key performance parameters are met. Be realistic while being fair, and work with the ambition that the investment in the first round will be a rounding error in the amount you go onto raise.
Have you run a business or raised money in India? Tell us about your experience in the comments.