Small business struggles to find venture capital funding in India

A couple of entrepreneurs from small town in India were profiled for a story from Live Mint. The businesses have been able to turn big profits while benefiting people on the bottom of the economic period. The entrepreneurs profiled want to expand, but have had trouble attracting venture capital to do so.

From The Wall Street Journal's Live Mint writer Deepti Chaudhary describes the challenge to find funding.

Bangalore: Gunjan Kumar’s business proposition is simple. The 28-year-old buys traditional art and craft products from artisans in villages and sells these in metro cities.

Kumar started Amethia Apparelz and Co. in Patna 18 months ago with Rs6 lakh. In its first year, the firm earned Rs33 lakh in revenue and expects to end fiscal year 2010 with Rs1.65 crore.

In another part of the country, Nafisa Radiatorwala’s start-up, Nature’s Glow, is clocking 10 times the revenue it made two years ago. The Vadodara-based firm in Gujarat exports herbal beauty and treatment products to the US, UK, and the United Arab Emirates, and hopes to end 2009-10 with revenue of Rs5 crore.

Kumar and Radiatorwala are among several profit-making entrepreneurs in India’s small cities and towns keen to attract venture capital (VC) investment as they look to expand.

Deal contribution from smaller cities and towns increased to about 15% in the previous year from below 5% earlier, according to estimates by four investors Mint spoke with, but not many start-ups from these regions have been able to raise capital from VC funds.

“Investors like glamorous business models,” Kumar says in crisp Hindi. “Ours is a very bottom-of-the-pyramid model but a highly profitable business. Our products are sold from four times to 10 times of their production cost.”
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Investors say reaching out to these firms poses several challenges.

“How does one discover what is happening there? Also, due diligence becomes a difficulty while dealing with these firms,” says Kanwaljit Singh, managing director, Helion Venture Partners, one of India’s biggest and most active investors. “Secondly, post-investment ability to work closely with them is not easy.”

Shradha Sharma, founder, YourStory.in, a website focused on start-up firms, says entrepreneurs from small cities and towns are not Internet-savvy and do not know how to make business propositions even “if they do get a chance to meet investors”.

Radiatorwala, for example, has heard of VC firms but isn’t sure about how they work. She is looking to raise money to start selling over-the-counter products in India in six months and expand to Africa but isn’t sure whom to approach.

“I am still working out if I should go to banks or other investors for funding my future plans,” she says.

RT NextBillion.net