05 March 2015 11:53:45 IST

Why Indian start-up firms (don’t) get funded

The success formula of Vivek Prabhakar and Shubhra Chadda of Chumbak

Is the formula centred on demand-supply or the core business plan of entrepreneurs?

It’s not hard to find stories on investments in the start-up space decreasing, or that Indian start-ups score below ones in more mature ecosystems.

Now, there’s Silicon Valley and there’s India. But there’s also Israel, which is known for its strong ecosystem even if it’s a smaller nation. And many of us observing the space have our eyes peeled for what Chile or Greece can do for the world’s entrepreneurs. Even if there are lessons to be learnt from every ecosystem, it’s too simplistic to pit India with ecosystems that have had a significant headstart, or with those that are much younger.

Investors in India are looking for entrepreneurs with a longer term and a broader vision. A conversation with Sasha Mirchandani last year highlighted this – funding firms like Kae Capital focus on Indian start-ups that have a broad plan to build global businesses. It seems quite clear that the intent is to fund ‘deserving’ start-ups.

Equal players

Let’s switch for a moment to recent news. Chumbak, a design-led India-inspired product start-up, received an undisclosed amount from Matrix Partners in a Series B round. In 2012, the company raised $2 million in a first round from Seedfund India.

A year ago, when CEO and Co-founder Vivek Prabhakar spoke to Start-up Island, he was focused on testing out ideas and Chumbak products.

With the Series A round, he and wife (also Co-founder, Chumbak) Shubhra Chadda focused on building a team that would help them further Chumbak as a brand. From one kiosk in Bangalore’s Forum Mall, Chumbak managed to expand to 50 single stores across 12-14 cities in a year. Chumbak continues to expand with a mixture of kiosks, shop-in-shops or single stores.

However, that kind of success is not down to the entrepreneur alone. Nothing helps the start-up ecosystem like respectful partnership. “Both Seedfund and Matrix have been involved and supportive right from the start, while letting us run with our plans. For a Series B Round, we were looking for investors with whom we could have a great partnership.

“It doesn’t work to have investors on board that merely show us the money and do nothing else. We didn’t want to be micromanaged either. The money part is easy, actually. The partnership is really key,” says Prabhakar.

Rishi Navani, Managing Director, Matrix Partners, is clear that he will only invest in ‘extraordinary’ ventures.

On the decision to fund Chumbak, he says, “At an opportunity level, there is a place for a design-led India-inspired product label. However, in my mind, the entrepreneur had to be either someone who is highly creative or someone who is highly business-oriented. But then a creative person who has design sensibilities with strong business acumen and brand building abilities is hard to find. In our assessment, Chumbak came with that mix.”ss

Sound vision & biz plan

The Chumbak story exemplifies that entrepreneurs with a sound vision and core business plan can not only ramp up in a short time, achieving the ‘scale’ that many investors look for, but also seek the right partnerships.

If, historically, most ‘bubbles’ have led to ‘slumps’, perhaps the formula to making investments cannot be rooted to demand-supply alone. “There is no shortage of funding for good entrepreneurs. I would say a lot of people should not have got funded in, say, 2007 – a largesse of capital led to that, but that kind of movement means investors are going to lose money,” says Navani. In the end, the ecosystem benefits when both entrepreneurs and investors are truly ‘invested’ in the idea, regardless of what numbers indicate in a given time.