It was a week just before Diwali during early 2000 that a young technology professional Phaneendra Sama, working in Bangalore was eagerly looking forward to the holiday break and being back with his family to celebrate the festival in Hyderabad, Andhra Pradesh. Given the holiday rush, he went through a tough situation in getting tickets for the bus travel from Bangalore to Hyderabad. That started his thinking and he ideated about creating a platform to connect the travel service company with travellers. That was the origin of RedBus, a platform which is in use on a high frequency day in and day out. Sama had this brilliant idea and along with his few friends, who believed in the idea, started developing an aggregating platform for bus service providers. With a small team in place and at a common shared apartment, Sama started the venture and when he wanted to consolidate and expand his idea, he needed some platform which would give him basic funding or seed capital.
He approached a fund called Seedfund in Bangalore, a fund which specializes in offering start-ups seed funds. The fund managers, who were seasoned professionals, believed in the idea of Sama and provided seed capital to take the idea to the market and then grow it further.
And with that funding, Sama built India’s largest bus service aggregating platform which was later acquired by Naspers at a valuation of US$300 million. The idea was great and the seed capital from fund managers who gave an important support played a long way in Sama developing the product.
Seed capital or funding for entrepreneurs in the early stage of their journey is extremely critical and there is heightened focus from various reputed funds as well as professionals who have built organisations, created wealth for the ecosystem and who are willing to back bright ideas from the next generation of entrepreneurs.
Seed funding in the recent past has got into a structured format with many funds focusing on this much ignored aspect. However, even as the structure of the funds and how it has been administered was being crystallised, there are many individual high net worth accomplished professionals who are supporting bright entrepreneurs. The individuals are termed as Angel Investors, who come with significant experience in structuring the idea with sharp Go-To-Market strategies and bring in a wealth of experience in building the business.
Infosys Co-Founder Kris Gopalakrishnan, Tata Sons head Ratan Tata are notable among angel investors who are actively involved in the seed capital segment. It is an immense boost for fledgling investors who are looking to take wings and when you as a start-up have such reputed names as investors, it is a good step forward.
Every great idea needs legs to help it stand up in the world of business, this is where seed funds come in.
How Does Seed Funding Work?
Seed fund is the investment which an entrepreneur raises after the idea has been firmed up and the process of execution of the idea has been initiated. Entrepreneurs have bootstrapped their start-ups to an extent and are now looking to add wind to their sails. It can be through a network of family members or from friends who are willing to back your idea in exchange for a part ownership in your start-up.
Beyond that circle are your professional mentors, seniors in your organisation if you are working and you have a good working relationship with them or it can be through the angel investors. If you have the adequate network to approach established corporate honchos. Seed fund-stage investors work with entrepreneurs to build a solid foundation and prepare for growth via funding, strategic and operating support, providing critical connections and securing growth capital to validate market potential. This aspect of providing a stepping stone for start-ups to stabilise their idea, sharpen the structuring, and crucially using their seed fund/angel investors networks to gain access to the next stage of venture capital funding is how seed capital is extremely critical to start-ups.
How Is The Seed Funding Segment Maturing?
Since the early 2000s, the segment of seed funding has seen significant progress. The concept of having a good network of established angel investors was initiated by a networking group called ‘The Indus Entrepreneurs’ (TiE), which acted as an immersive networking platform for budding entrepreneurs and established angel investors. Well-known entrepreneurs turned angel investors such as B.V. Jagadeesh who had built organisations of repute in the Silicon Valley in the United States started to spread TiE network in India and it is now present in almost all major entrepreneurial hubs of India.
TiE has been playing an important role since the early 2000s in finding the next big idea in the Indian ecosystem, channelling focus, firming up business plans and building a bridge between angel investors and entrepreneurs.
Drawing parallels from the TiE platform, the pool of angel investors has been growing admirably in the Indian subcontinent and today there are more than 20 angel networks in India which have built good credibility.
When a start-up gets to work with angel networks, the advantages are numerous. Entrepreneurs get to leverage a global investor and funding base, gain insight and feedback from a diverse investor group, access a network of mentors and advisers with industry-specific expertise and connection and access to global markets through member networks across the globe.
Seed funding empowers entrepreneurs at all stages from incubation, throughout the entrepreneurial lifecycle. With a global reach and a local focus, these established networks have extensive resources to dip into foundational programs, Mentoring, Networking, Education, Funding and Incubation. Start-ups have a wealth of experience to leverage their ideas on. The aspect of networking and getting connected is an important element which start-ups can leverage on. With amazing networking effects, these networks connect the entire entrepreneurship ecosystem from early-stage entrepreneurs, serial entrepreneurs, professionals at leading corporations, venture capital, angel investors, thought leaders among others.
The angel networks have been maturing and there are various chapters and focus which has emerged. Young entrepreneurship, Women Entrepreneurship and Social entrepreneurship programs, Special Interest Groups, Deal Flow meetings, are some of the focuses which have been thriving in the recent past.
Seeing the emergence of this as a good asset class of investing, there is an emergence of professionally managed seed funds which has been established and there are more than 15 well-managed funds which are active in India. These professional fund managers act on behalf of investors in their funds and attempt to make a visible difference in backing early-stage companies.
With a little money and a lot of attention these seed fund managers plug the gap in the ecosystem. By providing guidance, perspectives, ideas and connections. According to industry analysts, seed funds do not just fund your start-up, but are a professional partner to help navigate as start-ups prepare for and achieve growth.
In addition to providing capital, seed funds provide you extensive value-added support through its team, partners, other portfolio companies, investors, industry and ecosystem networks. These funds provide support on business development, business operations, fundraising and strategic recruiting in addition to building plans to get to Series-A funding round.
Seed funds do not merely fund your start-up, but are a professional partner to help get the business stabilise in the initial stages of the launch.
Incubators To Seed fund
The angel investors who are active in the entrepreneurial ecosystem have been parallelly working on finding the next big idea at many universities and are going aggressively to fund students who are keen on their entrepreneurial journey from an early stage in their careers. Indian Institute of Technology in Chennai and Mumbai have been extremely active in attracting angel investors and they have dedicated specialised tracks to pursue start-up journeys.
N.S. Raghavan, co-founder of Infosys, has set up an incubator program at Indian Institute of Management Bangalore, where entrepreneurs, academicians and industry experts come together to create an impact in the start-up ecosystem.
With support from government agencies, corporate and institutional partners, this centre provides a platform to successful and budding entrepreneurs running profit and non-profit ventures by creating access to training and seed funding.
With programs specifically catering to entrepreneurs with profit ventures and social ventures, also student and women entrepreneurs, this centre offers its support to various players of the start-up ecosystem.
The centre brings together start-ups, industry mentors, eminent academicians from its parent institution Indian Institute of Management Bangalore and researchers who thrive on continuous interaction of theory and practice.