Private Equity and

Venture Capital
Atul Kedia
Nurturing Green – The Growth Dilemma (C)
Session 8

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 2
Key issues
 Whether to grow by product or geographic expansion
 Whether to take VC investment
 dilute the ownership further
 or look to other financing options even at the cost of slowing down the growth
 How to handle the pressures for growth by a VC
 Whether to spread the available funds in new markets or to penetrate deeper into
existing markets
 Whether to expand the brand using franchisee model
 How to plan for the future

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 3
Planning
Strategic Plan Operating Plan

Customer &
Complete Long-term Cash flow Tactical
market Budgets
business model objectives management timelines
profiling

Growth Type of venture

Proof of Organic • Products • Lifestyle
• Steady growth
Concept Revenues • Markets
• High growth
• Industry shapers

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 4
Planning activities
Planning
Considerations What needs to be done?
Activities
Target Whether to spread the VC fund into new markets
Analysis using the Ansoff matrix
customer or penetrate deeper into existing markets
Retail & B2B – clear
Business model Franchisee & E-commerce – need Focus on E-commerce at this point
reviewing
No current competitors
Closely monitor competitors esp. the ones
Competition Probable competitors — other retailers including
with deep pockets
e-commerce vendors and florists
Currently Turnover based milestone of INR4 Decide on operating margins, turnover ratios
Milestones
million per month and the probable time of achievement.
As the company expands,
Employment plan Currently only a 32-member team
employment requirements will increase.
Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 5
Planning
IPO Considerations:

VC
 First 2 milestones were achieved within 12 months
Investment
 First round of funding was for 24 months
Angel
Investment  Already lost 25% stake
Proof of Concept
 Stakes will be negotiated in every round

Resource Development  Financial institutions?

Idea Development  Trade-off between control and not missing the bus

Entrepreneurial Turbulence

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 6
Speed of growth – with or without VC?
Current status of business:
 Employee strength growing from two to 32; motivated team
 Started with B2B, steadily progressed with B2C sales
 70% from retail vs 25% from B2B sales
 Online channel – potential for growth
 Tremendous innovation in products so far
 more than 200 different kinds of plants
 several hundred designs for potting and wrapping
 MRP range
 15 retail outlets with 12 stores in Delhi NCR and 3 in Bangalore

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 7
Speed of growth – with or without VC?
Past financing decisions:
 When should the first round of financing be done?
 Control vs. speed of growth and commensurate value unlocking
 R&D / prototype requiring capex
 Grover opted for high growth with restrictions
 Spent two years in finetuning the idea (EYEC)
 Should he have grown organically for a couple of years more before accepting investment?
 Negotiated 25% instead of 50% stake dilution
 Funding allowed Grover much faster growth (INR 2m to INR 11m to INR 48m revenues)
 Exponential growth will make it imperative to go for next round!
 Risk of losing control

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 8
Speed of growth – with or without VC?
Considerations:
 With low barriers to entry and a growing market, going slow may not be an option
 Investment in the online channel is imperative for speedy expansion
 Hire IT professionals to manage the website and invest in further logistics
 Online sales can help Nurturing Green to explore different areas at low cost
 Going deep into existing markets through retail channels
 Franchises across the country – control vs funding?
 B2B with 25% of sales should not be neglected (maximum profitability)

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 9
What to negotiate with VC?
Was the previous deal a fair one?
 No barriers to entry
 Valuation $1.0 mio
 Negotiated 25% stake sale vs. 50%
 Overall seems to be fair
 Helped rapid growth
 Money for working capital
 Could have been better:
 Synergy and aligned vision
 Working capital in tranches could be a hindrance
 What about franchisee model to begin with?

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 10
Sales strategy
 Existing markets:
 Saturation?
 Market Potential: existing + potential customers
 New markets:
 Understanding of markets
 Distribution channels
 Funding the cost of expansion
 Enough trained employees?
 Product development:
 Current offerings – sufficient?
 Product innovation?

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 11
Financing options

Equity
Debt Franchising
Financing

Further Management Negative Ready Potential

Supervision?
dilution? skills cashflows? cashflow competitor?

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 12
Innovation
 Incremental innovation - adding or developing new values sustainably over a period of time
 Process, technologies, services, ideas
 may produce substantial results over a period of time
 might become an established innovative practice
 working sustainably over a long period of time
 Does NG have any disruptive products?
 Can NG disrupt any market?

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 13
Wrap-up
 Negotiate well, giving away large stake in the beginning may not be advisable
 may lead to loss of control
 less bargaining power in the next rounds with more equity at stake
 Do multiple rounds of financing at higher valuation rather than single deal with multiple tranches
 potentially less dilution over the period
 more flexibility vis-à-vis milestones attached the tranches
 however, milestones do help in ensuring >100% commitment by the team!
 Be open to dynamic business environment – B2B to B2C in no time
 Periodic competitor analysis is necessary
 E-commerce may be hard to avoid

Authorized for use only in PEVC course at IIM Indore from Oct 2020 to Jan 2021. 14