Fund Raising: Requirements for IPO or Private Placement

Some of the most common questions we are receiving is how to get investors for a start-up or an early stage venture. Here is one recent question we received:

“Is there a minimum size in revenues or profitability for a company to access the public markets through IPO? Can private placements also raise similar level of funds in the Indian market today? Any notes or guidance here will be appreciated.”

Here’s a brief answer by Vivek Lodha, Director- Investment Banking of HEM Group. He is also a member of 7Avenues.

A company can access IPO market with a minimum track record of profitability in 3 out of past 5 years. In case, company is not 3 years old, it can still go for an IPO but with other terms and conditions satisfying given in SEBI guidelines. As of private placements, this is an alternative and quicker route to raising money, and then eventually leading to an IPO as the investor would also need an exit route. But, one must always remember that going for a Private Placement would be at a 20-25% discounted price to what you are planning for IPO. A lot of Private Equity firms buy stake in companies and then exit after IPOs.

You can also refer to this Public Issue FAQ, and the website of Hem Financial Services Limited (HFSL) for anyone interested to learn more about doing IPOs or Private Placements in India.

Interested people can contact Vivek directly with any doubts
and queries by email to: vivek @ hemonline.com

He has the expertise to advise you on the following topics:

• Managing the IPO as Lead Manager
• Underwriting
• Syndicating IPOs and FPOs
• Project counseling and advisory assistance
• Private Equity Placements

Start-up Problem: Less Capital & Broken Plans -What to do?

I joined a start-up 4 months back as its CEO, after discussing the business plans and growth objectives with the promoter/investor. The company is based in India, and the promoter/investor had intended to set up a branch in the USA around this time, and we had jointly prepared business plan, sales and financial estimates, and it was approved when the company was started 4 months ago.

Then problems came-up: insufficient funding given by the promoter/investor for the approved business plan, which meant I could not recruit the right people, and the overall technical capability is much less than what is required to go the US/Europe. We are facing serious problems, and obviously the business numbers are not being met. At the same time, my promoter/investor has decided to give 15% stock of the company instead of cash salary that was agreed at the time of my joining.

So today, after 4 months of full time work here, I have not got a single rupee/dollar. Can you please advise me? Thanks. Best Regards, A Kumar

Kumar, this is a difficult situation for you, and this is not uncommon in start-ups, to switch compensation between cash and stock, depending on how things are happening. In your case, it does look like your promoter/investor is not fully committed to this business yet (assuming he is not facing genuine capital shortage).

Please have a direct conversation with him, and tell him you want to make the company successful, but the current state of affairs is bad, and there are two options only:
(a) X amount of funds need to be made available to the company within next Y days, of which you will a modest Z rupees/dollars as your salary and allocate the remaining into the business. Or (b) You will be forced to leave because of promises that have not been kept.

Do not postpone this important conversation…the sooner the better.

I hope it helped, and feel free to reply on this post if you want further help.
Best Wishes/ Shankar

Welcome to 7Avenues Start-up Blog

This blog aims to share and discuss all questions (and dilemmas) that one typically faces while starting, implementing, and operating a start-up or a new venture of any type. We won’t be talking about any of our specific business ventures on this blog – obviously! This is a public blog, and we will share and discuss what we can.

The team behind this blog are investors and executives of 7Avenues – a private equity with investments in Retail, Food Supply Chain, Farms and E-Business, and with investors including experienced professionals and entrepreneurs based worldwide. Learn more at: 7Avenues.com

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