Venture capitalists give pep-up pill to start-ups in hard times

Mahesh Murthy, a partner at Seedfund, is at one of the nine start-ups his venture capital firm has invested in everyday, to help companies stay afloat in these troubled times.

Murthy and his two other partners would till a few months ago visit these companies only once in more than a month. Now, they visit these firms daily, to guide the start-ups in cutting and saving costs and improving operational efficiencies. The whole idea is to ensure that the start-ups smoothly sail through the economic downturn.

What Murthy and his partners do is a new norm among venture capital funds. "We are now spending 50 per cent of the time with investee companies," said Hemir Doshi, senior investment adviser, IDG Ventures India. "We have to ensure none of them should fall by the way and continue to remain healthy." Visits to companies have now become once a week from once a month earlier, Doshi said. IDG is a $150 million early-stage venture capital firm investing in technology and technology-enabled companies.

"Companies are being advised to let employees travel between cities like Mumbai and Pune or Bangalore and Chennai only by road, and not by air. For travel to distant cities, normal fare airlines are strictly banned," Seedfund's Murthy, told HT. "We tell companies to use only low cost carriers if officials have to travel to distant cities."

Seedfund has made early stage investments in firms like, an online used card market, and online, an online resource for advertising, media and marketing.

According to Doshi, IDG is looking at altering the employee compensation structure by reducing the fixed component and increasing the variable component. "Companies are advised to increase the variable pay to 30-40 per cent wherever possible from 10-20 per cent," he said. Doshi was addressing a gathering of aspiring entrepreneurs organised by Headstart Network Foundation, a not-for-profit organisation that brings together people with start-up ideas and venture capital funds.

Venture capital funds have made sales and revenues top priority at start-ups they have funded and are impressing upon the companies to bring down cash burn as much as possible. Start-ups are being told they need to behave as if they are already in a recession.
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