- Kaushik Gala

Note: The views & opinions expressed in these essays are strictly my own, and not those of any entity I may be associated with as an employee, consultant, promoter, investor, etc.




Technology Venture Investors in Pune


Technology Entrepreneurship in India - Teams

Entrepreneurial traits

Picking cofounders


Technology Entrepreneurship in India - Generating Revenue

Is your business model well-defined?

Your industry's value chain

What is your value proposition?

Which distribution channels will you use?

Who will drive business development?


Technology Entrepreneurship in India - Raising Capital

Venture capital & venture capitalists (VCs)

Corporate venture capital

Angels & angel networks in India

Government support for Indian startups

Proof-of-concept funding

Do you need a business plan?

How much money should you raise?

Startup valuation

Pitching to investors

Figure out the term sheet

Negotiating with investors

Due diligence - A necessary evil

Time to sign the investment agreements


Equities, ETFs, F&O

› Oct 2011: Equity Risk Premium for India

› Jun 2011: Investing in Indian equities


Technology Enterprises in India

› Nov 2010: Technology investment in India - WATER

› Aug 2010: Technology enterprises in India - 3 avatars


Risk Capital for MSMEs

› Mar 2010: Risk mitigation for investors in MSMEs

› Mar 2010: Why don't (Indian) MSMEs get risk capital?

› Feb 2010: Angel investing - Will it work for Indian MSMEs?

› Feb 2010: What's so special about innovative MSMEs?

› Feb 2010: Where do Indian/NRI (V)HNIs invest?

› Feb 2010: Funding options for innovative MSMEs in India

› Jan 2010: Innovative MSMEs in India

How much money should you raise?

(Last revised Mar-2012, Send comments to

Amid their constant need for capital, entrepreneurs must strike a balance between:

  • Raising enough, to sustain operations and revenue generation for 15+ months
  • Not raising too much, to minimize equity dilution and fund utilization pressures
  • Chances of a recessionary fund-raising environment during the next round
  • Chances of a bubble-like fund-raising environment during the next round

Matters get complicated due to the uncertainties inherent in technology R&D and customer traction. Entrepreneurs - and investors - typically use milestones, burn-rate calculations, capex & HR needs, etc. to estimate capital requirements.

Capital Efficiency

One of the thumb-rules that entrepreneurs can use is capital efficiency; defined as the amount of capital typically required to grow a company to a certain level of sustainable annual revenue. Also, at that revenue level, the company should be profitable enough to (partly) reinvest its earnings.

Obviously, the typical (revenue : capital) ratio varies widely across industries (e.g. Web 2.0 versus drug discovery). Worse, 3-5 year financial projections are usually way off for startups - making it difficult to gauge total capital requirements.

Regardless, by keeping a reasonable range in mind, an entrepreneur can devise a multi-round fund-raising strategy. Such a strategy would include reasonable step-ups in valuation, tied to technology and market milestones.

To arrive at this range, the entrepreneur needs to clearly understand the target market segment, and the company's revenue potential when it turns profitable.

An Example

Consider a startup targets the orthopaedic surgical implants market in India - its relevant market is likely to be Rs 50 - 100 crore. Of this segment, the company aims to capture Rs 10 - 15 crore. Such a venture is likely to become profitable when it reaches Rs 3 - 5 crore in annual revenue. The typical capital efficiency ratio of such an enterprise is probably in the range of 2:1 to 3:1, based on similar companies created in the past. Thus, you can now estimate how much capital will be needed:

Total Capital Required Capital Efficiency ratio
Stable, profitable revenue 3 cr1.5 cr1 cr
5 cr2.5 cr1.7 cr

With a 2 cr target in mind, the entrepreneur can plan a 3-round fund-raising strategy: Round 1: Rs 20 lakh, Round 2: Rs 50 lakh, and Round 3: Rs 1.3cr.
The first round may come from founders, the second from a GoI seed fund, and the third from an angel network.

Clearly, the estimates for break-even/eventual revenue and capital efficiency ratio are different in each company's context. However, the model still applies.


  • VC Moneyball - using statistics and data to drive venture capital decisions.

  • Startups need a different set of (accounting) metrics than businesses.