"Eena-Meena-Myna-Mo, which one is the Golden Goose?"

Early seed funding for ecommerce start-ups, especially in the Indian context, has been a fairly complicated business. All the stakeholders in the ecosystem, the start-up and the venture capitalist/funding partner come together after identifying themselves to be eligible for partnering - all through a pain-staking effort and some hard-core criteria. Dataquest tries to find out how...

There are some cases where some ecom startups may have had it a little easy. For instance, Upasana Taku, co-founder of Zaakpay.com while sharing her experience, says, "By September-November 2010, we had put up our basic website and with some basic features as we wanted product feedback. In January 2011, one of the MDs of Sequoia Capital signed up on our site and sent us a cute mail saying that he was very interested in finding out what we were up to. We were so focused on building the product and then only look at investors, for 3 months, we did not respond to him at all. Then he sent a reminder soon and in 2-3 meetings, he was very confident about us." Taku has just recently got some funding from Sequoia Capital.

Similarly, Sachin Taparia, chairman and founder, LocalCircles.com was on the lookout for some funding and incidentally was able to convince Nadir Godrej on making a personal and early stage investment. LocalCircles is initiating soon the process to raise an additional $2 mn for its next round of financing from individual and corporate investors, angel networks, and venture capital firms."

But it's not all that easy as it seems. Alok Mittal, co-founder, CaNaan Partners, which has given early seed funding for Bharatmatrimony.com,
iYogi, Naaptol.com, etc, outlines a few key criteria that can do the trick for availing early seed funding, shares a few tips. "The way we look at our investment areas is both top-down and bottom. We narrow down on a particular industry, for example, within the internet, what is it that we are looking to back? Traditionally, we've liked classified businesses, e-commerce businesses. We look at what areas are now mature and are ready for early-stage funding. We try and find out what's coming on the wave now, for instance, the online property businesses are beginning to come up, now mobile services are also becoming extremely relevant. So we do think through the elements where we want to play versus not on a top down basis."

"However entrepreneurs don't come down on a top-down basis, simply because it's not necessary that because we think property is a great area the entrepreneurs are thinking the same way. Entrepreneurs approach us, they tell us their view of the world and what business are they trying to build. In some cases, we hear things from them that allow us to challenge our top-down view whereas in some cases it aligns with that view. The level of preparedness that we do initially helps us be more responsive and more intelligent about looking at individual opportunities," he adds.

But it can't always be a hit or trial method. Is it the product, or the people, what exactly works? There must be some definite criteria as well. Agrees, Mittal and he adds, "Yes definitely. Initially I was talking about the thesis part of it. The second is how do we screen companies and what do we look at within a company. Being early stage investors, we don't really have a minimum criterion on the current revenues of the company. In fact out of the 13 investments that we have done in the Indian market, at least 5 of them did not have any revenues when we invested in them. Most of the others also had very little revenue when we invested; there were however 1-2 companies that we invested in at a growth stage. So our bias is primarily early."

He details further, "There are three other things we look at. One is a large market opportunity. The second is the company's approach to the market - are they doing something which is new and whether they are improving their services according to current market requirements. We look at the differentiation and whether it is sustainable or not. The third is the team - whether the team can execute on that mission or not.

Sometimes it has to do with the prior experience of the team, sometimes the teams also build a pilot without any revenues and that gives us evidence about the capability of the team. We are always looking for entrepreneurs who have a vision to build a business over a period of 5-10 years and not necessarily over night. Of course, if the company has revenues and customers then we talk to existing customers and understand whether their service delivery is good or not."

Well, that's the magic brew that will fetch some early-stage funding for you, if you have a special idea for an online start-up!