Where “sharks” don’t invest – The Hindu BusinessLine

Man may be a social animal, but bulls, bears, doves and hawks are economic animals. The first two roam stock market bazaars and the last two in central banks. And now they won’t leave the aquatic realm alone. I am informed that sharks were also included in the list of economically confirmed animals.

During my childhood, sharks were also found in seas, but mostly in Hollywood horror movies – think Jaws. Since then they have moved from sea to tanks and are now part of a popular “Shark Tank” television series. For the uninitiated, “Shark Tank” is an American reality show in which entrepreneurs with brilliant marketing ideas (GTM) pitch to a panel of investors, called “sharks”, to buy a stake. in their business.

The entrepreneur comes out with an “asking price,” say $ 0.1 million for a 10 percent stake in his business, which puts the valuation of the business at $ 1 million. Sharks typically ask the entrepreneur about sales, revenue, GTM strategy, working capital requirements – to quickly determine the valuation of the business along the way, then bite if the bait is Well.

If the shark’s valuation is lower, then ouch! We could get an offer in which the shark agrees to give $ 0.1 million, but for an 18% stake in the company. If the idea is good and the price is right, you get what you “ask for”. And if the proposition is super good, the sharks in the tank may even chew their heads to buy a stake and you could get your $ 0.1 million for just 8% stake in the company.

It’s a show based on finance, marketing, and economics, but has grown into one of the most popular shows in the United States and won several prime-time TV awards over its 13 seasons. . Versions of the “Shark Tank” have been launched in seven countries, including India recently.

The entire interaction requires quick thinking on the part of the investor and entrepreneur, an innate understanding of company finances, superb presentation, and excellent negotiation skills. Strategy, money, flippant speech, and negotiation – the very elements that fuel a Saas-Bahu Pin up.

After all, let’s remember that sharks can see through precisely false assessments. Kyunki Saas-bhi Kabhi Bahu Thi. Entrepreneurs of the world, beware. Should you have put Taarak Mehta ka Ulta Chashma by chance the sharks will chase you from the show earlier than big boss shows you the door.

Reality tv to reality

Real-life entrepreneurs play the Kaun Banega Crorepati, but unfortunately without any lifeline or option. A few months ago, I had the opportunity to connect with the ecosystem of agrotech start-ups. Whether in smart agriculture, precision agriculture, quality testing, decentralized storage solutions or uberized transportation systems, agro-tech start-ups have identified the gaps that plague agriculture. India and have filled them with innovative technological solutions.

But when you decide to expand your products, geographies and processes, you need funds. Bankers are often unable and / or unwilling to assess innovative proposals and lend debt to beginning entrepreneurs with ideas that might fail. This is where the venture capital funds come in, assess the risk-returns of the proposal and take a stake in the business.

The VC brings not only funds to the board, but also contacts, markets and expertise. The fund keeps a hawk eye, or let’s say a shark’s eye, on how the business is run. The VC wants to increase the valuation of the business by, say, eight times (8x) over 4 to 5 years, after which the VC exits the investment.

But, in many cases, especially in sectors such as agriculture or rural development, significant innovations have a long gestation period. It is impossible to achieve even a 4x valuation in eight years, as the basic scale of innovation operations can be tiny and focus on a specific product / problem. There are very few funding options here because bankers don’t like risk and VCs don’t like returns.

And yet this high risk, low return innovation could be the exact solution to a long drawn out problem. This is exactly where “social impact” funds can – and increasingly do – make a difference. And this is how innovations can be significantly propelled in India – of course we need a shark tank, but we also need dolphin pools!

The writer is a brave economist trying to laugh through thick and thin

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