IT start-ups begin to feel US downgrade heat
Ever wondered how S&P's downgrade of the US' credit rating matters to us? Read this. A start-up company in Hyderabad has failed to seal a deal with a garments manufacturer for its ERP (enterprise resource planning) solution.
The New Delhi-based garments firm has decided to defer the ERP implementation because the US retailer it serves had informed them they could not place any orders now because the mood in the market was sullen. The mood was low “because of the downgrading”.
Though there were a slew of ERP solutions being offered by companies of all sizes, this start-up, Ashbit, developed the low-cost solution which had kept in mind the margin pressures of garments industry.
“Developed on open source Bravo, the solution could be implemented in companies in a matter of a few days,” Mr Manish Madan, Chief Executive Officer of the venture capital firm, Catalyst Minds.
The VC firm, with a fund size of $2.5 million, focussed on very early-stage support to start-ups that generally handheld by “friends and relatives”. It picked 2-20 per cent equity. While it invested funds in some, it offered sales and management expertise as investment to others.
There were several firms like Ashbit that were coming to terms with slowdown. They were a restless generation. They knew slowdown might hit them. They also knew that slowdown was temporary. “They are happy because they are out with a product, ready for sales when the mood looks up,” he said.
Catalyst Minds has so for invested 11 firms and consumed 70 per cent of the fund. “We have decided to part exit from some ventures to book some revenues and profit. We will come up with a second fund with the size of $10 million,” Mr Manish said.
Like the start-ups themselves, Catalyst Minds raised the first fund from friends and relatives. For the second fund, it would expand the basket.
Mr Akkiraju Bhattiprolu, Co-Founder of Yassume a start-up working on a sales product, too said he was unfazed. “We know that companies cannot do away with certain processes. They can put on hold research-related projects but certainly not key activities such as sales,” he said.
It was not product prospects that worried start-ups. “It is funding aspect that start-ups are worried most. VC might delay their investment decisions,” he said. But he saw a silver lining. “But the good news is that they are ready with funds that they raised themselves before the crisis started. From now to next 10 months, we hope next the cycle (of funding) begins,” he said.
- Umesh Shanmugam
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