11 Nov Financing the Growth – Risk Capital Fund for MSMEs from SIDBI- II
When I wrote the first part of this post, I was hoping for one email asking for details. But, I was overwhelmed by the response. I over achieved by 100% I received two mails!! It was heartening! Hence I decided to write a sequel. This time, on the process involved and the scope of this mode of funding. Previous post gives a general intro.
Since this scheme does not have fixed norms, unlike standard Term Lending or Working Capital Finance, you have to project pragmatic financials and provide a compelling story board. You are looking at a quantum jump in investment and as such financials should be attractive, yet justifiable. Documents include Business Plan, Powerpoint Presentation, Risk Analysis. It pays to add what I call FAAQA. (Frequently Asked Appraisal Questions and Answers). It is a strong differentiator.
Similarly adding an accelerated pitch through video and/or a “For your ears only” Podcast link to your website would definitely help
Preparing a Ball Park valuation pf your business would help your company the in negotiation process.
Upon receipt of Term Sheet you need to prepare Due Diligence Check List and over see the entire Due Diligence process.
Just a bit of trumpet blowing here. I am presently working with a company which does not have a CFO in the due diligence process. Investment Banker/Agent pulls out a questionnaire and dumps it on the table. Not just it’s preparation, some one needs to list the possible Due Diligence Questions and prepare answers before hand and project the data in tune with the answers prepared. Planning to write a series of blog here once the process is complete documenting the complete process for entrepreneurs. I have full bragging rights as part of Professional service contract. So, stay tuned.
What are the salient features of the scheme?
1. Objective of the scheme is that well run MSMEs should be provided equity support. Idea is that it will enable them to scale up their operations without worries. Laudable. Is it not? Path to hell is paved with good intentions. Getting the officer to shake up “Project Finance” or collateralised Business Finding mind set is the issue
2. Eligibility Criteria
- Demonstrable potential for Scaling up. Proverbial hockey stick growth comes into play.
- There should be a Corporate structure in place or there should be willingness to adopt corporate structure. This does not mean you should only have an organisation chart. It helps, if you already have two or three professionally well accomplished people in day to day running
- Existing customers of SIDBI or willing to avail debt from SIDBI – This is where things get sticky. That is why I strongly suggest to everyone that taking a small loan from SIDBI pays in the long run. Take SME-IT Loan or something for say Rs.5.00 lacs and establish yourself as their “customer”
3. Who is Eligible? – Auto components, engineering, pharma, textiles, software, IT / IT enabled services, EoUs. This is just the focus. Any SME is eligible
4. Deal Size – Rs.5-10 crore. Slightly lower ones are also possible. But, they have to place someone on your Board and bigger the size better it is for SIDBI.
5. Purpose of Investment
- Expansion, modernisation and diversification. Please note, “New Unit” is conspicuous by its absence. This scheme is for existing and profit making SMEs only. There is an exception wherein they would be willing to finance New Business. See the next point. For the life of me, I will never be able to understand what they mean. But, I believe, it is a waste of time taking new business by a first time entrepreneur to SIDBI under this scheme
- New Businesses, preferably in the same line Marketing R&D, Product Development Expenses
- Working Capital Requirement, Acquisitions in India and abroad. Yes. Inorganic growth is also permitted under the scheme. You have to have demonstrable Organisational ability.
- Any other expenditure required for growth of the company
6. How Money is given: They decide the mode and valuation. Equity capital or Equity linked Instruments – Conv Pref Shares or Conv Debt.
7. How long SIDBI would like to stay? – Maximum of 5 years
8. Exit Route: Trade sale or listing / Buyback
In case, someone wants to discuss further contact me atGYM@smbenablers.com Alternatively we can have a open discussion here. Consider subscribing to My blog. Yo need to click on Blog again to click the Feedburner button. This error is being fixed.