“We have received a couple of term sheets. However, the deal has not been finalized yet. We plan to raise anywhere between $5 million and $10 million,” Ratnesh Yadav, co-founder and COO of HPS told StartupCentral when contacted for details on the deal. DFJ, Acumen Fund and Bamboo Finance did not respond to queries emailed to them. The company has invested nearly $6 million in the business so far, the bulk of which has been raised from a combination of sources such as prize money won from business plan contests, grants and venture capital. Other investors in the company include Shell Foundation and the Ministry of New and Renewable Energy, Government of India.

Yadav, Gyanesh Pandey, Manoj Sinha and Charles Ransler founded HPS in December 2008. While Pandey and Yadav helm the company’s field operations in India, Sinha and Ransler are based in the US and focus on business development and fundraising. The company provides power to off-grid consumers in rural India, chiefly in the state of Bihar, by setting up 35-100 kilowatt power plants. The plants generate power by burning rice husk, a waste product of rice milling (see photo below). It set up the first plant in Tamkuha village in Bihar’s West Champaran district (see photo above) and has since installed 85 plants. Out of those, 80 are installed within Bihar, two in Nepal and three in Uttar Pradesh. The company needs additional funds at this stage to get to its stated target of over 2,000 plants by 2014.

The $5 million Series A round currently under negotiation will be the first of several rounds of funding that HPS will need to get to its 2014 target. So far, compared to several other startups focused on rural consumers, the company has been relatively fortunate in attracting investor attention. The initial seed capital for the company came from prize money worth $100,000 won at various global business plan contests. In June 2009, the company won the DFJ-Cisco Global Business Plan Competition, which came with seed funding worth $250,000. Subsequently, it raised a $1.25 million, pre-Series A round from Acumen, IFC, Oasis and LGT.

Part of the funds will also be used to finance the company’s Husk Power University, a training institute in rural Bihar for activities such as engine repair and maintenance and facilities management. The institute is aimed at helping the company to meet its skilled manpower needs. At present, the company employs over 400 people drawn from the rural population around its plants and it estimates that it will need nearly 2,500 such people when it hits 2000-plus plants.

Images Courtesy: HPS

Purpose

The founding team has to sell hard to recruit the first 15 or 20 employees. Therefore, purpose – the problem that the startup is trying to solve – drive passion and enthusiasm among the first set of hires during the initial years. Social enterprises thrive in this aspect because of the nature of the problem and the ability to impact several lives through the solution.

People

Almost all recruits do look for a high energy founding team/ management to guide them during the early days. Since startups work extra long hours to compete with established companies (60-hour work weeks are not uncommon), the work culture plays a significant role in ensuring productivity. Though it’s a cliché, it’s true that great people are five times as valuable as good people.

Initial hiring is best done through referrals. Also it’s important to focus on hiring people with an entrepreneurial mindset rather than job seekers. Product specifications/ customer requirements are very dynamic during the early days of every startup, and teams that are flexible or agile create momentum faster than their competitors.

Pay

Startups find it very difficult to offer huge cash compensation in the initial years of their journey. Almost every new venture sells the value of equity to its first few employees. Unlike the US Silicon Valley, there aren’t many case studies in India where employees have realized an upside through their stock holding. Transparency about valuation step ups or flat rounds ( where the valuation remains the same in follow-on rounds of financing) and secondary sales by management teams play a great role in creating trust and comfort in the minds of employees.

Progress

The single most important factor that decides startups’ ability to retain good talent is progress. Without business progress, new companies wouldn’t be able to pay market salaries to its hires. Equity (value) appreciation stalls unless milestones are achieved. Employees show less enthusiasm to accept lower than market compensation without ESOP upsides. Fast growing startups that attain leadership status do create fatigue/hopelessness and disenchantment in the minds of the employees of their competitors.

So, Purpose to begin with, Progress at a later date, People and Pay are very critical for successful hiring. Startups need to get three out of four right to ensure they are on the right track in terms of building a winning team.

About the columnist: Sateesh Andra is a venture partner with Draper Fisher Jurvetson India. His investments include Live Media, Gingersoft Media, TopChalks and Cleartrip. Prior to Draper, Andra founded IT management software startup Euclid in the US. He has also earlier invested in US/India venture capital funds.

• Service businesses by offering huge initial discounts can only make money if they are able to convert new customers to loyal customers (repeat transactions are a must)
• A critical mass of customers (in and around a location) have to be part of the group buying company’s mailing list for it to make money on each of the campaigns
• If viral doesn’t work, coupon marketing costs will cut into margins

1. Reach for each of the promotion (coupon sale) on a daily basis within a location
2. Conversion percentage (how many coupons they are able to sell)
3. Commission (percentage points) offered by merchants on a typical deal
4. Marketing costs for each of the campaigns (Is it viral mainly using Facebook/Twitter etc. or do they have to spend money in marketing a deal?)
5. Customer acquisition cost and long-term monetization of a customer (repeat purchases)

Just like many other consumer Internet business models, group buying will also be winner take ALL environment.

About the columnist: Sateesh Andra is a venture partner with Draper Fisher Jurvetson India. His investments include Live Media, Gingersoft Media, TopChalks and Cleartrip. Prior to Draper, Andra founded IT management software startup Euclid in the US. He has also earlier invested in US/India venture capital funds.

Previously, in terms of market share, the e-commerce market has been dominated by online travel (Makemytrip, Cleartrip, etc.), ticketing (Bookmyshow) and classifieds (Naukri, Carwale). Emerging e-commerce or e-tailing categories include apparel and accessories (Yebhi), fashion (FashionandYou, Exclusivity) mobiles and computers (Letsbuy) and consumer electronics, books, music and videos (Flipkart).

As per IAMAI, the size of the e-tailing market is estimated at around $600 million currently and growing at 30 per cent year-on-year. To scale and grow into real businesses, such startups will require:

• Ability to assess or predict product demand accurately
• Cost effective customer acquisition strategy
• High click-2-conversion ratio
• Repeat sales and loyal customers

‘Deep Customer Profiles’ are a must to achieve all of the above.

I am sure that even scrappy startups will have to spend serious amounts of cash (tens of millions of dollars) to address business critical issues such as inventory financing, logistics and customer support. With brand penetration, the availability of mature mobile payment systems, improved logistics/delivery to third and fourth tier towns and broadband Internet user growth, e-commerce in India will grow at a healthy pace.

About the columnist: Sateesh Andra is a venture partner with Draper Fisher Jurvetson India. His investments include Live Media, Gingersoft Media, TopChalks and Cleartrip. Prior to Draper, Andra founded IT management software startup Euclid in the US. He has also earlier invested in US/India venture capital funds.

Also read about last year’s winners, Husk Power Systems, here. Last I checked, they are going great guns and picked up additional funding this year. The company closed a $1.25 million Series A funding from Acumen Fund, Oasis Fund and others and $350,000 from IFC. 

One Indian company did make it to the shortlist of 16 finalists this year — MicroMed, a startup founded by two IIT Kharagpur students (one is Debapriya Chakraborty) who are using microfluids technology to develop more cost-effective and efficient ways to conduct diagnostic tests. Suman Charkraborty, a professor at IIT Kharagpur, mentors the startup. Not much more information is available on them yet.

DFJ has set up a useful page on its site where you can track the progress achieved by last year’s 16 finalists. Go check them out.

The funding follows Komli’s acquisition of PostClick in Australia last month, as part of its Asia Pacific expansion strategy. The company claims 1,500 sites on its network including Facebook, Expedia and Bloomberg, and 30 million unique users.

The company raised $7 million in its Series A round in 2008. It currently employs 90 people in India and overseas and was founded in 2006 by Amar Goel, CEO, who earlier led sales and services at Microsoft.

(Source: Press Release)

This is as per numbers collated from deals reported by various media and announced in press releases. Not all these deals are verified and in many cases the announced/ committed money will flow into the respective companies in tranches over an extended period. The actual total investment, therefore, would be much lower.

There are other numbers floating around as well. Venture Intelligence puts investments till November at $332 million across 68 deals, against $839 million and 155 deals for the full year 2008.

Here are our key numbers from 2009:

Investments: $147 million

Deals: 59

Top Dealmaker

This one is a tie. Nexus Venture Partners and Aavishkaar Venture had the most number of deals in 2009, notching six each. It was not possible to select the top dealmaker by quantum of investment because several deals have been done in concert (two or three investors teaming up) and the break-ups are not available. However, to get a sense of who the top venture capital investors in India are at present and where they are investing, read a recent Businessworld story here.

A small note on Aavishkaar: This one is a special kind of investor. It backs startups that address ‘bottom-of-the-pyramid’ opportunities. Many of its portfolio companies address the rural markets and disadvantaged sections of our society. It has three funds, of which Aavishkaar India Micro Venture Capital Fund has made the most investments this year. This fund typically invests between $50,000 and $500,000 per company.

Deals

The forum, in its main theme, is asking ‘The Crisis Will Pass…Will You?’ It is a pertinent question. Before the current economic downturn is out, several startups as well as a few venture capital firms, will bite the dust. And going by the rumblings that one is beginning to hear more and more in venture capital circles, the dust is going to kick up quite a storm (more on that in a later post).

Interestingly, the organizers have decided to address funding issues not only at the seed and early stages but also at the growth stage. “It is important to look at the entire lifecycle. Early stage companies will eventually need growth capital, which has its own issues,” says Rajesh Raju, director, Peepul Capital, which is a growth investor.

One of those issues, as most startups will agree, is that these days it is difficult to distinguish a growth investor from an early stage one. Many venture capital investors in India play both ways. Raju, who puts growth deal ticket sizes at between $10 million and $25 million per company, will be chairing a session on growth investing on Day 2 of the event. If you are an entrepreneur who thinks you are ready to raise growth capital, here’s a preview of what to expect at the session.

Other key tracks at the event:

• Workshop ‘Jumpstart Your Venture’
• Seed Stage Funding and Operational Challenges
• Taking India Forward – Entrepreneurs, Andra explains, are to be found in every walk of life, including politics, social service and even the bureaucracy. This session will see entrepreneurial individuals from such areas come in and talk about their experiences in bringing about change.
• Next 800 million Opportunity – This was the event’s theme last year and the quest to discover business models that work for rural markets and social sectors continues. Definitely my favourite track.

See you there.

Khosla has been investing in startups from his own capital pool through Khosla Ventures for the last few years. In India, one of his early bets was SKS Microfinance, in which he led Small Industries Development Bank of India and others to invest Rs 11 crore ($2.5 million) in 2006. Khosla Ventures has a wide range in terms of investment ticket sizes (investment per company) from $100,000 to $20 million (or more) and particularly likes companies in the mobile, alternative energy and bio-refineries spaces. That should be a pretty good indicator of what Khosla’s new funds are going to invest in. No doubt that India will be on his radar.

While we wait for Khosla to give out specifics on his investment plans, here’s a look at who else has been investing in clean technology companies in India:

• Venture capitalists and private equity firms invested $131 million in Indian cleantech companies in the second quarter of 2009, according to Cleantech Group — see the press release here. Hyderabad-based Ramky Enviro Engineers picked up $42 million (Rs 200 crore) from Standard Chartered IL&FS Asia Infrastructure Growth Fund — the biggest deal of the quarter.
• Silicon Valley-based Deeya Energy, which has a factory in Gurgaon, raised $30 million in Series C funding from Technology Partners, BlueRun Ventures, DFJ and others in May.
• Last August, Nexus India Capital launched its second India fund with a $220 million corpus. The new fund’s stated investment mandate is to put money in clean technology, among other businesses. It has invested in Mumbai-based SEDEMAC Mechatronics, and IIT Bombay incubated startups that has developed electronic control modules which increase the fuel efficiency and reduce emissions of small engines, and Noida-based D.light Design, which is using solar and LED technologies to provide affordable lighting solutions in villages.
• DFJ is a fairly active investor in the sector. Its portfolio here includes Deeya Energy, D.light Design and Reva.
• Kleiner Perkins Caulfield and Byers (KPCB), which incidentally is the firm where Khosla shot to fame as Silicon Valley’s number on venture capitalist some years ago (he is still an affiliated partner), is also a big cleantech enthusiast. It had invested in Kotak Urja last year. VC Circle has a very timely interview up today with KPCB India partner Ajit Nazre — read here.

Husk Power Systems: This cleantech company, headquartered in the US and Patna, India, is a great example of young students with their heads screwed on right. Husk Power Systems is a next generation energy company. It has developed a proprietary generator that runs on gas released by heating rice husk. The company currently provides electricity using its generators to five Indian villages, as a pay-for-use service,  and plans to expand to a 100 soon – New York Times article. The team is an interesting bunch. Three – Manoj Sinha, Gyanesh Pandey and Ratnesh Yadav – are natives of Bihar and in their early thirties. Sinha started exploring the idea — turning farm waste into electricity — while working with Intel in the US as a microprocessor designer. In 2007, he later teamed up with a fellow student, Charles Ransler at the University of Virginia, and Pandey, who was in India, to set up the company. Pandey now handles operations on the ground here with Yadav.

Innoz Technologies: Last year this Trivandrum-based startup launched SMSGyan, a text messaging interface for trivia. The company started up in August 2008 as an incubatee at the Technopark Technology Business Incubator in Trivandrum. It has also received some funding from Upstart.in and CIIE, Ahmedabad, through the iAccelerator programme. The founders — Deepak Ravindran, Abhinav Shree, Ashwin Nath and Mohammed Hisamuddin — are students from LBS College of Engineering — and are all in their twenties.

Of the two, my vote goes to Husk Power Systems, which addresses a real problem in India and already has a fairly successful track record to show. All the best.