By Roshni Jayakar

Angels, incubators, venture capitalists, private equity funds...call them what you will, they're still being mobbed by would-be entrepreneurs with killer ideas. If they got 100 plans a day last April, it's down to 50 now. But, as evinced at the VC clinics in NASSCOM 2001, the rush continues. No sir, work hasn't stopped or even slowed down for the financiers of dreams. How can it, when the VCs are themselves in the market for the second-round of funding? Since October 2000, the 14 India dedicated venture funds have been hard at work, raising money in the US. And let me tell you, it's far from easy going.

It's tough being a VC in today's market, engulfed by despair that is irrational, but in keeping with the extreme emotions generated just a year ago. ''It's ironical. When the going is good, everybody gives money. Then the VCs ride the momentum, flip investments short, and get stuck with the flavours of the month. When the markets become sober, it's a good time to invest, but a bad time for VCs to raise money,'' says Hetal Gandhi, Managing Director, IL&Fs Venture Corporation (IVC), which along with Inveso Private Capital of the US, has been raising funds for four months now. In commitments, IVC has raised $33 million, one-third of the target. By the way, it has no dotcoms in its portfolio.

Sure, money is still making its way into a few top funds, albeit at a slower pace. Says Pravin Gandhi, Director, Infinity Venture Fund: ''Last year, we would have raised the fund in a couple of months; but now we could take as many as six months.'' Chrysalis Capital, one of the kingpins of the investment frenzy of 2000, has been raising a second fund in the US for five months now. With the first closing in December, Chrysalis' Ashish Dhawan expects another closing for the new fund by early March 2001.

It's obvious that the newer funds are finding it tough to get cash. That said, the signals aren't clear: US pension funds could well decrease the venture capital allocations in their portfolios...Even a small shift in allocation here could make a big difference. Says an optimistic Subbu Subramanian, Partner, Barings India Investments: ''The timing to approach the US investors is perhaps just right now because most asset allocation agents work overtime in Q1.'' Perhaps.

At The Receiving End

Pravin Gandhi, Infinity The Second fund will take more time

Dotcoms better not count on getting the second round of financing easily. With the VC canon being caution, just a handful of pure dotcoms have got past the second round. Says Alok Kejriwal, CEO of Contest2win, a member of that club: ''It's the litmus test for dotcoms.'' Going by market trends, pure dotcoms are out; technology and software services are in. At the same time, points out Mahesh Murthy, Partner, passionfund.com, an angel investor: ''Today we see an improvement in the quality of plans. They are more viable and they are much more realistic.''

Remember, most VCs raise their second fund after having committed or invested 50-70 per cent of the first fund. So, there's still venture capital floating around. But it's getting spent on fewer new deals. The problem is, most VCs' first fundx have not started generating returns. This lack of a healthy track record is taking its toll. Says Ashish Dhawan of Chrysalis Capital: ''Since it's too early, investors would like to gauge the quality of portfolio.''

Funny thing is, it's tough to find a VC who accepts that the investments in his first fund are failing. The critics are unsparing, pointing out that VCs broke the No. 1 rule of investing by backing entrepreneurs with unproven concepts and no real markets. Scoffs Renuka Ramanathan, Managing Director, Econet and ICICI Ventures: ''No business can be constructed in six-to-eight months. For a proven business model you need six-to-seven years.'' While ICICI's city sites are not doing well, strategic sales of equity in billjunction and traveljini have added Rs 51 crore to its war chest.

In particular, portfolios with a heavy leaning towards pure dotcoms have taken a hit. Consider Chrysalis Capital, which has funded dotcoms like egurucool, baazee, jobsahead, zipahead, broadcastindia and ties2family. Dhawan admits that two investments (he won't name them though) have turned bad, involving an investment of $1.5 million. But he goes to say that pure internet or local market portfolio is about 20 per cent of the $65-million first fund, while the rest of it is in export-oriented ventures where the cash flow is positive and risks are low.

Fattening for the kill?

Raj Kondur & Ashish Dhawan, Chrysalis Capital "We would prefer mid-to late-stage companies"

In order to protect their investments, many VCs are now playing God, taking a more active interest in their portfolios, converting or restructuring the business models of their investments. Others are looking at mergers and alliances, particularly among the remaining dotcoms in their portfolio. Especially when there is a room for only one or two players in a space filled up with 20. Says Neeraj Bhargava, Partner, eVentures: ''Our ventures are active seekers of alliances and opportunities.'' For instance, Mentorix got created from a collaborative arrangement between one of eVentures investment called Turgorad and Aptech. Adds Gaurav Deepak, Veep, Avendis Advisors: ''In the future, more M&As will happen in services and IT-enabled businesses.''

Now, most VCs are suggesting online-offline models for the start-ups to jumpstart the movement to profits. This trend has already begun taking shape. For instance, egurucool has implemented its offline plan six months ahead of schedule; the education portal now has a correspondence product and tuition centres. Another example: Fabmart, a pure e-tailing play, now has also added a channel of cataloguer or direct seller, by taking orders on phone.

And as far as the VCs go, they claim to have completed (or are at an advanced stage) the second round funding for ventures in their portfolio. Says Rashesh Shah, Edelweiss Capital, which has put its plan to raise an incubation fund on hold for a couple of months: ''If there is a strong business model and a good plan, the ventures should face no problems.'' At the same time, there's no denying VCs are lot more discerning. Says Dhawan of Chrysalis: ''We are now selectively looking at early-stage companies with senior management teams that have proven track records. But typically, we would prefer mid- to late-stage companies and effect larger deals of $5-$30 million, as opposed to $2 million earlier.''

With the collapse of the IPO market, that is indeed possible. But make no mistake: for the rest of 2001, almost all venture capitalists and entrepreneurs are going to have to work for their money.

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