Druva Software Raises $5 Mln From Sequoia, IAN

Funds will be used to set up sales offices in US, Europe

Druva Software, a Pune-based start-up that makes proprietary backup software solutions for laptops, has raised $5 million in Series A funding (funding that follows seed funding) from Sequoia Capital India and Indian Angel Network (IAN). The stake picked up by the venture capital investors was not disclosed. The money will be used to expand the three-year old company’s marketing and sales footprint overseas, including in Europe and the US. So far, it has relied largely on Web-based channels to sell its products in those markets.   “We will now have offices in the UK, mainland Europe, Singapore and the US,” says Jaspreet Singh, co-founder and CEO of Druva. Singh teamed up with Ramani Kothandaraman, chairman and managing director, and Milind Borate, chief technology officer, in 2007 to set up the company. “We noticed that across companies, 80 per cent of data is duplicated,” he says. Druva, therefore, developed a software that would allow companies to cut out this duplication and enable laptops to work faster as well as increase storage capacity. It claims 400 corporate customers across 23 countries. Globally, the laptop backup software market is estimated at $350 million annually, according to Singh.   Druva had earlier raised seed funding from the Delhi-based Indian Angel Network and Hong Kong-based Accord International. With the latest round of funding, the total raised by the company so far stands at $5.2 million, says Singh. “India is traditionally an IT services country. When we saw that Druva was developing a continuous data protection product, which is the next level of back-up technology, we decided to fund them,” says Rehan Yar Khan, who represents IAN on the Druva board. Sequoia could not be reached for comments.         The idea for Druva was born when the founders were colleagues at the former Veritas Software (merged with Symantec in 2005) operations in Pune. There have been some hiccups along the way. Druva  Replicator, the company’s first product, which provides real-time server replication software, did not find any takers. But Druva inSync, which is the laptop backup product, clicked. “We found that clients were willing to experiment with a new brand for their laptops but did not want to take similar risks with their servers,” says IAN’s Khan. Some of the company’s earliest clients include

NASA and the US Marine Corps. Druva Phoenix, Khan says, is now beginning to gain traction in the market

While many businessmen bet on the future routinely, the entire business model of the venture

capital (VC) industry is built around being able to predict the future. Venture capitalists raise money from investors and use it to fund businesses with innovative ideas that conventional moneylenders such as banks would not touch. The overwhelming majority of these — though not all — operate in the technology space, and quite a few of them have products or services that are yet to find commercial applications. Most of them have one thing in common — they all focus on ideas that have the potential to disrupt existing markets and create new ecosystems.A big chunk of the businesses funded by VCs will inevitably fail. But the ones that succeed do so spectacularly and give huge returns. Google would never have reached the market if it hadn’t found VC funding at the right time.

Like all others who depend on raising money from investors, the VC industry too had a bad time last year when the financial markets crumbled post the Lehman Brothers fiasco. Apart from the general liquidity crunch, one reason investors were chary of VC funds was that the returns had been less than sterling in recent years. Indeed, the VCs have been struggling to find extraordinary winners in the past few years.

There is a lot of soul searching going on in the VC industry about the future industries that need to be bet on and those that will provide spectacular winners. Our cover stories this issue  look at what that soul searching is leading to, in the US, and in India.

Senior Editor P. Hari reporting from Silicon Valley says the VC firms in the US are increasingly betting on the clean technology space as the next big winner. The bets on information technology — which used to account for 80 per cent of the VC industry money — have come down dramatically.

Meanwhile, Associate Editor Snigdha Sengupta points out that in India, where the VC industry is evolving differently from the classical Silicon Valley model, the smart money is going to spaces very different from what anyone had imagined even a few years ago. The VC industry in India is betting on everything from sanitation projects to backwater purification systems to service apartments and energy from rice husks.

time.

Yet, something quite exciting has also been underway. According to Venture Intelligence, investment levels in 2009 dipped to $332 million and 68 deals till November, against $839 million and 155 deals in 2008. But the nature of deals has been quite remarkable. Husk Power Systems is only one of several stand-out deals in the past 12-18 months. Bangalore-based NEA-IndoUS Ventures, which manages a $190-million India fund, teamed up with DFJ to back Noida-based e-waste recycling start-up Attero Recycling. “When we met them they were two guys and an Excel sheet,” recalls managing director Kumar Shiralagi. The company can now process 36,000 tonnes of e-waste annually. Mumbai-based Matrix has invested in two offline education companies — FIITJEE (training services) and Tree House (pre-school). Sequoia is a past master at unconventional deals having funded everything from microfinance (SKS Microfinance) to healthcare diagnostics (Dr Lal Pathlabs). DFJ has also backed Delhi-based solar lighting systems maker D.Light Design and Bangalore-based Reva Electric Car Company.    Clearly, venture capital in India has finally broken out of Silicon Valley’s shackles and gone pan-India to back water purifications systems (Waterlife India), sanitation projects (Saraplast), cotton trading solutions for farmers (Zameen Organic), education and even beauty salons (R&R Salons) and service apartments. Local firms such as Nexus Venture Partners, Mumbai Angels and Helion Venture Partners have followed suit. This has drawn some censure from the entrepreneur community, chiefly in the technology space. The Silicon Valley tag understandably raises expectations. “The Valley is about concept risk, disruption of mature markets. So the returns are somewhat binary in nature. India is still a growth market,” says Alok Mittal, general partner, Canaan Partners, which specialises in technology and healthcare.

The Business PlanVenture capitalists view hundreds of business plans every year. The business plan must therefore convince the venture capitalist that the company and the management team have the ability to achieve the goals of the company within the specified time.

The business plan should explain the nature of the company’s business, what it wants to achieve and how it is going to do it. The company’s management should prepare the plan and they should set challenging but achievable goals.

The length of the business plan depends on the particular circumstances but, as a general rule, it should be no longer than 25-30 pages. It is important to use plain English, especially if you are explaining technical details. Aim the business plan at non-specialists, emphasising its financial viability.

Avoid jargon and general position statements.

 

Essential areas to cover in your business plan

Executive Summary

This is the most important section and is often best written last. It summarises your business plan and is placed at the front of the document. It is vital to give this summary significant thought and time, as it may well determine the amount of consideration the venture capital investor will give to your detailed proposal.

It should be clearly written and powerfully persuasive, yet balance "sales talk" with realism in order to be convincing. It should be limited to no more than two pages and include the key elements of the business plan.

1. Background on the company

Provide a summary of the fundamental nature of the company and its activities, a brief history of the company and an outline of the company’s objectives.

2. The product or service

Explain the company's product or service. This is especially important if the product or service is technically orientated. A non-specialist must be able to understand the plan.

Emphasise the product or service's competitive edge or unique selling point. Describe the stage of development of the product or service (seed, early

stage, expansion). Is there an opportunity to develop a second-generation product in due course? Is the product or service vulnerable to technological redundancy?

If relevant, explain what legal protection you have on the product, such as patents attained, pending or required. Assess the impact of legal protection on the marketability of the product.

3. Market analysis

The entrepreneur needs to convince the venture capital firm that there is a real commercial opportunity for the business and its products and services. Provide the reader a combination of clear description and analysis, including a realistic "SWOT" (strengths, weaknesses, opportunities and threats) analysis.

Define your market and explain in what industry sector your company operates. What is the size of the whole market? What are the prospects for this market? How developed is the market as a whole, i.e. developing, growing, mature, declining?

How does your company fit within this market? Who are your competitors? For what proportion of the market do they account? What is their strategic

positioning? What are their strengths and weaknesses? What are the barriers to new entrants?

Describe the distribution channels. Who are your customers? How many are there? What is their value to the company now? Comment on the price sensitivity of the market.

Explain the historic problems faced by the business and its products or services in the market. Have these problems been overcome, and if so, how? Address the current issues, concerns and risks affecting your business and the industry in which it operates. What are your projections for the company and the market? Assess future potential problems and how they will be tackled, minimised or avoided.

4. Marketing

Having defined the relevant market and its opportunities, it is necessary to address how the prospective business will exploit these opportunities.

Outline your sales and distribution strategy. What is your planned sales force? What are your strategies for different markets? What distribution channels are you planning to use and how do these compare with your competitors? Identify overseas market access issues and how these will be resolved.

What is your pricing strategy? How does this compare with your competitors? What are your advertising, public relations and promotion plans?

5. The management team

Demonstrate that the company has the quality of management to be able to turn the business plan into reality.

The senior management team ideally should be experienced in complementary areas, such as management strategy, finance and marketing, and their roles should be specified. The special abilities each member brings to the venture should be explained. A concise curriculum vitae should be included for each team member, highlighting the individual’s previous track record in running, or being involved with, successful businesses.

Identify the current and potential skills gaps and explain how you aim to fill them. Venture capital firms will sometimes assist in locating experienced managers where an important post is unfilled - provided they are convinced about the other aspects of your plan.

List your advisers and board members. Include an organisation chart.

6. Financial projections

The following should be considered in the financial aspect to your business plan: Realistically assess sales, costs (both fixed and variable), cash flow and

working capital. Produce a profit and loss statement and balance sheet. Ensure these are easy to update and adjust. Assess your present and prospective future margins in detail, bearing in mind the potential impact of competition.

Explain the research undertaken to support these assumptions. Demonstrate the company's growth prospects over, for example, a three to

five year period. • What are the costs associated with the business? What are the sale prices or fee charging structures?

What are your budgets for each area of your company's activities?

Present different scenarios for the financial projections of sales, costs and cash flow for both the short and long term. Ask "what if?" questions to ensure that key factors and their impact on the financings required are carefully and realistically assessed. For example, what if sales decline by 20%, or supplier costs increase by 30%, or both? How does this impact on the profit and cash flow projections?

If it is envisioned that more than one round of financing will be required (often the case with technology based businesses in particular), identify the likely timing and any associated progress "milestones" or goals which need to be achieved.

Keep the plan feasible. Avoid being overly optimistic. Highlight challenges and show how they will be met.

Relevant historical financial performance should also be presented. The company’s historical achievements can help give meaning, context and credibility to future projections.

7. Amount and use of finance required and exit opportunities

State how much finance is required by your business and from what sources (i.e. management, venture capital, banks and others) and explain the purpose for which it will be applied

Consider how the venture capital investors will exit the investment and make a return. Possible exit strategies for the investors may include floating the company on a stock exchange or selling the company to a trade buyer