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There is no substitute for good governance

Governance issues are a deal-breaker even in good times for many PE funds. Mr Bhasin believes that much before the current controversies around Satyam emerged in the public domain, governance issues “kill 8 out of 10 opportunities” for him. He says, “effective governance will place your company advantageously when it comes to finding investors. Invest time, effort and resource in putting the right checks and balances in place. Commit yourself to transparency and accountability. There are no short-cuts to confidence and trust among your stakeholders.”

So if you want to attract VC/PE money, burn some midnight oil with your CA and CFO to implement the right systems, processes and controls in place and more importantly foster an organisation culture where transparency is core and principles of good governance are imbibed and practiced at all levels of management. Be hungry to earn the trust of your investors.

There couldn’t be a better time to upgrade the quality of people

The quality of the management team and people is an important consideration for VC/PE fund managers. So use the slowdown to upgrade your talent.

If you have good talent, retain it. Don’t give in to the temptation to fire people and save costs. If you don’t have the right people, then this is a good time to go out and get them. People are available at far more attractive costs than in the past five years. So you could have the benefit of superior people at similar, or even lower, costs.

According to Mr Bhasin, the Peter Principle is one of the biggest threats to growth in entrepreneurial companies. This happens when an employee gets rewarded with a higher post, eventually one that exceeds his managerial capabilities. Management bandwidth is the biggest bottleneck faced by smaller companies on a high growth path and there is a strong inclination to manage growth by promoting lesser experienced managers before they are ready for it or lack the competence required for the larger role.` Also, given the aversion to firing people, companies tend to gather deadwood over time. This is the right time to clean house.

Cut the flab from your operations

Boom times allow companies the latitude to accumulate unnecessary flab. Fund managers have little appetite to tolerate baggage from the past, more so in the context of a prolonged economic challenge on the horizon. According to Mr Bhasin, companies should examine the productivity and efficiency of their operations and focus on being lean and agile. He suggests that managements should develop two cost budgets; with one having significantly lower growth projections. Only after costs can be managed within what is outlined by the lower growth projections should companies look at the buffer available to them and the growth they can target from same.

So spend money, but spend it wisely.

Assess your business in the context of new customer needs

The economic environment, globally and domestically, has changed so rapidly that several companies are still unrealistic about the viability of their business. Do you know how your customers' needs have changed? And are you offering what your customers want? Most companies get too busy with minute, day-to-day problems, leaving little time to consider the big picture. Some demonstration of forward thought in this aspect is a source of comfort to VC/PE funds, who look at the long-term as well.

So carve out time, energy and resource to re-assess and re-focus your business in light of new demands from consumers, whatever your business might be.


In a nutshell, while the slowdown raises the bar on getting VC/PE funding, investors are not averse to investing in companies that are prudent and disciplined in these tough times.