There is a total funding demand of 0.65 trillion USD from MSMEs in India alone of which around 10% is for equity funding from "systematically-filtered", high-potential SMEs which are stagnated only & only for absence of money. They know how to make, how to sell, how to make good profit, how to grow into a large company. But, the only hurdle is an absence of a low-cost, speedy, high-engagement, end-to-end consulting infrastructure taking care of their conceptual, documentary, representation, communication & resource deficits. Solution: Apohan's EquityTech Delivery (Not Brokerage) Platform.
Market survey: We have surveyed 900 SMEs, most of them in-person, to evolve the best business model. Lead book: We have a lead book of 191 prospective clients as of Aug. 2021. Revenue booking: We have signed only 7 contracts due to our limited capability to deliver in offline mode with around 1.2 Mn USD revenue potential. Realized revenue: We are at early revenue stage & meet 75% of running costs from revenues for an extremely lean team. Product Development: To make the product with least cost, we have hired 10 college interns (IT & Fin), 2 consultants & 10 mentors. We are at prototype-in-making stage. Closure: We are nearing closure of one transaction offline and during its course, we have designed/carried out the documents & processes from the perspective of making a semi-automatic platform.
The large companies are very less number & their transaction needs are very custom. There are more experts than companies in that segment. Hence, a transaction platform can't be designed for them. The platform is also not useful for micro-businesses as they don't meet even the basic criteria of equity investment. The start-ups (though mine is one) can be more appropriately termed as end-ups as they have very inexperienced & immature managements. They have a track record losing investor money. There is no statistics on overall start-up investment. Among the SMEs, an individual with very basic professionalism (& no spark) reaches a turnover of around 1.5 Mn USD in 10-15 years. However, in our survey of 900 SMEs, we have seen that some of the SMEs that have crossed 4 Mn USD manufacturing/ business service turnover has distinct traits. Many of them hold potential to grow into very large MNC corporates if there was proper strategic, corporate, contract, finance & transaction competence. Hence, we have chosen to cater to SMEs & start-ups with a turnover between 3 Mn USD & 30 Mn USD. The transaction market: With advent of the SARFAESI Act & IBC code, businesses are becoming extremely vulnerable to even small defaults to creditors. This has already popularized the demand of equity in the virgin territory. They don't get it because there is no consulting market & because investors have no way of approaching & screening hundreds of companies. For investors, risk perception is many times more than actual business risk due to intrinsic nature of transaction. Market Size: At a conservative 2% of transaction size, the consulting fees market for SMEs would itself be around 130 billion USD from the "deserving" SMEs. (SMEs constitute 40% of India's employment, 30% GDP, 40% Exports).
Problem or Opportunity
There are 63 million MSMEs (Micro, small, medium, mid size companies) in India. Around 10% of them are SMEs. Micro businesses generally don't apply for loans. The amount in funding applications turned down by banks & NBFCs is 0.63 trillion USD in 2018 & almost all of which is fr om SMEs. Banks need security & they don't as such understand a business beyond their norms. There are a huge investment appetite for potent businesses among a variety of equity investors. However, SMEs know how to sell product & not how sell company or control. Their consulting is limited to routine compliance formalities. There is no place wh ere "worthy" SMEs are screened fr om the mediocre capturing hundreds of business parameters. Also, there are brokerage platforms wh ere hardly any transactions are closed as online or offline "networking" constitutes only 2% of the delivery work. The problem becomes more difficult as the SMEs don't have enough awareness about equity; they have many misconception due to what they hear in the market & they don't understand the complex transaction structure & process. The problem is compounded by absence of enough operational documentation, forget transaction documentation & communication. Also, there are no senior officers in SMEs that look after corporate matters, financing, strategy, contracts & transactions. This leads to a very big opportunity for creating an EquityTech platform.
Solution (product or service)
1. At Apohan, the awareness, misconceptions & process knowledge are being taken by inbound marketing strategy. The video contents in national & regional languages can address two issues: How to come out of stagnation out of meagre internal accruals & loans 2. How to turnaround a company which is in trouble only due to money. Apohan website has around 1000 pages on various issues which need to be converted into videos. 2. The screening of investment worthy SMEs from the ordinary lot would be taken by the emerging-technology enabled, semi-automatic EquityTech Platform's BD module. We have created a scientific process of 4 stage elimination (Is company good? Can they do transaction? Are they giving good offer to the investor? Are they accepting Apohan's consulting condition?) process which is perfectly working in the offline mode. 3. A transaction involves studying possibly 375 types of operational documents, preparation of 25 types of transaction documents & a wide variety of communications to a wide variety of ecosystem members. This will be taken care in the delivery module of the platform when it is fully ready. The process of taking data in around 15 ways, processing it & generating nearly final draft versions of outputs can automates the transaction to around 90-95% if all emerging technologies are integrated. We are working on a too big project & concept with virtually zero budget since 2.5 years; only because evolution of working business model was difficult. Now, we are making the platform, our solution architecture is ready, our team is ready, BRD is being made & we expect to make the MVP in next 6 months.
Brokers: Currently SMEs don't know the difference between consultants & brokers. They don't know the scope of work & typically how a transaction works. They don't know how to hire consultants & on what terms. Mostly they become highly disappointed with brokers (& also with the word equity) after 2-3 years of failed attempts. Brokers mostly block deals as they don't know to quickly arrive at inter-broker agreements. Also, there is no one to do the work. Compliance firms: SMEs typically believe that their auditor (or CA) is most knowledgeable finance person & also can do transaction. CA doing accounts, audit, compliances & taxation don't close the transaction & the same disappointment dawns. Investment banks: They typically don't deal in small ticket size. Brokerage platform: Earlier brokerage was a privileges of CAs, CSes, etc. With the advent of brokerage platforms, anyone & everyone is posting need on SAAS platform. Deal database platform: They give the SME an idea of similar deals & possible investors. SMEs who thinks that "connecting to an investor" is the main problem, get disappointed after 2-3 years when deals don't happen even after connecting. Companies/firms into valuation, financial modelling, VDR, strategic consultancy, engineering consultancy, etc: Since the money in brokerage is very attractive, they too try to find investor & represent the company to them. Following two things happen to SMEs when & if deal closes, in most cases: 1. The strategic investor shifts competencies & profits to parent company leading SME to closure. 2. The financial investor makes contract favorable to it & in case of adverse eventuality, SME promoter loses all wealth (investor doesn't).
Advantages or differentiators
1. Closure of 100 transaction a day (after 10-15 years) as against 145 transaction per year by PwC today across sectors/countries/types. 2. The SME promoter would not be needed prepare complex documents. 3. Emerging technologies would obtain all input data from all sources. 4. Transaction documents will be prepared at very high speed with hardly any human intervention. 5. Communication templates & stakeholder databases would take of the otherwise inefficient communications. 6. Low-cost internally trained resources 7. Apohan would shift the bargaining power in a transaction in balance (or in favor of the SME in a fair sense). 8. Elimination of undeserving or irrelevant stakeholder or parameter at the time of earliest detection to increase efficiency
There are three revenue streams: 1. Transactions: Long-term, complex, milestone fees & success fees based. 2. Equity Enablement: mid-duration, simple, milestone based services 3. Equity counselling services (for deal structure, business side decision guidance). Transaction fees: It is typically 0.15 to 0.30 Mn USD per transaction, of which 90% is success based as of now. The enablement fees is typically 10,000 USD per ticket. The counselling fee is 100 USD per hour. Portfolio: There are 18 types of strategic transactions, around 3000 types of enablement services & the same platform can be used for providing all these services & there is nearly same skill set & same work flow. Unlike compliance firms, the business model is internationally replicable as elements of business strategy are same across globe. We don't provide any statutory service & it is procured independently by client. We do all guidance for that. Costs: The profitability is transactions is very high. It is lost due to wasteful efforts, costly HR. Our process flow eliminates the SME or investor or process parameter earliest when we detect its irrelevance. Our platform would take data using technology & would create output of near final nature. We are going to train low-cost resources in India on specialized work. As brand Apohan becomes known for closure of transactions, the deal structure, valuation expectation, business development is expected to cost less. We expect to have operating profit margin at least 2 times higher than physical industry. We don't plan buy-side revenues, as buy side advisory without a good sell side consultant, never reaches closure in SME space.
A transaction is all about an ecosystem: 3 sides (Buy, sell, neutral), roles (buyer, advisor, broker, compliance professional, consultant, etc). All parties will participate on the platform. SME & Apohan will be the main parties. Apohan will reach investors with gradual administration of information on the opportunity as his/her decision becomes firmer & firmer. Investor & his/her consultants will be counterparties to SME/Apohan. Marketing Module: Create awareness on equity, remove misconceptions, education on the process, give knowledge on corporate/strategy/finance/contracts/transactions in a simple language. Bring them on platform for transaction. BD: Screen the client applications to have 95% probability of success. Very less documentary verification or validation. A systematic T1 B1 T2 B2 process. Delivery: Take all information, documents, decision from/on the company. Create all outputs. Channels: All ecosystem of SMEs, investors, advisors, compliance professionals. Metrics: No of SMEs screened, selected, number of transactions closed, per ticket investment, per ticket consulting fee, time duration for BD, time duration for closure
Money will be spent on
We will spend money on: 1. Platform development (hiring of CTO, IT team, HW, SW licenses, PMC consultant.) Platform development has total 10 phases. We are undertaking only MVP now. 2. Operation of the platform (IT support, call center) 3. BD & Delivery teams: Recruitment of MBAs, CAs, CSes, business lawyers, investment bankers, engineers, consultants, etc. 4. Administrative set-up 5. Marketing & launch of platform & brand, development of contents, SEO, SEM. 6. Subscriptions & training We have a 400 page business plan & 250 page technology plan. We are shortlisting the activities for Phase I. The management has the capacity to develop the full-blown platform as early as possible if investment is available for exponential expansion. Our focus is growth of company, not retention of control at the cost of growth. Hence, the applications can be extended beyond this list: to the end of activity list.
Offer for investor
We have bootstrapped the company so far. We have taken an FDI of around 50,000 USD from a engineering batchmate when the company had no bargaining power at all due to two COVID waves & no progress on making the platform. Today, the company has stable operations, self-supporting revenue, MVP in sight & one transaction with three times our expense since inception near closure. We want to offer the investor a fair valuation, a fair role in the company & a promise of fulfillment of expectations. We would appreciate if the investors discuss offer part after they are okay with our business model, business philosophy & investment requirement.
1. Survival Risk: The promoters bootstrapped the company for 2.5 years only to evolve a unicorn model from their original idea. The COVID virtually stopped revenues & platform development. It is possible that any extreme event (especially COVID III wave) can shut down the business (at least for now) in the absence of investment in next one year. 2. Complexity Risk: It takes time, money, resources & immense enthusiasm to stay put at something very complex. Also, investors so far haven't been able appreciate our business due to its complexity & interaction time paucity. 3. First mover disadvantage: The first mover has to bear the cost of all major errors & works. For the first EquityTech platform in the world, no one has reference to comprehend or compare or prepare or work which makes life easy. 4. CTO/IT side: Promoters are from finance & SME background. I have worked on 250 ITES projects (as strategy or business head) but never myself on actual development of platform. Our attempts take CTO have failed because we could offer salaries & the technology people could not understand EquityTech (they knew lending, payments, etc) & found it risky to become co-founders. Now, we have got 8-10 interests due to prolonged interaction (enough to understand our business). We have stitched a team of professors & interns from a IT engg college to make MVP which is not a very good idea. 5. Low pace of growth: The company will grow at very low speed in the absence of investment. Also, in the absence of brand name, it will be difficult to secure contracts & close deals. We don't have any core risks. All risks are due to absence of money which we don't think is a risk.
Incubation/Acceleration programs accomplishment
Won the competition and other awards
We have conducted various sessions on SME funding in various forums. We have received many appreciations from the participants (apart from business). We haven't participated in any competition.