homestartup NewsStartups need mentorship on capital structure to avoid equity dilution at early stage: Cyril Shroff
Startups need mentorship on capital structure to avoid equity dilution at early stage: Cyril Shroff
Cyril Shroff, managing partner at Cyril Amarchand Mangaldas, said that many startup founders have given away too much equity in too small slices to too many people and then they are also spending a lot of time trying to consolidate it back.
As India sees a startup boom, The Thought League discussed the key aspects that entrepreneurs need to pay attention to.
In an interview with CNBC-TV18’s Nisha Poddar, Anjali Bansal, founder of Avaana Capital and Cyril Shroff, managing partner at Cyril Amarchand Mangaldas, said that startups need mentorship regarding the capital structure to avoid large equity dilution at an early stage. India needs to create more local pools of funds in order to fund the startups, they said.
Bansal noted that about 80 percent of the capital that has come into the Indian startup ecosystem is global capital. Therefore, when there is value creation coming out of these companies and they turn into unicorns or even bigger, and then a lot of that value capture goes back to the capital provider who are not Indians.
“India needs all the capital we can get, so we should be welcoming of foreign capital, but at the same time, domestic capital has to stand up as well and participate in this space so that they are able to capture. And as a country, we are able to capture more value from our ideas, talent, technology and market, which is creating these enterprises and the value,” she said.
Shroff explained that when corporate lawyers see the capital stack when promoters come to them at the pre-IPO stage or at the funding stage, very often it is a mess.
Many founders have given away too much equity in too small slices to too many people and then they are also spending a lot of time trying to consolidate it back, he said.
According to Shroff, this is probably a reflection of the investment culture, lack of confidence at the early stage, and the absence of venture debt funding. So this is one area where mentorship is needed, he said.
Watch the video for more
(Edited by : Kanishka Sarkar)
First Published: Oct 20, 2021 3:41 PM IST
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