When online furniture retailer Urban Ladder announced an investment by Ratan Tata last week, the company’s co-founder Ashish Goel said, “His investment in the company reassures us of the path we have taken towards creating value for customers with great products and exceptional service.”
An investment by a successful entrepreneur or an iconic businessman like Tata, NR Narayana Murthy or Azim Premji lends a greater degree of credibility to a start-up than even a highly respected financial investor.
Tata’s first personal investment in ecommerce was in online marketplace Snapdeal, in which he invested earlier this year. Premji’s family office Premji Invest is also an investor in Delhi based Snapdeal and in online fashion portal Myntra, which was acquired by Flipkart in May. Former Infosys chief Murthy’s fund Catamaran Ventures is an investor in beverages startup Hector Beverages.
For Neeraj Kakkar, the co-founder and chief executive of Hector, which raised funding from Catamaran in 2011, the support and advice are the greatest advantages of having someone like Murthy backing him. “But at the time of the funding, the biggest benefit for me was the impact it had on my family,” said Kakkar, a former general manager at Coca-Cola’s India operations. His father was not happy with his move to start a business. “I clicked a picture with Mr Murthy when he decided to back us and sent it to my father. It put all doubts to rest. That would not have happened with even a large financial investor as my family would not have heard of them before,” he said.
According to experts, the impact of a well-known corporate leader is more complex. “A marquee name gives credibility to the company and to the entrepreneur. It is a huge thumbs-up,” said Raja Lahiri, a partner at financial advisory firm Grant Thornton India.
Credibility and validation are two of the most important perceived benefits. “An investment by a legendary and respected figure like Mr Tata is an excellent validation of our focused strategy on building a long term enterprise,” said co-founder Kunal Bahl, when he announced an investment by Tata in his online marketplace Snapdeal, even as the company already had big-name backers like eBay.
Hector, which sells over two million units of its functional drink brand Tzinga and ethnic beverage brand Paper Boat, needed to get a number of governmental approvals in the early days as it had to set up its own manufacturing unit. “When people in government departments realised that we were backed by Mr Murthy, the files moved faster. His name gave confidence to the retailers we were meeting in the initial days to distribute our products,” said Kakkar. “They realised we were not fly-by-night operators.”
The article appeared in the Economic Times. The article can be found here.