Name: Vishal Devanath
Time in operation: 2.5 years
GTR: What is SMERGERS?
Devanath: We primarily facilitate three types of transactions: complete sell-out, with the business owner selling his company; partial stake sale in a company to an investor who becomes a shareholder; and debt financing, where banks lend to the company and get repaid on a monthly or annual basis.
SMERGERS is primarily focused on the first two categories presently, and the third is a smaller segment at this point.
I previously worked for an investment bank, which primarily focused on larger deals. It was not just my firm; all investment banks tend to focus on large transactions since the effort and costs associated are similar. So they would rather focus on deals which bring them large fees. Invariably, SMEs get ignored.
There are about 100 million SMEs in the world: a huge number of small businesses are being completely ignored by the investment banking space. Similarly, there are several investors and entrepreneurs seeking business investment opportunities, but deal flow is not easy. We had to reinvent the business model and approach this problem in a different way to make it more cost-effective and efficient for small businesses. Using technology we created a platform to bring the two sides together and enable them to transact in a secure manner.
Financing need not be limited to banks. It could be from non-banking financial institutions (NBFCs), strategic investors and individual investors, following the peer-to-peer lending model. While banks and NBFCs primarily finance SMEs through the debt route, strategic and individual investors are able to invest in the equity of private businesses.
While banks are the go-to places when a business thinks of finance, not all businesses find success at a bank. They may not satisfy the loan criteria or have the required collateral to give out as security. SMEs looking for strategic partners who can help their business propel to the next level seek investors who understand the risks associated with their business and know that it brings returns.
GTR: Are you focused only on India or looking to internationalise your business?
Devanath: In the first two years we were focused on the Indian market. Even back then, many of our investors were from outside of India: some of our prominent investors are from the UK, US and Middle East.
For the last seven months we started focusing on businesses outside of India and we are seeing a good number of SMEs from other countries registering with us. This goes to say that the problem is of a global scale and not limited to any country. The UK is a good market for us, and we are also seeing traction from Australia, the US and Middle East. Obviously, the global market is huge and it will take us a year or two to reach critical mass at a global scale. Initially we are rolling out a marketing plan in countries where we plan to expand. We want to do this without any physical presence or offices in these countries. But as we grow we would like to have branch offices in the top countries.
GTR: Who are your typical clients?
Devanath: We are sector-agnostic, but we do see concentration of certain industries on our platform: IT is largely represented, mainly because we started off in Bangalore, which is an IT hub in India. The second category is manufacturing companies. The third category is building, construction and maintenance companies, including real estate. We also have retail shops, supermarkets, spas, restaurants, hotels, etc.
At the very start of our business we had a UK-based SME looking at an acquisition on the Indian market, with the purpose of entering the Indian manufacturing space. Rather than setting up a whole new unit by themselves they wanted to acquire an already established unit. About 10-15% of our current user base is international.
GTR: What is your business model?
Devanath: We have two models, one is the “freemium” model, where users can access a free version of the product, but they can always upgrade to avail value-added services by paying an upfront fee of under £100. The other one is the finder’s fee, where we charge a 1% fee of the total transaction amount post-successful deal closure.
Even though we deal with almost 200 businesses on a daily basis, we only have seven people in the company. It’s a compact but powerful team.
GTR: How did you finance your own business?
Devanath: I come from a business background, I did my MBA and worked in finance, whereas my business partner, Krishna Bharadwaj, comes from a technology background, having worked with Google and a couple of Silicon Valley start-ups.
When we started off our business, the initial product was the platform. There wasn’t much investment required as Krishna was able to build most of it and we spent very little to get our website up and running.
When we plan to set up branch offices in other locations we will require further capital investment, but at the moment we are mostly self-sufficient.