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Access to capital: the Msme money maze

November 16, 2021
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Capital Access that looks easy on paper is difficult in practice

The government’s Make in India strategy demonstrates how important MSMEs are to India’s growth story, but capital is still hard to get. If you are considering launching a startup, here are some things to keep in mind:

KEEP FRIENDS, FAMILY AND FOREIGN FUNDS CLOSE

Most credit schemes are aimed at MSMEs that are at least three years old. If your company is newer, informal sources like family and friends must be part of your fundraising strategy. Quite often, this means looking abroad for help. Even if you are looking at a VC / PE funding, the Indian ecosystem is in its infancy and you are likely to go beyond India’s borders. But this can lead to a problem. Indian financial institutions need at least 75% Indian ownership to qualify you for most of their loan products. This is intended to encourage Indian entrepreneurs, but as a startup that might be considering all options for support – make sure foreign investors hold less than 25%.

CAUTION: COLLATERAL AHEAD!

Typically, financial institutions ask for collateral that equals (or exceeds) the loan amount. This can be a term deposit or a mortgage on your home. Indian financial organizations are very cautious about lending. Read the loan terms carefully and include all supporting documentation with your application.

PLEASE MIND THE GAP

The Small Industries Development Bank of India (SIDBI ) was established to bring MSMEs and capital together. This is excellent news for MSMEs but the execution is not perfect. Rules can be unclear and confusing. Decision-making does not always follow the on-paper criteria. If your application is rejected, you may not know why.

Government schemes to support MSMEs working on Covid-19-related projects face similar challenges. Companies that qualify for credit on paper may still be rejected without an explanation.

WHAT CAN CHANGE

Podrain’s experience has taught us that patience is key. It also helps to have an experienced, trusted financial advisor or mentor who understands the options and provides guidance on processes and documentation. Some signposts and directions from financial institutions will make navigating easier.

MSMEs should be able to quickly and easily understand what each regulator is responsible for. Clearly stated eligibility rules for each scheme and a simple explanation of the risks and benefits of each option will help entrepreneurs who are not always financial experts make the right choice. A single-window approach to clearances will make MSMEs’ search for capital much easier. Regulators can also help to match MSMEs with the right funding source for their needs. We can then rely on financial institutions and their lending officers for guidance on the right capital products and schemes.

Financial institutions also need to look beyond traditional collateral-based criteria. Very often these show only the borrower’s existing financial strength and not the intent to repay. To help new MSMEs get started, lenders may consider performance-based criteria to approve loans. For example, whether a startup pays its employees’ salaries, its taxes, and its statutory dues (GST, PF, etc.) on time is a good indication of its intent to pay. Market-based criteria used by PE/VC funds may also be used with modifications that reflect the lower risk appetite of the lender. These forward-looking strategies are consistent with the idea of financial institutions as partners in the Indian MSME growth story.

By adopting a partnership mindset, financial institutions can make capital more easily accessible to MSMEs who want to Make in India.

SiliconIndia Article

September 1, 2021
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Printed Circuit Boards (PCB) constitute an integral part of many (expensive) electronic devices. The costs of failure of undertaking a full production run without adequate testing of the PCB are

very high. The ideal answer is a strong prototyping process which can help in identifying any design or performance issues. However, finding the right Electronic Manufacturing Service (EMS) partner for this early stage where volumes are small and the turnaround needs to be quick can be challenging.

Podrain Electronics, unlike other EMS providers ca- ters to this niche market of prototyping on small volume. Having high-end machines to build and test PCBA’s, Podrain caters to the complete needs and requirements of the customer. The company specializes in the supply of products with a fast turnaround without compromising on the rigor of testing. The typical customers for Podrain’s prototyping services are Start-ups and hardware design companies. “Prototyping needs us to be very flexible,” explains Shyam Chandran, CEO of Podrain Electronics. “We work most Sundays. There was one occasion when a client came in at 8 PM in the evening, wanting some- thing to be ready for a VC presentation the next day. We worked overnight. While we charge a higher price for such a quick ask, the result for our client can be priceless”, adds Shyam. The company has expertise in delivering complex assembly – BGA, PoP, LGA and other new modules that are introduced in the market. Podrain has the capability to assemble thin as well as flexible PCBs.

“Podrain Electronics caters to the niche market of prototyping on small volume.”

Rajesh Rajagopal, Director of Operations says, “We are seeing a trend for slimmer devices overall. One of our builds was for a smartwatch prototype for a leading Indi- an brand determined to deliver a world class product. We had to assemble a PCB of 0.4 mm thickness with a 0.2 mm BGA package. We constantly invest in keeping up our learning so that we can deliver the type of cutting edge products our clients design. We love this challenge

Shyam and Rajesh have both been in the EMS space for over 20 years with different organizations. They met while working for an EMS company in 2013. They put together the idea of Podrain Electronics specifically to cater to a gap they saw – an engaged EMS willing to work in the prototyping space using the type of high-end machines that the final manufacturing process will involve. In the past 3 years they have found many takers for these services. Shyam takes care of the business side, while Rajesh manages the technical and operations aspects.

The duo has big plans. Podrain is ISO 9001:2015 certified. The company has continued to invest in new- er machines including an X-Ray inspection machine. In addition to PCB assembly, Podrain does complete box build assembly. A set of reliable partners supply the plas- tic enclosures, sheet metal and cable harnesses which are then assembled, tested and packed out of Podrain. They are also doing evaluation kits for silicon chips for leading semi-conductor manufacturers.

The prototypes the company has partnered on are maturing into higher volumes and clients are requesting pro- duction support. The current location in Bommanahalli is just off the ORR and close to the start-up hubs of Koramangala, HSR Layout, Indiranagar, Jayanagar etc. But it’s pretty full. “We need to grow to keep up with our clients. We hope to start a bigger production facility in the near future. Perhaps in Electronic City, Bengaluru”, says Shy- am. And what about the original prototyping idea? Shyam further adds, “We will continue with this and start more prototype friendly units”. Rajesh continues, “Perhaps even one in Austin, Texas. The future is bright for us”.

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