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Corporate Finance deals with sources of funding, the capital structure of corporations, the measures that managers should take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources. Primarily, corporate finance is divided into three sections – Capital Budgeting, Capital Structure, and Working Capital Management.
Roles and Responsibilities
As a corporate finance manager, you will be responsible for –
- Identifying and securing privatisation
- Managing merger and acquisition deals
- Managing and investing large monetary funds
- Buying and selling financial products for their clients
Let us listen to our expert Ms Sonakshi Gupta. She has extensive working experience in corporate finance and presently working as Venture Capitalist at Aditya Birla Venture. She had been a rank holder in CA Final all India rank of 37 and in IPCE all India rank of 21. She had stints in finance and strategy, spanning across service and manufacturing sectors, in India and US.
1. What motivated you to choose a career in corporate finance and venture capital?
Answer: Being a CA and coming from a finance background, it was very natural for me to do something in that area. And then I cleared my CA exams and came to this finance leadership program at Aditya Birla Group. So that gave me a lot of exposure in different businesses across geographies and in the areas of corporate finance etc. So that’s when i realized, corporate finance was my calling because I actually enjoyed it.
I realized being a CA, you just like playing with numbers. And explored lots of profiles in various industries, I realized finance also has a lot to offer. Ranging from corporate finance to venture capital. That entire world was quite fascinating. Lot of curiosity to explore it accompanied, so that’s where i wanted to where i am right now.
2. What are the most important parameters you would look at while analyzing start-ups?
Answer: The first and the foremost would be the team you would be supporting, i.e. funding. The capability of the team they are experience is their pedigree, a lot of that goes a long way scaling the business. Second would be the scalability of the idea. There’s this famous saying “there’s a gap in the market but there isn’t a market in every gap”. So you need to ensure that the idea you have might be unique, but there should be a market where you can actually make money monetizable. So that idea should be scalable.
Let’s say right now your serving 10 people. It goes to lakhs, millions but it should still hold value. Scalability is very important, the idea should address with your checkable market, serviceable market and all of that. Thirdly is very industry specific. Keeping different key performance indicators like KPIs for each industry. See how startups you are evaluating fairs in those areas. Benchmarking to industry’s statistics then taking a call on how strong are unit economics of that company is. These are 3 broad criteria. There maybe other small small too, which could be startup specific. But in a nutshell, these 3 could be parameters.
3. With so many layoffs happening around in startups, what do you think is the root cause and how can it be resolved?
Answer: Layout has lot to do with the cash flow position of a company. So when they start off with something really unique, which entered to disrupt the market. But ultimately, it is very important for a business to have strong unit of economics. So as they scale, probably in the beginning you can take investor’s money, burn it, spend it on advertising, marketing to the acquired customers or whatever it is. But that can go to a certain level. Beyond that level, it needs to be ensured that a business starts generating enough cash, so that you can fund your internal activities.
Probably, that was wrong for many of the fundamental startups. Cash flow continued to be go ahead a certain scale. Also to acquire a customer, they continued to spend heavily, like it was just in the 0 year. So that’s where companies won’t really able to be cash positive and have a strong unit economics. The way to optimize and go about cracking this situation votes to reducing your costs and bring about efficiencies. So if you see your P&L, the employee cost will be one of the most tangible costs and also one of the fastest ways to cut cost.
You can reduce a lot of other things, but this is something, because many of them are downside in their activities. So it was my direct repucurssion to that. That’s where layouts and all happen. So it is fundamental to do with the way businesses were built, they could just do better with business economics.
4. What is your view on the valuations then (in 2021) and valuations now?
Answer: Valuations in 2021 which was referred to as the covid era/period, were definitely much more than it is now. So the multiples was kind rocketing and was out of FOMO and demand supply games. So let’s say one top VC fund is putting and other one also wants to come in, then they quote a higher multiple. So it was kind of a race actually to get an allocation to startup which took the multiple higher. But now people have started realizing that you need to do a deeper due deligence, assigned valuations based on actually projected cash flows. Because people hardly look at cash flows and anything beyond revenue.
So now, the mindset has come to actually project the revenue and where will that go in terms of scale, profitability. That’s where the multiples is also correcting and FOMO mindset is moving away. Therefore, people are investing what they feel and have a strong sense of unit economics etc. So they are not doing it because others are doing it. Every individual should now take a deep dive themselves and towards their intelligence.
5. In these recessionary times, what is your opinion about venture capital deal activity?
Answer: The deal activity has slow down. But I would divide them in 2 buckets. So you have early stage and then you have late stage startups. Early stages won’t be affected as much because if you have a strong founded time, strong business idea something destructive, of course funds will flow in. Infact a lot of your late startups have also started entering into early stage startups. I think that particular segment will remain unaffected.
But late stage startup, that might see a slow down. That is do because those companies need to prove themselves. Early stage is seen on a more or less on a founder’s capability. It is not as much in depths because there aren’t lot of numbers to evaluate. So late stage right now might take a little bit of time to slow down in terms of funding. Although it is all very cyclic and is the nature of every industry. So kind of recession/cyclic nature is very natural and sometimes even necessary for some business for a sense check. The business is like at peak last year, and slowed down now.
6. Is the Venture Capital sector still A ‘Boys’ Club
Answer: I wouldn’t really call that true. In fact right now lot of women focused VC funds, back to back founders and VC are also trying to ensure lot of women on board for diversity or whatever reason. Having said that, I feel when you are in VC, the mindset you have is just to look at founder. Irrespective of the gender – male or female gender and the incoming idea. So that question of a man or a woman or whatever that is not really present in the minds. So that is sign of progress of how far we came.
People are indifferent who is the person behind but more about capability and idea, which is irrespective of male and female. So we don’t ask that question is very good sign and that difference has faded away. All we care about is now is the idea, which is a great sign of how far as a society we came. I feel it’s just equal everywhere.
7. What skills are essential to succeed in corporate finance and venture capital?
Answer: First and foremost is to have an analytical mindset. Whenever you are looking for a startup, investment, numbers, so you tend to go in depth and see why is it happening, what is being the past, what could be the future impact. That kind of analytical mindset is really important. Along with the research oriented. To go and seek any related information, metrics, statistics on that that very important. Very effective to have is communication skills. You are going to manage so many stakeholders in the process. That equivalent process is very important for you to have those kinds of skills.
Lastly be updated about whatever is happening around related to strengths, industries etc. It is extremely important for you be updated with latest activities in the ecosystem. Talk to as many people as possible to get their perspective.
8. What is your advice for students and professionals who wish to make a career in this field?
Answer: First thing is when you decide to make a career in this field, just take a step back and make sure you are genuinely interested in this field. It’s like everyone’s rushing in this field and that’s why you feel i should also go in that industry. A lot of people end up to where they belong. So it is very important for you to be passionate about investment, startups, new edge technology, whatever.
If you are really passionate, whenever reading about startups, try to read understand business modelling details. It will put you in that thinking mode of how do they monetize, what could be the loopholes. Lastly, the skills as mentioned are equally important. Just try to read out of latest happening. That’s very essential. These are the things recommended for future ones.
9. What is the quotation you live by your life?
Answer: Do good, think good, be good. In simpler terms, you must do good whether in profession or in person, which i always apply everywhere. Like you do good and get good and always have good intentions. Like it’s_ law of attraction. If you actually think positively, try to good for others it just comes back to you. It may sound very simple, but that is the principle I live by.
