Archive for December, 2005

JobsAhead Life Graph

Here is an attempt to encapsulate the life of a startup in one picture. Let me know your feedback, and I can then request other entrepreneurs to kindly contribute the same.

The format I have chosen is to represent the optimism or happiness of a company (not just promoters, but the team) on a time axis. I have found this to be more representative than simply revenues and profit graphs, and I will draw the contrast below. So here it comes —

JobsAhead Life Graph
This is only for the duration that I was actually present at JobsAhead, i.e. inception to end Dec 2004.

Few observation:

1. Notice the early transition from ZipAhead to JobsAhead – I reckon we’d be dead in the first quarter of this chart if we hadn’t done that. The business model we started from wasnt the one that got there.

2. The first peak is the dotcom boom. Notice that since we had raised money, while the dotcom bust had a plateuing effect for us, it wasnt the worst thing to happen, especially since we had a very successful launch. For businesses that couldnt raise money, it spelt doom. There was a window from Nov 99 to Mar 2000 when money was available — this short span of capital availability is part of the reason why Indian internet space remains under-developed from a supply side.

3. The real thing to hit us was the IT slowdown (that was our major customer base) followed by 9/11. That took us close to death. It also meant that we had to shift the entire customer base from IT companies to recruiting agencies. The customer segment we started from wasnt the one we survived on (though later, direct companies gave us the growth).

4. Cash breakeven is a defining point in a company’s life. The bounce in the steps changes! and you have to reorient the entire team back to thinking growth rather than survival. The high volatality in the beginning is all a cash flow game.

5. Building leading businesses is a time-taking and hard process. If I were to draw the revenue and profit graphs on top of this, they would follow the normal S-curve kind of pattern (since we were driving market adoption here) except for a slow-but-still-positive-growth 2001 (IT bust) — no surprises there — if you can stick to those ones that drive the company, life would be much smoother. We perhaps learnt it by 2001, and implemented by end of that year.

6. Part of the pain that came during IT bust was in building the cost structures ahead of revenues, in anticipation of high growth expectations that the dotcom boom had created. Costs fall like feathers — very slowly. It took us more than a year by the time we chipped and chipped away at unnecessary overheads.

New Seed Funds: Right time, Right Place, Right Model

On Monday (Dec 19), I attended the soft launch of Mentor Partners, a unique technology-focused seed fund, in Bangalore. The firm plans to initially invest $1 million each in 10 product-focused companies in the IT and telecom space: around $500,000 as seed investment or “bridge loan” and the remaining as part of the first round investment along with other Venture Capital firms.

With two partners on the ground in Bangalore (Ravi Narayan who earlier co-founded Nextone Communications in the US and V.Prabhakar, a co-founder of Bangalore-based software testing services firm RelQ), Mentor Partners will help its investee companies get access to top companies in India, the US and other markets via its about 35 other members in its network. The network includes those who are either operating managers (like Vish Narayanan, Head of Telecom Operations at General Motors in Chicago) or “been there, done that” entrepreneurs (like Rosen Sharma who has founded several start-ups like Solidcore, VxTreme, Ensim, Stratum8 and Green Border).

While the number of entrepreneurs with good products ideas is growing rapidly in Bangalore and other cities, the bane of genuine early-stage investments in recent years has been lack of ability and willingness on the part of VCs to provide seed capital (a typical VC firm cannot invest less than $3 million) and more importantly, play a hands-on role in growing start-ups.

Mentor Partners plans to raise its corpus from high-net worth individuals and Silicon Valley venture firms. (Several Sand Hill Road firms have recently made similar investments into local VC firms in China. There are several reasons why it makes sense for Silicon Valley firms to make such indirect investments-despite the issues it create with respect to “double carry fees” for their own investors. For instance, they don’t have to prematurely invest in setting up a full-time team and office in these developing markets. Plus, they get proprietary deal flow for making follow-on investments.)

A key source of strength for Mentor Partners is that there are enough follow-on investors (including some two dozen Silicon Valley VC firms and strategic investors either already on the ground or very keen to invest in India) who can invest $3 million or more into their portfolio companies – when they are ready for it. Plus, as B.D.Goel, a member of the Mentor Partners network, points out, “success” for such a seed fund would be in validating the business models of their investee companies and helping them access name-brand investors as part of the first round. Mentor Partners will then rely on the follow on investors to take its investee companies to the next level, rather than having to hand-hold companies all the way to an exit. For entrepreneurs too, this is much better than having a larger fund invest $1-3 million when their products are still being built and then, just when they seem to be getting their marketing act together, start pushing towards a premature exit.

Mentor Partners’ model-including its relatively small fund size and its unique partner network-is a welcome addition to the Startup-VC ecosystem in India. What’s even better is that there are more similar seed funds that are either up and running or being raised. While Bangalore has seen the launch of the $3 million Erasmic Incubation Fund, Mumbai-based angel investor Mahesh Murthy has teamed up with Pravin Gandhi (a co-founder of Infinity Venture) to raise a $10 million fund to be called, well, “Seed Fund”.

Here’s hoping that these seed funds-which are filling an increasingly obvious and large gap in the eco-system-will close their funds quickly and invest in creating some very exciting technology companies out of India in 2006.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Online businesses waiting to happen in India

Looks like the winter chill is catching up with Venturewoods. Was at the contentsutra mixer couple of days back, and the participation seemed to be good.

One thing that I have been thinking about is the set of online businesses that are ripe for indian market. In 1999-2000 the dotcom boom lasted only 3 months in India, and as such, some ideas and teams that might have had merit could not get funded. Five years later, a lot of interest is coming back. One set of ideas are clearly around “concept arbitrage” — bring and localize ideas that have been successful elsewhere. JobsAhead was an example of this, so was Baazee. Some examples of obvious holes:

1. Online consumer travel. Makemytrip got funded few months back, and I hear some others have funding too. This space is getting competitive. Are there models which people are not looking at but are valuable? A travelog site for example (check out my Leh travelog).

2. Ecommerce — there is still no equivalent in India. I still buy most books I need from amazon, and pay $7-8 per book for shipping. And I spend around $500 per year doing this. Firstandsecond and Fabmall started with promise but (imho) succumbed to low funding and premature entry (though I believe, both sites are still there and may make a comeback).

Horizontal portals are taking some of this action away, in travel, in ecommerce and so on. But, focussed brands will have potential.

Would love to hear about big ideas waiting to happen in India (either concept arbitrage, or otherwise)… Any thoughts?

BOA Clarification

I thought it might be useful to post this excerpt from a reply I sent to one person who contacted me as it may help entrepreneurs understand when it makes sense to approach the Band of Angels

“Please note that I do not sign NDA’s. The Band of Angels requires executive summaries in a particular format which is attached. Generally the Band looks for businesses that have high barriers to entry and can grow to be large. The exit valuation has to be well north of 100 crores. The band will generally take 25-33% of the equity of the company for its investment of 50 lakhs to two crores. In some cases where the company is more mature but yet not ready for a VC round the band may find other co-investors so that the total amount invested could reach 5 crores. The Band seeks to provide advice/mentorship in addition to money so its members are likely to invest in businesses where they have expertise. The quality of the management team is important. The band is very selective and funding may never close or take time. Generally however if an angel agrees to sponsor a company to present to the full band the company gains a lot by interacting with the angels even if the angels choose not to invest.”

TiECon – 15.Dec – My story Live!

Morning today was a new experiment for TiECon – we realized that besides high profile keynotes, we need to bring in success stories than entrepreneurs can relate to.

Great session which managed to bring out both the logic and the passion behind startups! Deep Kalra (Makemytrip) moderated a great discussion with Avnish (ebay), Vishal (Indiagames), Shravan (Shringar cinemas), Ashish (Yo China) and Ajay (Sarovar hotels)!

Key observations
– great span of sectors – not just tech – shows that opportunities exist in every area
– young entrepreneurs continue to think big, and scale that ambition continually
– what business you get into is a mix of opportunity and passion

good stuff!

BOA coverage in Business Line

Business Line, December 15th issue had a brief write up on Band Of Angels

TiECon Keynotes – 14.Dec Live!

Some great keynotes

– Vinod Dham spoke about the enthusiasm in indian entrepreneurs. I think the highlight was outlining how the Nevis announcement illustrates the high quality of work that can be done in India – coming from Vinod, people listen

Dr Bala Manian – my pick of the day – serially successful entrepreneur in life sciences – easily the sharpest view I have heard of the potential of low cost labour – rather than taking the process and applying low cost labour, turn it on its head so that the process is designed with the fundamental assumption of labour efficiency (including tradeoffs of labour with other factors of production) – I’ll bet on this guy, easily the pick

– Pramod Bhasin talked about moving up the value chain

– Kiran Shaw started with an introduction to biotech, and that’s when I left

Reporting from TiECon – Day 0

13th was a VC event on sidelines of TiECon. Key highlights:

1. Most people accepted the gap in early stage (series A) funding, but depending on who you believe, something around 10 funds are being raised to cater to this. People clearly see the opportunity here, and belief in Indian product companies is beginning to shape up (though still not there). Hopefully, some of these 10 funds will be successful in closing.

2. Arun Natarajan reported that early stage investments is the only category to have remained flat last year 🙁

3. Morten Lund, one of the investors in Skype was here. Interesting guy, tries to be anti-establishment. One of the things that I head more and more about is “management capital” if you will — successful entrepreneurs going out and associating with multiple startups in exchange for (largely) equity. I believe Raman is also pursuing a similar model, but with a large part of Spectramind core team with him

more to come…

Always Mange More!?

Madhu has raised some interesting, and perhaps, furstrating, questions regarding what really VCs want. A fair description of the same has been outlined by Chris Wand.

Still being more of an entrepreneur than a VC, one learning I have is that VCs are not a homogeneous entity. Some key parameters as you look to choose a VC:

1. Stage — Angels, Series A VCs and Series B VCs are different breeds. While the first one will invest (maybe under a crore in India) for an innovative team and idea, the series A VC wants to see a more broad based team, lead paying customers and clear differentiation — this kind of VC funds the path to profitability. Gaps in team are acceptable but to be clearly recognized. Investment size will very with plan, but typically under $5m. Series B VC will typically take a profitable (or close to it) company, with the management pretty much in place, and basically fund expansion (depends on the business, but typically over $5m).

2. Expertise of the VC — Especially at early stage, it is hard to understand and fund businesses where none of the VC partners have expertise.

3. Portfolio — See if the firm you are looking at has made some prior investments which are synergistic.

Part of the frustration in India arises from the fact that some of the parts of the financing ecosystem are underdeveloped. But its getting there…

Predictions for 2006 from an Indian perspective

It is the season to be jolly – but for those of us who compulsively seek out the next big thing, it is the season to ponder on the future and plan our strategy.

So, in no particular order, here are some of my predictions for 2006.

1. The Web 2.0 bubble will burst: This will happen due to two reasons. Firstly, it will become clear that most, if not all Web 2.0 sites have been unable to reach out beyond the very limited geek-dominated market of early adopters (illustration: even the supposedly wildly popular service has just 300,000 users. An anecdotal review of the popular links on will reveal this as well). Secondly, the acquisition spree seen in 2005 will slow as the big players digest their acquisitions of 2005 and re-evaluate some of their more outlandish purchases (Skype comes to mind). This time though the bubble will burst quietly with websites getting shut down quietly without much buzz. Not too many employees will be displaced as Web2.0 startups have hired very sparingly.

2. Yahoo will continue upswing: Yahoo will continue to make mindshare inroads into Google’s territory because of Yahoo’s superior partnering strategies (e.g. its recent partnership with Six Apart for MovableType) and also the fact that Yahoo “gets” content much more than Google does (also see prediction #8 below). Towards the end of 2006, Yahoo will start to emerge as a bigger threat to Microsoft than Google.

3. Outsourcing: A shortage of good tech workers, an unsustainable spree of pay hikes and continuing competition from companies like Accenture and IBM will start impacting the major Indian outsourcing companies. Also, 2005 has seen a trickle of good engineers leaving big Indian IT companies to join startup technology companies. 2006 will see a flood. Startups in India will have a good hiring year.

4. The blogosphere expands and consolidates: Professional, political and passionate bloggers will continue to see a fast growth in their readership. Overall the blogosphere will start to consolidate attention and resources into a relatively few trusted blogs. “me-too” bloggers will start to drop off the blogosphere, as the novelty of blogging wears off. With the decline of me-too bloggers, advertising-driven blogging sites will start to see a decline in growth rate. The absolute number of bloggers will still see a sharp increase over 2005 (the number of blogs could possibly reach 150 million)

5. Resurgence of newspapers: 2006 will be the year newspapers make a big comeback. This comeback will be led by a few simple but powerful trends. Firstly, newspapers will increasingly recruit subject specialist bloggers and hyperlocal bloggers over more generalist journalists. This will allow them to replace boring newspeak with much more insightful articles from writers whom people already know and trust. Secondly, a readership already weary with the tedium of keeping track of too many blogs will return to the relative comfort of reading newspapers (albeit online). Whether newspapers can successfully monetize this new interest will be the next big question.

6. Consumer storage will be hot: As the average consumer continues to amass gigabytes of data, the storage, backup and disaster recovery problem will be hot. 2006 will see several technologies that were hitherto reserved for mission-critical IT networks retargetted towards individual users and small businesses.

7. Major breakthrough in the attention problem: As companies and individuals slowly start to realize that they are losing productivity because of too many interrupts (email, IM, phone calls, …), a major breakthrough technology will alleviate the problem to a large extent.

8. Content will become more valuable: Due to several factors (such as Google’s algorithm-driven approach to ranking relevancy and the Web2.0 bubble), content in 2005 is being treated as a mere commodity. 2006 will start to see a reversal of this trend, as content creators (e.g. bloggers, photographers and musicians) get a more equitable share of online advertising revenues. This trend will be driven by a simple consumer behavior – consumers prefer better content over better technology or delivery mechanisms. This inherently means that content needs to be valued higher than it currently is.

9. U.S. real-estate slowdown will have global consequences: Interest rates, U.S. bond prices, U.S. consumer confidence, dollar exchange rates (and hence the offshoring business), combined with the huge (and increasing) U.S. trade deficit are all pieces of a fragile domino game. This game could easily turn ugly if the U.S. real estate market accelerates its slowdown, or even worse, turns out to be a bubble. Bad news in the U.S. housing market could trigger a global recession.

10. Uncertainty in China will cause investors to hedge bets: The risk of social unrest will weigh on the minds of investors in China. The heavy handed approach of the Chinese government might provide stability in the short term, but it still risks the chaos of a possible widespread unrest in the medium term. Whether India will gain from this is unclear. Investors might look at even safer bets such as eastern europe, south america and south africa.

Predictions can never be objective – they are heavily biased by an individual’s perspective, his network of advisors and his mental model of the world around him. I’d love to get your feedback on these predictions.

Lastly, thanks to Alok Mittal for inviting me to post on VentureWoods.

(Cross-posted from