Author Archive for Alok Mittal

Pitchbook – Quick review of Global VC 2013

Pitchbook has a review of global VC activity in 2013. Key message – activity continues to shift out from silicon valley to other parts of the world, overall a slightly down year, but rising valuations. India still remains small.

http://blog.pitchbook.com/2013-sees-vc-valuations-rise/

Entrepreneurship lessons from the Aam Aadmi Party

How could I resist Snigdha’s hint to opine on startup lessons from AAP’s historic Delhi performance! So here it goes on startupcentral.

Key lessons:

– Great businesses are created by playing into market shifts
– Startups need sharp focus and positioning
– Run a well-designed proof of concept
– The founder is the best salesperson
– Conviction of the founding team

Watch out — this might well be the trillion dollar impact startup all of us have been looking for!

Venture Capital in India – The Summit Push

As the season for year roundups begins, here are my thoughts, originally published in Economic Times

It is now my eight year in succession of claiming a great year for venture capital. I have been in the business for all of eight years. But then, I am also an amateur marathoner and a climber. And in all of these three trades, it takes years of perseverance to scale the summit. As I look back on 2013, I am more convinced than ever of the decisiveness of this moment.

At the surface, 2013 was a slower year for venture capital investments than recent past. It seems that by the time the year closes, we might be 10% down relative to 2012. The sentiment also seems to have gone through a trough, even though there seems to be some revival in the last quarter. Why then the optimism?

The first reason is the emergence of key investment themes which could redefine the complexion of technology ventures in India. While ecommerce innovation continued to get funded in 2013, the second place has been taken by global product innovations coming out of the Indian market. This enhances the market that Indian startups will play in in the future, as well as the significance of those companies on the global stage. Next on the rung is mobile application startups – given the large base of mobile consumers in India, and the nature of India as a mobile-first market, innovation in mobile applications could also lead to global leaders in the space. This opportunity set is likely to get further strengthened as payment systems around the mobile mature – something that 2014 should bring in, both around electronic payments as well as micropayments. These emerging investment themes represent significant broadening of technology venture activity, beyond the classic services and internet spaces.

Equally important has been the strong performance of Indian startups on the exit front. 2013 marked a watershed moment as far as exits of technology venture backed companies is concerned. For example, just between four companies, namely Justdial, Redbus, GlobalLogic and Prizm, over $2B of market value was affected in 2013. These companies, amongst themselves, also represented strength of variety of exit mechanisms – from an IPO trading at 100% premium to issue price, to strategic exits, and a PE buyout. Such a stream of exits provides increasing validation to viability of venture capital in India.

Thirdly, 2013 reversed the policy tide to assist the flow of foreign direct investment in India. From relaxation of FDI limits to rationalization of GAAR, and from IPO facilitation to allowance of preferential clauses for investors, the silent wave of reforms in the latter half of 2013 has started to undo the damage that the regulatory arrogance of 2011/2012 had initiated. There is increasing expectation that this momentum will continue into 2014, without being held hostage to the results of the impending general elections.

Against this backdrop of 2013, it is an exciting 2014 that knocks on our doors. And like the final push to a summit, this stretch does not require us to do different things – it indeed requires us to persist with what we have done well in the past. It calls upon entrepreneurs to dream big and execute well. It calls upon investors to support entrepreneurs and keep focused on realizing returns as investments mature. And it calls upon the regulators to provide an enabling environment for businesses. From the momentum that we have seen towards close of 2013, it might very well be that 2014 is a better year in terms of fund deployment as well. However, the lasting contribution of 2014 could very well be in establishing strong proof points around India as an attractive venture market.

Wishing everyone in the startup ecosystem an exciting and rewarding 2014.

VC Firm Branding – What matters?

NVCA facilitated a recent research around what matters in a VC firm brand – both what entrepreneurs value, versus what VCs think is important.

Note that this is a US based study. Overall the study reinforced the importance of VC firm brand, but highlighted the differences in what entrepreneurs value (entrepreneur friendly, trustworthy, collaborative, value add) versus what VCs focus on (thought leadership, hands-on). Third party recommendations and word-of-mouth amongst entrepreneurs matters. Entrepreneurs seem to be far more influenced by lead partner reputation and next by firm’s reputation (where as VCs think of those and portfolio reputation as relatively balanced triad). Message for VC firm and partners – develop your brand in line with what your audience wants; Be out there.

It will be interesting to get perspectives from entrepreneurs in India on where their views might be different. For example, the whole incubator/accelerator phenomenon in India is extremely “hands-on” and entrepreneurs seem to appreciate it (or is it just lack of choice?) How are the influencers in emerging market like India different from those in a developed market like US?

Opinions?

Online classifieds – calling again

Hindu BusinessLine carried this interview of mine on online classifieds market. Online classifieds remains perhaps that most rewarding space thus far in the internet domain from an investment standpoint, on M&A (carwale, jobsahead), IPO (naukri, justdial) as well as continued companies getting to scale (matrimony, property, food). Surprisingly, it has not generated equivalent entrepreneurial interest, especially as some of the disruptions around location and mobility create new opportunities.

We have also been seeing a distinct evolution in classified products, around the following elements:

  • Quality of content – Traditionally, classified businesses have relied on the sellers putting up the content, without much support for authenticity of information. New classified businesses are innovating to improve quality of content
    – (a la Cartrade) – by building automation around content generation, through connectivity with ERP systems
    – (a la Zomato, Indiaproperty) – by making the content richer, including maps and audio visual content
    – (a la Bharatmatrimony) – by verifying 100% of the listings
  • Relevance of content – Traditionally, classified business have relied on search as a method of generating relevance of results. New classified businesses are using social graphs to
    – increase relevance by leveraging the social graph (a la Shine, Tripadvisor)
    – augment content from social graph to make content richer and relevant (a la Bharatmatrimony)
  • Actionability – Traditionally, users are left to their own device as far as responding to ads is concerned. New classified businesses are enabling immediate and always-on connect (a la justdial mobile/ premium)

Perhaps an area for entrepreneurs to dig in more purposefully.

Internet in Tier II/III towns

My article in Strategist regarding the challenges and opportunities for Internet services in Tier II/III towns. Read on…

http://www.business-standard.com/article/management/overcoming-the-digital-divide-113060200429_1.html

HBR – How to negotiate with VCs

Update: 18th Oct 2013 – The slideshare link seems to be disabled. Please read here.

Excellent article on how to negotiate with VCs – valuation is just the tip of the iceberg. Other terms, as well as ensuring alignment through the negotiation process are far more important.

Read on…

Accelerator->Angel->VC flow is still struggling to find its equilibrium in India

I had fun moderating the panel on early stage financing at India Internet Day. Vccircle has an interesting article.

Deal progression

The key issues are as under:

1. Too few deals are progressing from accelerators to angel, and from angel to Series A. Only 5% of deals going from accelerators to Series A might not be very different from success rate without accelerators.
2. Angel stage valuations are stretched relative to Series A valuations. At 20% success in getting to Series A, a Series A valuation of 35 cr would be a breakeven point for angels (7 cr angel valuation is typical). At 20 cr, the stage is not paying back for itself.
3. Its taking too long for deals to progress. While accelerators (admittedly apart from Mukund’s Microsoft accelerator :-)) aim to get to next round of financing as the startup graduates from the accelerator, it is taking an additional year to get to angel financing. Angel to VC is another 2 years on average. This slow progression may also be responsible for higher failure rate. Accelerators might do well to extend the runway.
4. Lot of “recycling” – the same company going from one accelerator to another, from one angel round to another. Again points to the time it takes to build companies, and the need for early stage investors to keep supporting the good ones.
5. Too little mortality – “fail fast” seems to be good advice, but little practice.

Of course, the above applies only to startups which are in the funding play. Note that the data was gathered from about a dozen “premier” accelerators/incubators and angel funds – so while I believe this is directionally right, its not the most comprehensive survey.

The role of venture capital in growing Indian ecosystem

Iamwire published this article by me around the broader impact of venture capital. I believe venture capital has had a defining role in getting first generation entrepreneurs out in increasing numbers, at the same time benefiting from that trend. In addition to entrepreneurs, the capital-exit model of venture backed companies also creates the right incentives for top quality talent to join startups. Other benefits abound – read on…

Will Delhi startups outsource tech to Bangalore?

Delhi NCR seems to have emerged as one of the strongest startup ecosystems in the country. From internet to mobility and ITES/BPO/KPO, the quality of startups is compelling. However, of late, there has been a view that the tech ecosystem is not keeping pace. I was having a chat with a friend, who pointed out the following “facts”:

  • HasGeek is been doing some amazing work in tech events…they are probably the leaders in the tech. events space. They tried NCR couple of times and now have written off. I’m trying to work with them to bring some of their events in NCR.
  • In50Hrs has written of Delhi. They did 2 events and now have moved to Trivandrum.
  • MobileHackday – a hackathon done recently at one of the companies in gurgaon did not attract many people…they had to close the event and did not even have the jury members to come and look at the prototypes.
  • At Startup Weekend Delhi, there are around 12-14 ideas presented…atleast 8 teams present a powerpoint presentation and probably 4 present a prototype…Bangalore is just the opposite.
  • Some startups have started moving the tech. base to Bangalore 🙂

I have not checked with respective organizations mentioned above, but will take this at face value given the credibility of the person who mentioned the above. Also, given the spread of events, I am making an assumption that this is not a reflection on quality of individual events. I also do not view this as a notion of delhi versus bangalore, but more an issue around the depth of tech ecosystem in delhi area, and whether it is growing stronger or weaker. I say “tech ecosystem” not in the semiconductor research sense, but typical depth that startups are relying on (application/ systems level).

In fact, the other thread it sparked in my mind was cultural and cutting across the country – are we propagating a culture of startup formation that relies on learning from the community and widespread exchange of ideas? That could be the other reason where founders and their teams might be putting their heads down and building their business, rather than throng events.

Would love to get comments on this. And if this is a real issue, what can we do about it.