Loading ...Just saw a couple of side discussions on some comments posted elsewhere on VW. Am bringing this up as a main post as it might be of interest to others as well.
Rad said
What applies to the rest of world, doesnt apply to India. Everybody - Indian Entrepeneurs, Indian VCs, Indian Angels need to think and act differently. If you guys think about your country and strive for a pride that comes from having a Sony or a Google, you would find yourself spending more time with young guys nurturing and mentoring them, rather than than just chasing fund targets.
Whats missing in India is Idealism, Romance and long term vision.
Rad, I understand what you are saying. What we also need to understand is that in the investment business, there is no “long term” unless the fund targets are met. As important the long term vision is, it is equally important one understands how to get there. Sony and Google are prides of their countries because they are business successes, not because they are romantic.
… please tell us what are the things a VC is looking at when he invests in a startup ?
Anon, I think at 30,000 feet, we look for the ability for ourselves to make good returns on investments. That typically requires large markets, great teams and sustainable differentiators in the business. At a high level, it is really that simple. As you dig in, some factors become more important than others. In Internet, a great team might mean passion and understanding of the medium; in enterprise sales, it also includes past experience in selling to enterprises. Sustainable differentiators might exist on day one due to technology, or you might be able to build them over time (as in case of consumer internet companies, where brand and first mover advantage can be significant).
And then, our own understanding of the space and our ability to address risks in that specific business become important. Most successful early stage investors are conscious of the fact that all good investments are not necessarily good investments for them.
Would love to continue the discussion,
and yes, we are adults — we can use our names here 
Alok,
Veto for some decisions, specially the financial ones, totally makes sense.
I want to know would VC want to have a deciding say (veto or anything of the kind) in what goes in to the service or product ?
Second question I have is how much would the pre-money financial structure influence the terms in the term sheet ? Now, I am talking about an internet based service + no debt + seeking external finance for the first time + mostly at the going to the market stage. What i specifically want to know is if 1 person is holding all the equity (pre-money), and he has a team which is fine with it (because they still haven’t shared the risks), what are issues VC might have ? how would this influence the deal (if at all) ?
Bravo, SS. Spoken like a real entrepreneur. It is the same spirit that has kept me and my team going for 18 months now, in the face of daunting odds (only my Maker and me know what I’m going through to keep the ship sailing).
As you said, come what may, go ahead and DO IT! As Gandhiji said, find purpose, the means will follow (Gandhigiri seems to be the flavour of the month). As I read more and more blogs relating to VCs and VC-seekers, I increasingly find my experience mirroring that of others who have gone before me. And it only stokes the fire in my belly. To keep DOING IT! One step at a time.
All the best.
I guess i am late into the discussion, but here are my two cents.
1) As an entrepreneur you have to be practical. At a given point of time there are 100’s of startups competing for the same VC money and each one of them believe that they deserve the money.
2) But given the vc scene in India, only those companies which have a proven business model get VC money. Risk capital is lacking in India.
Co-relating the above two, the only way for a startup in India to get funded is go to revenues as soon as they are out of early stage! Show some revenues coming in and then you can have a shot at Series A.
A simple and straightforward plan :).
I think VC money is just one piece to the big problem of making a business success in India. For first generation entrepreneurs money is a big issue. But at the same time the passion and fire to do it is so much that all other things, including the need for money, become secondary.
Let’s face it, we have lot of issues here that we can’t solve (as startups)-
1. We don’t have enough precedents of great success stories.
2. VC firms in India dealing with startups are very few and most of them are not homegrown- I mean they themselves did not get started here. Most of them have come from abroad.
3. There is no ecosystem here in India that would increase the probability of a startup’s success. We keep hoping that some success stories will actually create such ecosystems. We are a long way from making a Silicon-Valley-like stories probable here. It will come about only through some disruptive examples. And we all hope we are one of them. (That’s the hope which drives us!)
Instead of solving those bigger problems- hoping that VCs understand us, hoping that there is an ecosystem, I think we should concentrate on JUST DOING IT.
JUST DO IT! is our mantra.
(from Nike Ad) [We all have T-shirts that say “We are doing it!”]
It takes lot of hard work to raise money, but it can be done. There are not many angel investors, granted, but it still can be done. Its tough to get a team in place without money, granted, but it still can be done. It may be tough to sell your product/idea to your customer, but it still can be done. Through dogged perseverance! And I think that’s the only way to go about it- in the present scheme of things in India. Some of us will fail, some of us will succeed. Hopefully, the next-generation entrepreneurs will have it better because of the the successful examples we set.
I think there will be lot of time for us entrepreneurs to sit back and analyze - to know what-we-did-right and what-we-did-wrong. But for now, I think the only mantra that works is JUST DO IT! Thinking too much about the right way to do it may not help. What is the right way to get financing? Bootstrap? Sell your Apartment to self fund? Borrow Money? Angel Money? VC Money? Who knows! Frankly I don’t have a clue what is the right method. We thought we knew the right method- because many ‘experts’ told us what it was. But it didn’t take off.
Come to think of it, there are examples galore to justify all the methods.
We believe this- Take each small step at a time, prove it, convince someone around you to pump more money and then go the next step. I have been told by some VCs that it is NOT the right way to do it. Then I asked him if he was ready to fund us so that we can do it the RIGHT WAY. Of course, you can guess what the answer was!
We are a two year old company with 15 people working full time and we are self-funded and angel-funded- and we are about to launch our product. We have a long road ahead but we believe we will scale it (with or without VC money/advice). One step at a time!
Alok:
Appreciate your effort to educate entrepreneurs, on what VC’s really want?
Entrepreneurs - I feel, a lot of us think, that angels/VC are the only way to start your high-tech business.
May I suggest we step back and re-analyze - What do WE want?
When starting a new business we can choose between:
A - Founder centric business model: A business to serve us by providing “long-term” abundant livelihood and lifestyle.
B - Investor centric business model: A business to serve its investors by driving its share value higher and delivering liquidity event (5-8 years).
How do you choose the right fit?
Answer these questions -
1 - How big is your ego?
Big fish in a small pond
Small fish in a big pond
2 - For whom does your business primarily exist?
Example - Your goal is to leave your daily job and be independent - one option: Put your grand idea on hold, start something small with your own savings, become cash-flow positive ASAP.
3 - Your business’s financial roadmap:
3A - Capital required: huge or modest
3B - Access to capital Sources:
Debt/Grants:
Government programs/Grants
Quasi-governmental organizations
Banks
Equity:
Seed - Founders savings and Friends and Family of founders
Pre-public - Angels, Venture Capitalists
I hope this will help you in re-analyzing your current assumptions.
Anon, most VCs do not insist on a controlling stage (i.e. they are open to less than 50% ownership). This translates into equivalent board rights. However, most VCs will ask for certain veto rights to protect their interests. So while they do not necessarily want to control every board decision, they do want to control some, such as hiring a new CEO, incurring large capital expenditures, declaring dividends etc. Its easy to understand that VCs dont want, for example, them to put in money and that money being diverted to other means the next day.
How far does it make sense depends on what you can do with and without the VC — both in terms of money and other value add. VC money certainly doesnt come for free. It makes sense if you think this participation can create significantly higher wealth. Otherwise it doesnt.
Alok,
In a startup investment (very early stage), is it true that the investor will insist on having a controlling voting stake. I mean even with 10-50% equity they would insist for more than 50% voting rights. If yes, how far does it make sense if the startup team (though unexperienced) has spent a year or so in crystallizing the idea. Is this what PINK above refers to in his comment when he says that “VC will end up frustrating you” ?
Apologies for the harsh language I used in my comments on VCs/Angels etc.
No, I havent suddenly received funding for something
Just feel its not right to generalize. People like Alok and Sanjay spend lot of time on this site helping/advicing young enterpreneurs. Hope it will become more common in the days to come!
Anon, sorry to say this again but it varies… At the angel stage I have seen dilutions of 10-50%, and another 20-40% at the VC stage. So post the VC stage you might own 72%-30% of the company. I know its a wide range, but thats what it is.
I remember some of the earlier data I had posted on it here. Even in US, founding CEOs land up holding an average of around 5% at IPO.
I liked the debate on the Gap between US and Indian VC ecosystem. I got curious and felt like exploring some hard data. I found the following extremely topical.
There is a 2nd Annual Global Venture Investment Survey jointly released by NVCA & Deloitte. Just click on the following link and go to the topic ( sub link) dated July 12.
http://www.nvca.org/ffax.html
There is also another link relating to a press release from Deloitte on the Survey.
http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2283%2526cid%253D123691,00.html
This should fuel the discussion further on hard facts. Somewhere inside, I did find interesting facts relating to preference of US VCs to expand into India and China. I am reproducing some excerpts here.
” In the United States, 53 percent of the respondents intend to expand their global investment focus, with China (30 percent) and India (25 percent) identified as the two top foreign countries of interest over the next five years. Both countries are seen as places where it is less expensive to build businesses, where there is an emerging entrepreneurial culture and where there is a high quality deal flow. U.S. venture capital respondents cited India as the number one country outside the U.S. where there is access to quality entrepreneurs. Conversely, they cited China as the number one country to get access to foreign markets. This growing interest in investing abroad is a true sea change for an industry that has historically invested all of its money domestically.
However, both China and India have a number of impediments to investing. In China, the three biggest impediments to investing are: intellectual property laws (33 percent), travel time and effort (29 percent), and lack of knowledge/expertise in the business environment (26 percent).
In India, top impediments are: travel time and effort (23 percent), lack of knowledge/expertise in the business environment (22 percent) and lack of experienced local investors (13 percent).”
Read on and give your feedback. I think it is going to be extremely interesting and with a bit of hope, constructive too - I might add.