IBF Media, through Capital Connection, is organising an event around Cloud Computing on February 25, 2010 at Ista Hotel, Bangalore
The Latest Trends in Cloud Computing: An Operators and Investors Perspective
This event showcases some of the latest trends in cloud computing and looks at some of the successful business models and companies in this emerging technology area. The panel will be composed of successful venture investors from the Indian venture capital industry as well as technology executives from companies in India that are succeeding in this space. There has been strong investment activity in this sector from leading venture capital firms, both in India as well as brand name firms in the US and Europe.
Canaan hosted a breakfast discussion with around 30 angel investors late december on sidelines of TiE Entrepreneurial Summit. It was a great discussion, and personally I learnt a fair bit from fellow investors. The interesting part were the linkages that are developing in biases that exist between venture and angel funding, and as a result the validity of some of the stereotypes we so hard try and counter!
It was also interesting to see some of the biases and stereotypes that are emerging in the process. I have heard many entrepreneurs complain about things like IIT/IIM graduates having a better shot at raising financing - however, it is interesting that there seems to be rationale to this - largely around the fact that positioning the company is a key role of founders, and hence a criteria in decision making.
I am happy to announce our latest investment in MotorExchange - a B2B auto exchange for Indian market. The B2B auto market in India is over $11Bn and expected to double over next five years. It is a very early stage investment for us, and the key driver in the decision has been the team behind it. Vinay Sanghi, the lead entrepreneur, has been in used vehicle business for over 10 years now. He started with this idea with Automart - like many other 1999 dotcom businesses, it proved to be too early to build that, and Vinay morphed that into what is now Mahindra FirstChoice business. We are privileged to back Vinay in his attempt to build again, what he has envisioned for many years.
In my attempts to engage in angel financing, I have seen the typical concerns that potential angel investors have. Many of these have to do with the investment parameters, and figuring out how investors can get their money back (or returns) - especially given the inherent immaturity of these businesses in being able to outline an exit potential. Investment then gets limited to businesses where investors perceive a high probability of creating a breakout business. Many other diamonds remain in the rough. I have been thinking of ways of addressing this issue so that seed financing is available to a larger base of startups. This should allow for great businesses to “emerge” rather than being “envisioned”.
To start, I am sharing some thoughts on a potential investment structure that should allow this to happen. There are several other elements to making this successful, besides the investment structure, and I will talk about some of those over next few weeks. In the meanwhile, comments and critiques are welcome on this - both from entrepreneurs and angel investors!
I ran into Vishal Gondal on a flight few weeks back and he had a model that is pretty interesting. And may be there are some other thoughts in the community. So let me try and frame the problem.
How do we get 1000 angel funded startups every year with average initial investment of $100K? That’s collective $100M in angel capital - enough to get started. Some key issues/ constraints/ leeway:
Any sector
The amount may be available through formalized groups or otherwise
Mostly to concept stage businesses, sometimes prototype - definitely no revenue threshold
No express requirement for mentor, or active investors (yes, this was a tough one for me to let go)
Doesn’t include advisory capital, sweat capital, incubation resources, etc - talking cash here
Equity investment with profit motive - no debt, no collateral, no grants
The unstated one of course is sustainability and good choice of ventures - which is a decision that markets can make. Again, I have no included ownership thresholds - markets can decide that.
Media has followed the boom and tone-down in venture capital over past 4 years. As much as last 12 months saw a dip in venture capital, I have a feeling that some of the enthusiasm from journalists declined as well. Only the most dedicated journalists have survived the theme fatigue! And as many of us in venture capital have been doing, they are seeking to understand how investment themes have changed over past four years.
In my own observation, venture capital has followed a much accelerated hype cycle over past four years, where many themes have come up, quickly rising to hype prominence, and then settled to the golden mean - yes, there is a golden mean even for the most hyped technologies! Sample the following peaks:
2006 - Transactional Internet, Mobile VAS
2007 - Web 2.0, Retail
2008 - Microfinance, Cleantech
2009 - Education, Healthcare
2010 - Rural distribution perhaps? 3G? Other guesses?
I do not list real estate above because its not a “venture capital” category. The thing with hype is that the extent of hypeis only visible post facto, and that some people will actually make money in the hyped sectors (Online travel for example). The short duration of these specific hype cycles is a concern though - VCs operate well in 3-4 year long cycles, not in 1 year long ones.
Our own learnings at Canaan have been more around aspects orthogonal to funding theme - we have more or less stuck with our key areas of focus over past 4 years in India. The relative emphasis on idea versus entrepreneur, for example, has tilted more towards the latter. We have also made some bets in sectors listed above and future will tell us if their golden mean is golden enough for us!
Just finished reading this book by John Mullins and Randy Komisar. It outlines the importance of iterating on the business to evolve the plan continuously - in many cases, the initial plan that entrepreneurs start with doesn’t work as it is.
This is something that people in the venture space have known intuitively. John and Randy do a good job of motivating it with examples, and outlining a broad framework of what to watch out for. In some sense, the book is broader than just getting to Plan B - the initial portions on analogs and antilogs (as ways to find patterns that can fit your business) could be an independent topic. The degree of discipline that the book brings to those is limited, in that its a matter of judgment as to which analogs and antilogs one must choose out of many that are available - hindsight (as in case of many examples in the book) make it obvious, but thats not of much use when planning a business. Similarly, many case examples, such as Apple, are really about how a business will need to evolve even after it is successful (diversification, if you will).
The portions of the book I found most interesting are the ones that genuinely outline examples of companies that learnt somthing important along the way that significantly altered their plan along the same line of business. Examples like African Leadership Academy, or Shanda. From an operating discipline standpoint, I wholeheartedly agree with the approach to define dashboards, keep listening to the data, and continuously refine the model. Global Giving seems to be a great example of where this was done systematically. In some of the companies I have been involved with, the same approach has helped us make shifts sooner than would be obvious if the dashboards were not as explicit.
The importance of dashboards and thinking upfront about risks is also interesting because in most cases the Plan B can not be preconceived - there is inherent risk in startups. Many examples in the book illustrate this - Silverglide, Google, Pantaloon, amongst others. Hence the process becomes more important than the content.
Overall a great job. In the middle, the book deviates into a primer on startup financials which could have been skipped here.
I was speaking to a successful entrepreneur and angel investor yesterday about the evolving angel investment climate in India. He voiced a concern that seems to strike a chord - that while many successful entrepreneurs in India are involving themselves in angel funding, and even setting up early stage funds, there is a tendency to “rise above” building companies and a resistance to acting as a peer to budding entrepreneurs. Many successful entrepreneurs seem to graduate over, and consider it below themselves to roll up their sleeves with a rookie. Conference speeches take over garage whiteboarding.
In his view, this is a key gap in Indian angel ecosystem (to the extent it exists) and I agree. Perhaps too much of a class systems amongst entrepreneurs? Whats your view? How can we get the right mentors active in guiding new companies?
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Archive for Alok Mittal.
Alok is a first generation entrepreneur, now in the venture capital business. Alok heads up venture operations for Canaan Partners in India, with focus on internet, technology and BPO space. Alok is also a founding member of Indian Angel Network - an organization comprising successful entrepreneurs looking to invest in seed stage businesses. Prior to this, Alok cofounded JobsAhead.com, a leading job portal which was acquired by Monster.com. Alok is an active charter member of TiE Delhi. Alok is a computer science graduate from IIT Delhi and, postgraduate from UC, Berkeley.
The views expressed on this site are personal views of Alok, and do not constitute an offical opinion of any company or organization.
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