Tag Archive for 'seed capital'

My experience of raising an Angel fund.

I am an entrepreneur working on my third product venture. I also helped bootstrap one of India’s largest entrepreneurial platforms. In the past 3+ years of interacting with hundreds of startups in India, I found that the three biggest gaps in the ecosystem are – 1. seed capital (anything between Rs 20 lakhs to Rs 2 crores), 2. well balanced teams (saw either too focus on tech or too much in-the-air business concept), 3. early customers (products are never really managed with customers in mind !).

So, as an entrepreneur again, I am in the process of bootstrapping India’s first angel fund. At HeadStart Ventures (not related to HeadStart Network Foundation btw), we are getting together a great team of people from a variety of operational backgrounds and domains to help build startups. We are also raising a seed fund where contributors are high networth individuals and the fund will target startups that could be pre-revenue and require seed capital, a great team to work with and access to early customers (often, industry partners HeadStart Ventures partners with).

It has been a completely new experience for me. For the first time, I am pitching to high net worth individuals from a wide range of business backgrounds. Pitching to corporates to work out processes to collaborate with startups. Hearing from VCs about what they think about small funds. Some of my findings are surprising, and I am not so sure about what to think of some others. So, I thought I will put them out here and listen to what you have to say.

1. finding Angels : I started out a list of around 25 people I want to go out to from across India. After a month and half, I and my partners have met 20 of them from Bangalore alone. I have not exhausted my list of 25 yet (wrote to only eight) and around 10 well established individuals wrote to me by themselves when they heard of our efforts. I am wondering – what was stopping anyone from organising this before ?

2. levels of Activity : Reason I felt that organising angels and pooling funds and managing them was important is because I felt that not all individuals in a network may have the time or confidence of managing investments. But everyone (except 1) we have met up want to be ‘active’, perhaps not as investment managers but active in the process of building startups. This must be good for startups ? for us as 3 people managing expectations ?

3. network or Organisation : because, money alone is not sufficient to make a startup succeed and mentoring and customers and lot many things are involved, I thought organising angels and pooling money into a ‘fund’ is better. That way, we can act when we want to and its not arbitrary and very individual angel dependent. But then, an angel told me the other day ‘an organized angel is an oxymoron, angels are supposed to be free wheeling, you know’ ! ‘free wheeling’, what does that mean ?

4. how much is Seed ? : we felt Rs 20 lakhs – Rs 2 crores. a large sum for family and friends, small for VC, yet sufficient run way to launch product and get first customers. Agree ?

5. annuity or capital Exit ? : I personally have always scoffed at investments that just focus on the India cost advantage and local factors. Bollywood movie review site, Process outsourced to Indian startup to count beans, etc. I do not think that is the way India will ever produce a Google or Microsoft. But with seed capital in hand, I know I can not wait out on a venture to make big forever. Should we think more about building startups to sell and exit ?

6.  users and Buyers : thanks to 10 years of struggling, selling and trying to sell products, when I see someone, all I can think of is ‘what do I sell him ?’. We are therefore putting a lot of focus on getting a network of corporates to partner us to identify ‘problem spaces to work on’, validate ideas and work in progress, and build traction early on in the product lifecycle. And then I think of Twitter and Zynga. Can a true user driven product come out of India, I wonder.

7. startup Quality and Focus : hope we will not get massively disappointed on this one. I have seen 45 proposals come through in the last 3 weeks. See 30% non tech as well. But I guess, seed stage investing is a lot less to do with what is there and a lot more to do with it ‘what can we do and how can we help with building it’. I wonder if most entrepreneurs are open to working together ?

8. expendable Idiots, us ? : when a startup we help seed and build goes for a bigger investment from a VC, we will be the first ones to be shown the door – whew ! at least, that is what one VC told us ‘we will take 70% of the company, give 30% to the founder because he has the ‘IP’ and throw you guys out’, ‘you are expendable, you know’, ‘you are part of the food chain (said menacingly)’- I am already shaken :)

9. is it Competition ? : ‘but you know, you are competition’, one VC told me. Hey, are these guys feeling uneasy or what ? (well, to be fair, many VCs have encouraged us too, its kind of 50/50 right now).

10. the easy VC life ? : I heard of a new term in my new avatar called ’2/20′, believe me, I got confused when I first heard it. 2 is the 2% asset management fee, and 20 is the carry. 2% of Rs 25 crores (our target size) is Rs 50 lakhs a year (to cover expenses and all). But then,  2% of the $100 million VC in India is $2 million a year – whoa ! what are all these guys spending the money on themselves for ? I am wondering, if you get paid so well to be a VC, why bother about finding startups to risk your life ?

We are still finding out new stuff every week, so will write more. But it will be great to hear from you folks about what you think of these.

Bootstrapping: Doing More With Less

Some of you may have followed a recent discussion on my blog, 18,000 People On The Bench At Infosys.

I have to say, I am continuously frustrated by aspiring entrepreneurs telling me that they cannot move forward because seed funding is not available in India. My message has always been, bootstrap the beginning, and then you can raise funding after your business thesis has been validated. That way, you preserve equity, and have the option also to not raise money at all. In my book, Bootstrapping: Doing More With Less, which comes out in India in September, I have discussed this topic at length. Even in Entrepreneur Journeys (Volume One), I opened the book addressing the issue of bootstrapping. This book has been available in India for a few months now.

Indian entrepreneurs, you must learn to bootstrap. Here’re some short video interview clips that Dwevesh Divedi of Breaking the 9 to 5 Jail produced where I have discussed the topic further. If you have a 9-5 job, you are in a perfect position to bootstrap a venture on the side. Hundreds and thousands of aspiring Indian entrepreneurs in corporate jobs: your seed capital is coming to you in form of a pay check. Use it, my friends.