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.
- Demystifying consumer hardware product development - February 14, 2014
- the First Startup Camp @HeadStart Ventures - July 24, 2010
- My experience of raising an Angel fund. - July 18, 2010
Really enjoyed ur article.
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It cd be good to accept that ‘Seed’ financing and ‘VC’ have two different roles and business models. Angel fund for building up start-up to sell n exit must be different from Angel fund for ‘high’ groth phase of the start-up that would follow.
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Start-up Seed finanace cd also be phased in two stages – the initial phase of order securing and the later stage of managing eventualities if any , as you call them ‘traction’. That also allows scope for early exit if the concept is too air-borne.
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The VC segment of Rs.25 lacs to Rs.2 crores is to my experience currently not catered too, when its the perfect amount to finance the seed capital or traction. It can later converted to ‘high’ growth funding VC.
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Your views cd enlighten further.
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I do feel a little unsure whether my views are close to the topic or your purpose .
If an individual own a company in Niche Industry which is just second to the lone monopolistic company – can it be a case for VC ?
If a newly establishing company ( already 4 yrs in mkt goes through rough whether because of the recession in Commercial Reality segment and gets trapped in banking norms. Can this be a case for VC ?
Due to entry barrier in the industry by the time the orders started pouring in the 3rd year, the banks blw the horn – could it be the case for VC ?
From what I understood, you’ve got trouble figuring out what you want to be. In my opinion, middlemen are never successful unless they add value to both sides of market. You need to please venture capitalists and angel investors along with entrepreneurs and businesses. Give them something that’s missing in the equation and make it clear that it will cost a percentage of the investment to the entrepreneur and investor. They should be willing to pay you because they benefited from it. I was actually working on building a network like this. I have some plans. Would be willing to share it with you if you need it. I’ve spoken to and met with investors as well. I would be happy to share some of my thoughts on this.
@Anand : most of what I wrote about are questions, not points I am making.
But overall, the point is, there seems to be a lot of good ideas, decent amount of risk money, a whole lot of talented and experienced mentors and host of companies and VCs looking forward to start ups do well. But something seems to be missing and that is the link to put it all together.
The point therefore is, can experienced, passionate entrepreneurs put up a fund that connects the dots without threatening the eco-system? That is what we have set out to do and the question is am I missing anything?
What’s the point you are making?