Vijay Anand | The Startup Guy.

Startups and Venture Capital: Myths, Illusions and Facts

Posted on: July 31, 2007

Recently, thanks to being involved with Proto.in, I am unusually swarmed with the same set of questions pertaining to venture capital and startups; so much so that I thought it would make sense to do a talk on the matter during the recent barcamp that happened in Bangalore – the fourth edition to be precise.

There are a fair bit of myths surrounding VCs – some true, some over-exaggerated and some simply false. The basic set of questions stem from these: Is India flooded with investments? Yes. Are there a lot of VC firms setting up shop in India? Yes. Are they facing a dearth of good ideas companies to invest in? Yep. Are they throwing away money? Nope. This is the usual manner as to how the conversation begins, which later leads to questions about how risk averse VCs are, and why they simply dont seem to be investing in everything that comes their way. Quite honestly, I am glad they dont.

I think this is all a big misunderstanding and perhaps, just perhaps, it can be rectified. This blog post will possibly be the first of many to come which will try to bridge this gap which seems to exist between the two realities of the Investment Community and startups.

Lets start with some numbers and facts, for all the enthusiastic entrepreneurs out there:

1. Entrepreneurship is not a cozy lifestyle.
If you think being your own boss is fun, you possibly are in the wrong profession. Entrepreneurship is not the easiest way of “taking control over your life”. Infact starting something new requires so much hardwork and dedication that I am not at all sure why people do it sometimes. But I can also relate to the fact that some of us cant stand to look at problems and not come up with a solution and find a way to exploit that opportunity. Thats an entrepreneur for you. Lots of hardwork and bringing visions to life – before anyone else.

2. Ideas are worth nothing.
We are all better off the day we come to terms with the fact that someone will put money into an idea. People come up with ideas everyday. What really makes people stand apart, and seperates the boys and the men is the guy who can put together a team and implement that idea with perfect execution – atleast somewhat close to it. Thats where the true differentiation really lies. This will also be the biggest entry barrier for most other folks. As my teacher used to say, “There are always seven people who do see the same problem and envision a solution, but only one usually gets to it.”

Simple rule: Implementation is key. Execution is king.

3. Less than 0.5% of companies, teams and products that VCs see do get funded.

This will go both ways. Just because your company didnt get funded by a VC doesnt mean its a bad concept or product. That said, I will also say that a VC is not your only source of acquiring funding.

I will even go ahead and say that if your product is really ground breaking, you will rarely find a VC to fund it. And if you do find a VC, it will definitely be one who has been an entrepreneur himself at some point. He will be your best friend till the company finishes its lifecycle.

4. Work Balance.

You will never achieve the balance between work and pleasure. Accept it, you will end up working 18 – 20 hours a day, if you want to make your company succeed. If you do raise capital, the pressure is not going to get easier.

5. Contrary to Popular belief, there are some really crappy products that come out of the valley as well. We just dont get to hear about them. So don’t be discouraged by the “innovation” you see around you. Where you are has nothing to do with what you are and what you can deliver.

6. The average exit period for a company in India is about 5 – 7 years right now. The timespan is rapidly shrinking, but it will be sometime before it gets really enticing. If you make the first move, be sure to hang in there for some months and years to come.

7. Being Funded is not the end goal. Please stop working as if it is. I hear too many companies that like to get on stage and share their experiences of how they got funded, as if they have reached nirvana and are sharing their experience with the world. Your battle has barely begun and you just raised the odds by multiples by taking in Venture Capital. Lets do all the stage talks and experience sharing after making the exit.

Part 2, Continues.

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9 Responses to "Startups and Venture Capital: Myths, Illusions and Facts"

Plan is worth nothing. bang on!! I have seen too many people saying they have cool ideas, without ever putting something in action.!
“Execution is God!” as Andy Groove put it.

Only 0.5% of the companies get funded. So true!
Check this post of mine based on the page put up by Bessemer Ventures on some of the companies they refused to put money.

One question I always asked myself is why so many out there need VC’s. I do understand some cases where money is needed to go to the next phase. however does some one really need vc fund to go from a prototype stage to full scale execution?

i have one question for you? Being in the position you are where you see both the startups and the VC’s? What kind of questions do you get from the VC’s? What is there take (in general) on the startups they are seeing?

Ramjee,

Most startups simply are not in the place where a VC firm can take a look at them. The metrics and the process that are in place within a VC firm doesnt allow for options to fund a startup with no history, track record or any signs of the future – and the occassional investments are very much a matter of gut instinct that someone is willing to go after. Its a rarity than a norm.

A VC asks many questions. everything boils down to one simple one and something that we should all ask: When will the money come back and in how much?

And that’s how it should be.. Nobody wants money spent over crappy ideas and then everyone crying over the shit that comes out in the end..

Vijay, as you are involved with Proto, lemme ask you which domain do you see most of the wannabe entrepreneurs in India attacking? Web2.0 probably, but hopefully there are guys moving away from social networking and the like and moving into enterprise software..

Kumar,

There is a certainly a shift towards enterprise applications and solutions. I think its only natural and in there is a certain demand that is being created in the market. Even as more and more companies keep increasing their workforce at this pace, it becomes essential to get the right set of tools in place to manage and maintain productivity – against rising wages – and most of these companies could never afford solutions from SAP, Siebel, or Oracle.

There always are and will be guys who will go after the easy fishes of building social networking software, but the other sectors are equally active and blinking 🙂

That’s good news i guess, but isnt it rather difficult getting Indian companies to switch to enterprise software? I mean the Indian way of doing things I think makes it really difficult to let go of existing legacy systems.

Any enterprise software vendors coming up in India? Names?

Vijay liked your blog articles,
but dont know what business you are into?
are u having a web 2.0 biz?

Kumar,

I dont think companies have the choice of being picky. If the need is there and if there is a company that addresses it in the right way, all preferences aside, business is business 🙂

We’ve been unveiling some interesting companies in the enterprise space during Proto Jan ’07 and Jul ’07. They should give you a good list to go with… atleast to prove that they do exist.

Sujoy, I am not sure if I am a web 2.0 guy.. that term has been twisted a bit way too much out of context. I am not into a venture as of now.. unless of course Proto itself is considered to be one 🙂

So when’s the Part-2 getting published??

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