Vijay Anand | The Startup Guy.

Startups Exploited. An Open Letter to All.

Posted on: May 5, 2008

This might be very personal, but I doubt it can be avoided. For the past two years, there has been a lot of time, commitment, travel, stress, energy, and personal money that has gone into a really ridiculous goal – one of creating a culture of oneness, open communication and one where startups stand a chance to win. The mission does go on, and I strongly believe that the journey lies ahead for a few more years, before we can step back and let things slide on its own.

But this is not about what I am doing. This is about what is happening.

They say, that what is nice from far is far from nice. Once you get into the ground, roll up your sleeves and start digging, you start to smell the intentions of a lot of well-to-do people, which kinda make you wonder a lot of things. This post is one of warning for the startup community to take heed from, so that you don’t allow yourself to be exploited mercilessly, by any means.

If we do allow ourselves to be sold, its our fault that we were naive enough to be cheated. People will spot opportunities and will come in the masses to make money out of just about everything. Should they succeed or not, is an option that we as a community have the option to decide on.

I’ll give you a small set of incidences and I’ll let you connect the dots from there.

I was having a conversation with someone over twitter, on what has been the focus of Proto.in lately. We started off as being the “DEMO” of India. Well, I dont remember ever making that statement, but a lot of newspapers and blogging community did use that as an introduction. So the question posed was as to whether we do have folks from DEMO working with us, to take things to “that” level – whichever level that was.

Help From Above:
Well, Did we try? We did. We had a chat with several key executives from the DEMO conference as they were looking at India as a crucial market to step into. They had started a DEMO in China, and they seemed quite pleased with the results, though the Chinese companies were complaining. DEMO Germany has been doing okay as well, I hear. So When they came to India, the first logical choice was to identify local players and I suppose Proto.in surfaced. We had a couple of conference calls, and the intentions were very clear. How to make money. I don’t think that was, is or ever will be our intention, and the clash in intention was obvious. The eventual and final agreement that they came down to was to essentially franchisee the brand “DEMO” to us, and we’d give up our brand and rename ourselves to DEMO India. The franchisee fees ofcourse, was almost a sizeable amount that couldn’t be justified by any means. When I told them that Proto.in was a not-for-profit event, and that we charge 250$ as entry fees for a company (compared to them charging $20,000), the case was obvious. We just never heard from them again. That was DEMO for you. (The one thing I admire about them was that they were frank and to the point that they didnt see a business value in this. Fair enough. And Kudos to them)

Help from Big Brothers:
You wouldn’t believe If I give you the list of corporates which essentially want to tap into the startup community as a mere sales target. If you talk to anyone who runs the sponsorship for Proto.in, we have enough stories to tell about how we shoot down companies, and are extremely picky about how and where we take money from. Every penny comes with its set of liabilities, and if someone doesnt truly care about the community, we don’t want anything to do with them. It’s been a rule. And So far, Thankfully we’ve been amazingly blessed (for lack of a better word) with very generous and kind sponsors who have been the most lenient with the terms that they come with.

But, don’t fool yourselves into thinking that every corporate that is looking at supporting “startups” is looking out with the best of intentions. They aren’t. For most of them, a startup team is two stones in one bird – you get a performing team, and you get a team that has a product which can scale their offerings. All at a price that only they will negotiate and finalize on. Do we need deals like this? Possibly so. India still has yet to see any or many exits, and the impact of it is very much evident in the way ESOPs and Equity are treated. A couple of exits will start providing a reference valuation which will definitely help, but one needs to understand at what cost all this will come. I would hate it if it was my own friends and family who were the subject of such a sacrifice. So do keep that in mind. There is a difference between knowingly going down that route and being squared right in the centre of it.

Understanding our Own Terminologies:
I am not sure if you have noticed, but I have given up on the word “Ecosystem”. Every third guy who has gotten together ten guys in his garage to talk about startups thinks that he is building an “ecosystem”. I have to be so thankful and grateful for the advisory team behind Proto.in, without whom, I doubt I’d have such revelations at times. During one meet, Laura Parkin, the Director of NEN and an incredibly sharp persona, gently posed the question as to what an “ecosytem” entails. It is much more than just startups. It is much more than just technology. Its much more than capital and talent and the industry coming together. There are issues such as government policies, the way the world perceives us, the different issues such as taxation, any benefits we can obtain on that front, government-level financial support, etc etc etc, and there are a gazillion other elements that need to fall in place. Unless, and hear this well, Unless you are tackling all those issues, dont even dare use the word “ecosystem”. I thought about it, it made a lot of sense and decided to listen. I will eventually use the word “Ecosystem”, but not before we get all those other elements as well in place.

Beware the Wolves:
So lets come back to the topic. In the name of “Ecosystem” building, there are going to be quite a few companies which will pop up. There will be everyone from media companies, to magazine publishers, to investment firms launching a whole charade of events under that guise. I would not dare judge, nor tell you what you should do. But I will ask you to do one thing. Judge their intentions. Just ask yourself what is in it for them. Why are they doing the things that they do. Both entities, Proto.in and Headstart.in are non-profit entities and are completely volunteer driven. Our bread and butter doesn’t depend on what we do for the community. We make our living elsewhere and we do this because no one else will, and because we drive this out of passion. But when a business, whose main focus is to be on profitability does something like this, just ask your question as to how they justify it, and what they are planning. If you still think they make sense, please go ahead. But if they are using it as a marketing ploy to increase their visibility, their brand and circulation, and in the process also making some money, all under the name of “Ecosystem building”, I believe you are smart enough to know what to do.

I have a feeling that its the beginning of that moment, when we need to turn on the heat and divide the chaff from the wheat. Very soon.

Sanjay Anandaram has already been talking about the chaff within the VC community as well. I suppose its really going to start soon. The divide between the ones who put their money where their mouth is, and the pretentious.

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16 Responses to "Startups Exploited. An Open Letter to All."

[…] Just as a means to centralize the discussions, You can comment on the article here […]

Vijay,

The point on DEMO was interesting. I somehow get a feeling that this is similar to the for-profit vs. non-profit debate raging along in social entrepreneurship circles…

I see no harm in people working full-time on any of this while making money to support themselves and their families… In fact, using a for-profit approach, one may be able to invest and scale much better and faster than with purely non-profit principles…

Why do you say that for-profit is bad?

-Mohit

Mohit,

“Why do you say that for-profit is bad?”

Did I say for-profit is bad? Nope. The current model of Proto.in is designed along the same lines as the open source community model. It just doesn’t fit a for-profit model. I dont see a point in mixing, meddling and confusing the hell out of people trying to do a hybrid model.

I have nothing against people who would like to do this in a for-profit model, but i doubt there is a way to make it happen. That’s a different story.

Vijay,

“I have nothing against people who would like to do this in a for-profit model, but i doubt there is a way to make it happen.”

What about Y-Combinator type of organizations?It is a for profit company managing to do a lot of good for startups. I am not saying Proto.In should go that way, but if such setups come to India, do you think Proto.In would want to collaborate?

cheers,
Kumar

Vijay,
Firstly candor and directness are to be greatly appreciated and encouraged – we need more of this. Good post here.

However, is it not a little naive on our part to expect that all the folks you speak of, [a] DEMO, [b] corporate sponsors and [c] eco-system builders will not have their own agendas? I’d argue if they did not have their own [profit or other] agendas, they’d not be around a whole lot to even truly support or do any good for the entrepreneurial scene in India. Questions worth answering are:

[a] when does their agenda undermine the interests of entrepreneurs and the [larger] entrepreneurial environment?
[b] is their agenda, hidden or in the open?
[c] caveat emptor always applies, regardless of motivations of other players

If these are handled well, and remember these are local and at an early stage, tomorrow you’d handle possible partners, much bigger and unreasonable customers and finally prospective acquirers much better for having kept your eyes open and learnt early. By no means am I saying, its an ugly world out there, nor should we be naive that everyone’s motivations will be pure as driven snow – the entrepreneurial scene is as good/bad as the rest of the real world out there. And our own intentions, regardless of how well meant, if it does not advance the cause we espouse, may do as much or more harm than these other “well-wishers” Finally the biggest caveat I’d extend to entrepreneurs is relating to the financial/VC community as Sanjay Anandram and you allude to.

[…] Vijay and I have been discussing this for quite some time and looks like the outburst was well timed: In the name of “Ecosystem” building, there are going to be quite a few companies which will pop up. There will be everyone from media companies, to magazine publishers, to investment firms launching a whole charade of events under that guise. I would not dare judge, nor tell you what you should do. But I will ask you to do one thing. Judge their intentions. Just ask yourself what is in it for them. Why are they doing the things that they do […]

Kumar: Y Combinator is just another incubation model. In that case, they are no different from any other incubation centre. Actually you would be glad to hear that IIM has started something called iAccelerator where they are trying out the same thing. Could we collaborate? Absolutely.

We Work with IAMAI, NASSCOM, TiE, NEN and most of the incubation centres. There is no point is redoing everything from scratch – I dont have enough time, nor lifetimes for that. Its better to fill the gaps.

I hope that clarifies your question

SriKrishna,

I dont think the debate was as to whether Good and evil exists. I think the point was very simple. People who use the phrase “ecosystem building” probably mean something else.

It was just a note asking startups to keep their head down, know what they want, when they want and in what terms they want it.

Very relevant points made.

But in the herd of jackals dont fail in noticing a good sheep.

There were many initiatives from “genuine entrepreneurs” to give back to society. Few of them became HNIs Angel investors and yet few whom I would like to call VISIONARIES experimented with few amazing concepts. They were not there to milk money. They were also Section 25 company (Not for profit).
But dont forget, NOT FOR PROFIT doesnt mean YES FOR LOSS. It should be a sustainable model (though it can take a longer gestation). Else people who supported initially would eventually turn their back coz slowly their philanthropy mindsent might give way to Business mindset..

People now tlk abt iAccelerator coz it comes from IIMA. But has anyone heard abt a unique model (groom – incubate – seedfund) tried out by another Business incubator frm Ahmedabad itself ? Brand always sells even if “Stuff” is hardly seen.

Purposefully Anonymous,

Yep, we know the sheeps too and god bless their good hearts 🙂

I hope this is not going to turn into a not-for-profit or for-profit debate. If I had the chance and could do Proto.in for-profit, I’d still not do it. Its not something I want to do 24/7. I’d very much like to have a life, and no lesser commitment would justify drawing a salary and making a profit 🙂

And as for IIM and their Y-combinator clone and whatever someone else was trying, I dont know. Its essentially a short term, intensive incubation program. Whats the big deal about it? And how did “brands” get mixed up in this?

Great piece Vijay.

Hats off to you and the Proto team. Your unflagging faith and perseverance is creating a grassroots support for startups in India. BTW, why Demo India?Why not Proto America? (Yeah, I know, I’m pushing it — WT heck!)

On Startup exploitation, I would quote Paul Graham :

VCs and corp dev guys are professional negotiators. They’re trained to take advantage of weakness. [8] So while they’re often nice guys, they just can’t help it. And as pros they do this more than you. So don’t even try to bluff them. The only way a startup can have any leverage in a deal is genuinely not to need it. And if you don’t believe in a deal, you’ll be less likely to depend on it.

twitter: @1ndus

Indus, actually we’ve been mulling over a Proto.in Silicon Valley Edition for sometime now. We’ll announce it soon. Will need your involvement on that for sure 🙂

Very nice article.

None is here for charity. For the risk taken, there should be reward. Most of the startup workers end up getting 60% of the salary they might get elsewhere, unless obscenely funded. Rest 40% is risk money. So if the idea is a hit, the wealth has to get shared.

If it comes from a stolen idea, people should despise the wealth made out of it.

I was pleasantly surprised by a HNI Angel investor, looking for avenues to invest, worked out OK for me, except for the second round of big seed funding.

Others in the startup community should help each other, in terms of protecting ideas, leading the Good Venture investors.

Vijayashankar: I think you have misunderstood where we are coming from, but thanks for dropping a note 🙂

[…] Indian startup scene today, from media reports it seems funding = success.  But it appears that startups are exploited .  If you believe in your idea, why go to others for money?  Most  software jobs pay well , if  […]

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