Vijay Anand | The Startup Guy.

Posts Tagged ‘investors

I have seen this cycle happen over and over again. There would be a set of guys who’d be around in most barcamps and social circles and someday they’d decide to start a company, and eventually build a product that’d gain quite a bit of traction from the “first adopters” that you find in barcamps, MoMos etc and then the worst thing happens – they get funded.

I have stats that show that more than 80% of companies whose growth and traction flatten out after getting funded by a VC firm. I’m asking myself the question if the founders were such shrewed and capable executioners that they planned the entire stunt just so that the popularity lasts till they get funded – but I doubt thats the case. So what then?

I came across a note where someone mentioned that people who get funded barely go back to the social circles after that. Partly cause those circles disown them because of whatever has happened to them. VC funding is not the golden egg, its more of the long-term, high interest, loan that is given to a company hoping that it would make it big, but for most folks getting funded is the end goal and such folks starts treating companies that have gotten funding as if they are Cinderella’s step sisters. The welcome is not there anymore, and there is no reason for these founders to go back to those circles anymore. They retire to the boring life of going out to meet peeps in baristas and coffee days where more pleasantries are exchanged than the actual meaning or weight of words.

This is actually very bad news. For the funded startup its very much so cause these early adopters essentially have dropped a baby on its head, just when someone agreed that it had potential. For the rest of the community, its also very bad since its a loss of a resource who probably had figured out how things work here and most certainly had knowledge worth sharing.

If you think I am just randomly spewing out stuff, I’ll make the entire point with one reference. J’lo’s single titled “I’m still Jenny from the Block”. That pretty much drives the point across. When your folks on the block are essentially who your early adopters are, and they disown you, it becomes radically hard for your company to survive without burning hard cold cash to see if someone would take you in for some cash in return. In the language of the hood, there is no love from the brothers no more.

I for one think that VC firms should stop advertising the amount they invested. Startups that get funded should make this a mandatory point with their investors. I know quite a few firms, like Ixigo for example who have gotten funding, yet not knowing the amount keeps things quiet, calm and life still goes on. Take any company that you know of [ and probably hate ], saying millions have been funded and crazy things like that and all of a sudden I am wondering if someone “deserves” that sorta valuation. Everybody thinks or says it out loud that its unfair and a lot of enmity grows in this little pool for absolutely no reason whatsoever.

Some companies would claim that announcing the investment amount adds credibility that will get you clients. Who are we really kidding? When you are small you need to embrace your brotherhood close to your heart and they will be your first set of customers whether you like it or not. An enterprise is a hard sell and probably is only worth aiming at when you are looking at your second round. If it happens, I’d be extremely happy but do be prepared to know and realize that your first set of customers are all folks you know, startups and SMEs. By the second round, you’d have grown to a much different positioning and would also have the strength to stand on your feet that you’d survive, and also would have weaned off the support system by then.

Until then, make no mistake, you need your community and the community needs you. Some things being in secret will make that happen.

Note: The media loves to flaunt numbers. So if you are not going to disclose numbers, don’t be surprised if they don’t run your story. Its okay, they too need to evolve, understand and adapt.

I am actually quite surprised by the reaction to the post that I made on Startups, Funding and the Dating game. Seems like most folks enjoyed it and I even got a few personal mails on the same. Heh, reality is one to laugh about, isnt it?

I also got quite a few notes from folks, especially since as of late it has become a topic of use for getting acquainted and breaking the ice, one feedback that keeps coming from the side of the startups is that “We are more often the victim here, than the Investors”. I am not too surprised, but given that the investors are made the bad guys more often than not, It was time to go after the conspiring startups.

But on a serious note though, I am hearing from an alarming number of people how people (especially the founders or the investors) don’t get back with a Yes or No soon enough. I always used to say that “maybe” and “If” were two of the most complicated and conditional terms in the english language. Partly because outcomes can rarely be predicted as to whatever follows those words. And Maybe is the worst. It is neither here, not there, nor anywhere, but its there. You don’t know whether you want to put that as a prospect or get it off the list and move on with life.

The best qualities that I have heard from VC firms are those that had two qualities. One, their Yes or No came quite fast. If it was a No, it came out really fast so that the founders could move on. And the second was one where a VC firm was courteous during the “due diligence” process while questioning the founders and team about their strategy – afterall its their company.

The onus is definitely on both sides. I have equally heard of startups that talk to an investor and get a term sheet and then go around shopping trying to get a better deal from other investors. We still haven’t heard of too many VCs using the No-shop clause here in India, but I hope we wont get to that where legal battles rage and knowing our legal system, it is better to stay out of it.

I can’t advise the Investor community of anything, but the startup community could surely use this advice. Straight out of the book, keep your Yea as Yea and Nay and Nay, whether it comes to a deal, or even that recruitment drive you did and are sitting on those ten resumes. Get back to them at the earliest with an answer, even if its a no. They’ll appreciate it a lot, and a startup could use all the good will that is out there – plus, what goes around does come around.

Recommended Reading: Getting to Yes, by Roger Fisher

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The “romantic” move of an average indian male seems to be that of him swinging in the foot board of a moving bus (where he is clearly warned not to travel on) and catch the corner of the eye of a girl he’s been tracking, timing and following for days. I somehow think that this mentality somehow has crept into even the mindsets of entrepreneurs, actually altogether the Indian psyche itself.

Let me explain why, and that too with a splendiferous story:

There was once a networking meet and a couple of entrepreneurs got to meet and greet a VC and exchange cards. Knowing that the VC was a friendly one, and that he was interested to “look” at new opportunities, the team took turns to call the investor up so that they could setup a time to do the demo and have an understanding of what they were about. After a meeting or two, the investor went through the profile, and after discussing with the team realized that this was a company that they could look at.

They were duly filed under “prospect #1” and the principal investor noted down under his review meeting notes to annoy the hell out of this partner in every meeting to ask about what was happening next. Little did the poor VC know about it.

The VC conveyed the news to the startup mentioning that they were one of the interesting startups that the firm was looking at, and thats when it all happened. The tables turned, and all communication henceforth was totally obliterated – from the side of the startups.

The Poor VC is now in a pickle. While on one side his boss is nagging him for updates on what happened to that “Prospective” company, the entrepreneurs are pretending as if their phone with the ringtone of a screaming lady, isnt really screaming and they continue to ignore it. The more number of calls that the Poor VC makes, the higher the valuation and demand of the company, imagine the entrepreneurs! I mean if he is really after them, he really must be desperate to not lose out on a great company, right?

A solid month later, they are ready to talk the deal. The entrepreneurs would like to settle at nothing less than a two digit million dollar figure for a minority stake in the company. Actually, the VC is atleast happy that finally this file can be closed under “unreasonable demands” and life could move on.

This was an actual story quoted by a friend who is an investor for a firm. While he was telling me this story, the parallel running in my head was that of a guy trying to woo a pretty girl, and the minute the girl turned around and started showing interest, the guy was nowhere to be found because he is just rethinking the entire strategy and decision all over again. Just so that I don’t get slapped with a gender bias suit, I mean to say that the case could go either way.

But on a more serious note, one has to wonder. This is not the first time that I do hear of issues with “indians and relationship management”. I am told that once we do learn the ropes, we are all subversions of casanovas, but until such time, we are quite horrible at it. And really really horrible at it. Perhaps our culture and society is to be blamed for not allowing social dating to be much more common as it should be – then we’d know exactly what to say, when to act pricey, and when to drop the act and get hitched. Wouldn’t we?

Disclaimer: Meant in a spirit of humor. Read it, laugh it off, and let’s move on! 🙂