Vijay Anand | The Startup Guy.

Posts Tagged ‘VC

Even as the current economic situation hasnt seem to have harmed the Early Stage Investment scene by much, there is some major misunderstanding by First Time Entrepreneurs, starting off in India, who are looking to raise funds. This series hopes to shine some light on some of them

LESSON: MAKE THAT SACRIFICE. GROW WITH THE ORGANIZATION

Scenario: In the last three business plans that I have had the priviledge to look at and to give feedbacks on, it seems that the average entrepreneur wants a salary of around 2 Lakhs a month, seems to be hiring an office attendant or a secretary in the first year, is travelling extensively, starts a marketing budget even before the product is ready, claims a steady income stream, is absolutely immune to market changes, and can solidly break even in 3 years. And oh, they give a 4x return in the fourth year.

You cannot demand a salary that runs in the lakhs. You cant because If I were investing, I wouldn’t know if there is even an incentive for the entrepreneur to slog to make this company succeed anymore. Given the current employment situation, I would even have a slight doubt as to whether the guy lost his job and is getting self-employed with a raise. But I do understand if you would want to live comfortably. This is what I would suggest.

Take a pay cut in the first two years – till your product development is ready. Just so you get a number, You get paid at the same level as your Indian Lead Software Engineer (I have to specific about the indian part, since some folks also have high paid outsourced engineers). That should put you at around 40K a month. Once that is set, and once your product development is done, and your marketing and sales efforts start, align your salary so that a base of 40K and a incentive component from the sales defines what your take home package is. That will assure me as an investor that you are willing to take a paycut to keep costs low and burn things slowly to get through the initial phases and even as the company makes money you arent raising costs, but defining your salary from what is coming in. If you are a company that sells products that sells in the millions, or have several product packages, it would be wise to even define slabs, that define the percentage.

You do that, and all of a sudden I see a real entrepreneur, who could really use with some financial support, and the halo over the head glows and a lot more people just might be willing to seriously consider your financial proposition.

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I’m convinced that we are doing something wrong.

During a conversation with someone who has experience beyond my age, on how the product landscape in India is evolving, he smiled, took the time to coin his words (into something more politically correct) and said, “Nobody is really changing the rules of the game. Everyone is looking to make a quick buck”. When I met Subho Roy of IAMAI a few weeks back, he pretty much resonated with that and almost let out the frustration saying “This is all turning into a valuation game. Where are the days of building solid businesses?” Is there something wrong with that? Thats what I am hoping we can discuss, argue and debate about here.

It’s that time of the year for Proto.in – got barely a month to go and usually this is the time when we are finalizing all the companies and lining up the speakers for the Fastrack Sessions. We are talking about… How to sell, as a Startup? Not how to sell-out, more like how to sell your products and make revenue. There is much that seems to be obscure in the land of the startup community with so much millions and trillions discussed about – especially the size of the VC firm’s wallet.

I have been touching base with a fair slew of guys who have natively built and sold products here in India. Tally is one such company that I got in touch with and the response I got really got me thinking – because it resonates with what Mr. Experienced told me before. He wasn’t sure if he could make it to the event since he has travel plans, but left with a note saying “I wonder if people are ready to hear the heartache of building a business over 18 years. It might even depress a startup.”

Lets not make a mistake here saying that Tally just didn’t hit it right. Do you know how long it took for Bose to become a double digit million dollar making company? More than a decade. There is a joke within circles that Bose would be a bad company in a VC’s portfolio. Infosys took 25 years to attain maturity and go public. Look at Wipro. Look at Microsoft. The list is endless.

Arguably so, there is a compression in the age of the entrepreneur, the pace at which modern businesses move and grow, and it certainly has shortened, but has it also shortened the lifespans of the company?

I strongly believe that as a startup entrepreneur, the wrong person to meet is a VC. Keep in touch with him, listen to them, and get your due diligence out of them, but when it comes to business models, ignore what they have to say. They are going to want you to make revenue from day one. And the process to do that is to have an opportunistic view and that unfortunately is always short lived. Forget revenues. Forget business models. Identify the need. Understand your customers. Understand what the market is evolving towards. Then its upto you to perceive those needs and demands and formulate the solution and figure out the price discovery as to how much your customers would cough up to get that handed to them in a platter.

Instead, if you go to an investor much earlier on, on your toddler days when you should be focusing on growing, having fun and enjoying the time speaking mumbo jumbo with your peers and playing hide and seek, you’ll be wrapped in a straightjacket or in a war suit and sent to battle the mammoths of the battlefield. The end of that is not rocket science to figure out. But trust me, a kid in the middle of a battlefield will be sensational story – and trust me you will get the attention of a whole lot of folks. You just wont last long enough.

I’ll nitpick on one industry. The Travel Industry. If you go and pitch to anyone saying that you are working in the Travel Industry they are going to shun you thinking that you are the next travel portal claiming the cheapest price on the web. It has unfortunately come to that. But do you know how much inefficiencies are still there in the travel industry? The issues with checking in, tracking baggages, and even the legacy systems that they have to manage the passengers inside the terminal – the systems are really not keeping up with the explosion in traffic. Buying a cheap ticket is the least of the worries as of now. How many of you know of Sabre? They are pretty much the underlying platform behind the entire air fleet management and PNR systems worldwide. They are big, which means they are probably scared of radical change. Tell me what they are missing out on, what of that is adding to the woes of the traveller, and fix that.

I remember recently when I was talking to a publishing media about a recent magazine that they had launched. This is a magazine which is focused for entrepreneurs – and its quite well known by now. The magazine house has defined a period of five years for them to break even. I asked the man at the helm if the print industry had such a slow uptake. He responded saying “we break even in 14 months, but we’d rather make the investments in the first couple of years towards a solid start”. He made sense. Lots of sense.

How you lay the foundations for your empire matter. There is a parable in the bible about a man who build his house on the rock, and one that built it on sand. The way the house came up, obviously had a difference since the one on sand required much less work and it was all upwards, but when the rain came down, it showed which one was a much solid refuge to live in.

I think, err believe that startups should have fun. Build something people want, and build it having fun and in a way that you are passionate about. I am strongly against working 18 hours a day and racing against time to catch the wave. My most favorite teacher in school always said that it was much easier to fish in a calm ocean than in the middle of a hurricane. Ideas, concepts and the clarity of mind to execute are all luxuries that you can only enjoy in a calm ocean.

So tell me, if you were absolutely passionate about something and want to totally change the rules of the game of an industry, and would want your name to live on for years to come, what would you do? Think about it… take your time… ah, thats what you should be doing. Not living on Instant noodles. Let me tell you what, lets sit down with some candlelight, under the clear skies, and treat ourselves to gourmet – slightly tedious, painful and takes more time, but I tell ya, its totally worth it. What say ye?

By now, most of you would have come across quite a few investors from the VC community,here and there. You might have been caught up with them over coffee, or run a deal through them.

So here’s the question. If you had to do an evaluation and mention a venture capital firm that comes at the top of your mind, for their clarity in thought, attitude, business sense, and at the speed at which they went about doing things, who would it be?

Leave a note in the comment.

I am observing a trend from what i am experiencing first hand and of what I am hearing from the startups I interact with. Well, this is how a typical VC firm is setup.

They hire a well-to-do investment banker out of a large and well established investment group and ask him to put together the structure of the firm and manage the fund. The situation goes on for sometime, when one of the senior partners is flown down from the US to get on a bit more agressive stance and tap into the market. Most of the time, this senior partner is a seasoned entrepreneur and he knows what he is doing, except that there is a glitch – there seem to be two people at the helm.

I wish I could write this fact on the skies and ask all of humanity to read it: An entrepreneur and an investment banker could never get along.

Quite true to that statement, these two at the helm never seem to agree or get along. The sad fact is when its obvious and its the startups that they deal with which are losing precious time and getting pushed and shoved here and there.

I just experienced a situation a couple of minutes ago where the senior partner from the US is seriously looking at getting involved with startups on the base level and the “I.B” Partner shoots me a mail asking how his firm is involved with me. I am puzzled wondering if this is the best way to deal with internal traction – as if I needed to know that there was an unhealthy relationship brewing within their walls.

Unfortunately, this seems to be the scenario with quite a few firms. I could name them, but it would be pointless. And these are also the firms which aren’t so very active in the ecosystem – I wonder why. No prize for guessing that one!