What to do promoters in India fear the most. I think it is Dilution or the “D” word. It is obvious that if you can build a billion $ company and own 90% or even 30% of it then it is great. However, if you could build a billion $ company and own only10%. Would that appeal to Indian founders/promoters ?
My view is that founders/promoters should think big and to attract talent/capital be prepared to dilute. This is surely a controversial view and against most of the big successes we hear about in India.
What do people think? How many new billion $ market cap companies will emerge from startups in the next decade in India ? Of these what will be the average holding by founders/promoters when the market cap touches $1 billion ?
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Hi,
There is an interesting discussion in Noam’s blog touching the topic: http://founderresearch.blogspot.com/2005/11/rich-versus-king-core-concept.html
The Indian scene will witness dramatic shift in the thinking process in the near future( the next decade) on the dilution philosophy.
Till the liberalization era, things took a very long time to accomplish. And the economy was growing slowly – if you do better than the slow economy you will ‘feel happy’. The factor of gorwing old with the company makes dilution painful.
Now businesses can be built/grown much faster. The economy is expanding much faster. Now, fast growth will only make owners ‘feel happy’. To power the organic growth you need talent – means dilution. Inorganic growth will also mean dilution – the top management will have to be accomodated.
I think the old school will fear the D word. The new breed of startup promoters will factor this from the outset and play the game and dominate the game in the next decade.
On the quantitive front, is there any work similar to Noam Wasserman’s( of Harvard) happenning in B schools out here. I will be very interested in learning from that.
Cheers.
-Balaji S.
May be 5. And founders will not hold more than 25%, or may be lesser.
And I think, new entrepreneurs and founders now understand that they need to trade off equity to get best advisors and talent.
About the topic at hand, had my share of thoughts about Dilution. Initially, 2 years back when wanted to start and heard that VCs will take good share and if we go public, finally will be left with 1%-5%, it was a kind of shock to me. But over time, have grown past that fear as one starts a company not only for personal gains, but for common good and have to share the profits with who made it possible, the people who backed him, the people who shared the vision, the people who worked their a**** out day and night to make that one little change to the app that makes a difference, and yes it makes sense to be a part of that company that one built with smaller share.
For that matter, as a rumor goes, Narayan Murthy who runs a billion dollar company from Indian soil owns 1.5% of the company I heard.
I went through http://www.venturewoods.org/?p=104 about Web2.0 – Profitability. We have an idea and currently finalizing the concepts. We need to pay for talent and web hosting costs. We are currently planning to go with bank loans. If one of you in Bangalore is interested in listening to our idea, it would be nice.
What is your [Band of Angels, India] view on Web2.0? There are many sites that do not make money directly like flickr, writely but are for social networking. Would you be interested in angel funding such sites?