This saturday i attended a event organized by Tie-BoA . Agenda of this event was to announce a collaboration /Alliance bitween Tie and Band Of Angeles as an initiatvie to nurture a Silicon Valley like Eco System in india.
I am writng this post to highlight one aspect of this eco system which i have seen in all such events . sometime under the surface sometime discussed openly .
Its the Silo or Communication gap bitween Investor and Enterprenuer .
Be it VC or Angel , Institutional or Individual there is always a conflict of interest bitween both of the parties . As a matter of fact this phenomena is not confined to this country . Even in developed economies tales of VC-enterprenuer conflict is commonplace.
This used to baffel me when i started attending such gathering around a year back . by every logic i can think of , VC and Enteprenuer should work togther and it should be a win-win deal . but after one year and 10-12 such gathering i can safely say that this is hardly the case .
what is suppose to be a “Meeting Of Minds ” often Turns into a “Clash of Heads” . why ?
As an aspiring enterprenuer i have a significant interest in exploring answer to this Question.So that when i approach potential investor in my venture i can avoid all that . so here is my analysis of this phenomena . I wanted to post the complete text here but the post was a bit too long so i published it on my blog .
You can read the complete text here .
Your Comments /Advice is awaited and greatly appreciated .
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This is a common refrain which we get to hear often from startup entrepreneurs.
So far as my experience goes, aside of the cutting edge or the uniqueness of the technology which must be demonstrated, how quickly and how much the potential opportunity leaves a 10 x liquidation preference on the table for the VCs to take home, determines the success or failure of the pitch.
If you ask me how to do that, there is no one given method. Just be honest with yourself and approach it by standing aside for once. If you answer is a resounding`yes’ to the question whether you would be ready to mortgage your house and the family jewels to invest in the project and do it still, you got it right most of the time.
Hi Alok
Thanks for sharing your prespective !
I feel your point about scale of return on any investment restricts the scope of investment to application which are in somewhat horizontal spaces like Portal ,travel Portal,Content Aggregators for Mobile domain,dating site etc . what if i want to focus on a niche audience , a slice of a vertical .
I agree with you about your take on using brand as a competitive advantage but the issue is when an entrepreneur face a VC on early state of venture . how can one verify that he will be able to pull it off ?
Building a brand and nurturing a tribal unity among customer/user is a vague unpredictable process and investor take all such claims with a pinch of salt.
i am yet to figure out if there is a objective way to verify the claim .
Even Coca Cola of world failed with Coke Vanilla , so when an entrepreneur says he will have brand as main edge over completion how a VC verify that .
indya.com flame out is an proof that all the money in world for advertisement can’t ensure that your brand will shine . On the other hand we have meebo,flickr,digg 37Singnals where the community is so strong and tightly knit .
more than anything else i want to know how an investor at early stage differentiate between meebo and indya.com of world . i (and a lot of folks like me ) will be thankful if you can throw some light on that .
Secondly , about the Q of why big guys will not do it ?
well apart from the obvious reason of “paradigm inertia” which i mentioned in my post ,IMHO another problem is that Stakes are too high for Big Guys to play this game. So they look for Proof of concept . they can’t gamble their brand on something which is unproven .
Think of CISCO or SONY launching something like TiVo / HAVA /Slingbox. or closer home Wipro testing the viability of offshore BPO with its existing customer base . risk is too big for them
So i sincerely believe that Q should not be how to avoid Big Guys to enter this space it should be how to ensure that they come to us . and every entrepreneur in world need a seasoned VC for that . Period .
same is also true for monetization concern . Rejecting a good idea of a service which fulfills a need , just because you can’t see a revenue stream right now is “Premature Optimization ” but that’s what most ppl do .
We know that at the time of launch google was not having a viable business model. for their investors Mortiz ,Shriram,Doeer it was a bet not on biz model but on a tech which was solving a fundamental problem/deficiency with search . working rule here is :If you create something which ppl love to use , you will eventually figure out a way to monetize it .
Trend is still the same in Valley look at Plexa,meebo,youtube,skype. what are the chances of getting these ideas funded here in India ?
but irony is that based on exp of my friend in valley i can say that they too are facing somewhat same problem but the shade is a bit less intense.
Seriously some time i feel that all success stories are written backward , a post facto analysis 🙂
would love to know what you think about it ? looking forward to your reply
just my 2 cents: TIE is and has been in bad shape for quite some time (atleast the Bombay chapter). They are working on fixing themselves. It is advised that BoA stay away from Tie for sometime as energy spent on Tie is better spent elsewhere. Further, because the Tie brand is in such bad shape, Boa will be clubbed along with Tie and will be seen by entreupreuners as waste of time…
BoA has an opportunity to start on a clean slate and must try and make the most of that.
Prashant, not sure if the issue of conflict between entrepreneurs and VCs came out clearly in your post — would love to discuss more on that.
I think the issue of competitive advantage is very real — and I believe that its an issue of what you are trying to build. As an entrepreneur, its great to build a $10million business, but as a VC, you seldom will make a return on it. And if you talk of significance, the same would be true there. So while you can stay under the radar and take your first few steps, you cant remain under the radar and create a great company that gives you a high sense of achievement. Its also ok to not start with competitive advantage, but have a way of building it as you go along (for example, a lot of consumer internet companies rely on brand as an advantage — can it be copied – yes; is it a barrier – yes.) So if the conflict you are talking about is the ability to make money on a small business, yes there is conflict. I dont see the conflict in creating a truly great company.
Secondly, you have to understand that VCs are optimists. They lose money on every 2 out of 3 deals they do, and still believe that the next one is a winner. In that sense, they resemble entrepreneurs.
And yes, I do believe that business models and mindsets are the biggest barriers. So if you know that the big guys will not do it, articulate why. Only Gods are antaryami 🙂
I understand the fact, that you have a point. I have been working as an entrepreneur for almost a year now. I have not been attending TiE meetings, for a few months due to business reasons.
A few thoughts I would like to share with you.
It’s important to understand the fact that
– We are attracting money from investors… How many times have we given money to our friends assuming that he has a background of not returning the money back or may be to some one who we don’t know? What were the questions that we asked?
– Forget one, There would be more than 20 more (if not less) VCs asking the same set of questions. TiE is a good platform.
– “Big Guys can copy it….” You have something as a Big Guy… a VC shall not even LOOK at you. Tell him you are different, he shall ignore you. PENETRATE YOUR WAY TO CONVINCE, THAT THERE IS A DIFFERENCE THAT YOU CAN MAKE….. its difficult, “BUT POSSIBLE”.
-A few ones in this forum might be lucky to have a VC for almost free…. But that was 1999- 2001. Things have changed.
– The world is different now and we need to accept it. Remember the interviews that you took, and what you did to some one you did not like.
No Offense to any one.
Hope this helps.