Just saw a couple of side discussions on some comments posted elsewhere on VW. Am bringing this up as a main post as it might be of interest to others as well.
Rad said
What applies to the rest of world, doesnt apply to India. Everybody – Indian Entrepeneurs, Indian VCs, Indian Angels need to think and act differently. If you guys think about your country and strive for a pride that comes from having a Sony or a Google, you would find yourself spending more time with young guys nurturing and mentoring them, rather than than just chasing fund targets.
Whats missing in India is Idealism, Romance and long term vision.
Rad, I understand what you are saying. What we also need to understand is that in the investment business, there is no “long term” unless the fund targets are met. As important the long term vision is, it is equally important one understands how to get there. Sony and Google are prides of their countries because they are business successes, not because they are romantic.
… please tell us what are the things a VC is looking at when he invests in a startup ?
Anon, I think at 30,000 feet, we look for the ability for ourselves to make good returns on investments. That typically requires large markets, great teams and sustainable differentiators in the business. At a high level, it is really that simple. As you dig in, some factors become more important than others. In Internet, a great team might mean passion and understanding of the medium; in enterprise sales, it also includes past experience in selling to enterprises. Sustainable differentiators might exist on day one due to technology, or you might be able to build them over time (as in case of consumer internet companies, where brand and first mover advantage can be significant).
And then, our own understanding of the space and our ability to address risks in that specific business become important. Most successful early stage investors are conscious of the fact that all good investments are not necessarily good investments for them.
Would love to continue the discussion,
and yes, we are adults — we can use our names here 🙂
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Anon, as you know, there is no “right” answer to the question. My own view is that you should look at funding where you think the plan gets substantially accelerated due to funding being available — for some people who are willing to put in their 10-20 lakhs, this might mean after the pilot. For someone who cant, this might mean day one. For someone who can invest a lot more, it might mean never.
I believe that this leads to best results for the business. If brand and first mover advantages are really what you think will hold up the business, its very hard to do these without money (unless you can virally expand, which some companies in other parts of the world have demonstrated).
Then the second piece is what is the cost of equity — and that goes down as you make more (good) progress. Because risks go down. And in fact, raising VC money itself brings down certain risks (financial, potentially competitive).
Again to clarify myself,
I am talking about a very web1.0 company.
Something that would require someone to have presence in India for execution.
Not technology heavy but uses technology to reach out to customers and also to offer better value.
And sorry for the anonymous posts alok, as of now i am comfortable this way. Hope you don’t mind.
Alok and krish,
The examples you have cited Mphasis, Suzlon, Bharti and likes must have sought VC funding at a stage when they must have been in a position to hire experts (financial and legal) to negotiate the deal with the VCs. Also the picture must have been much clearer at the time of funding (given some years in operation).
With all due respect to people who follow this blog, i somehow get a feeling that most of people here would like to know more about early stage funding.
Let me take a very specific example of “consumer internet space”.
When do you think is the right time for the startup team in consumer internet space to approach a VC ?
I mean the dilemma one faces is
If the team approaches to early then the likelihood of getting a favorable term sheet are very low ( and rightly so cause as Krish mentioned the VC is taking a bigger risk and hence would be expecting a bigger return)
If the team decides not to go for funding and the startup comes in the public eye then the chances are that if the value proposition by the startup is good
it would be copied by someone who has more resources at his disposable. Cause the fact is (as alok has mentioned 2-3 times in his postings) in consumer internet space the barrier to entry is very low and the competitive advantages are 1. First Mover Advantage and 2. Brand Building.
What should the team do ?
When is the right time to approach, so that both VC and entrepreneur feel that they have a win-win situation ?
Would you suggest that in this case one should look for High Networth Individual first and then look for a VC ?
I am curious about Rad’s assertion that things “need to be different in India”. I followed the earlier thread and did not find the reason he felt India was unique.
The role of nurturing and mentoring a completely raw young person is more properly in the angel’s/advisor’s domain, not that of the VC.
Yes, India does have much fewer angels than needed, but that’s the difference between a mature ecosystem and one that is being set up – there are Huge Gaps. The entrepreneur who is fueled by idealism and romance loves this situation MORE, because blank canvases allow for bigger stories e.g. Can you create your own mentors by convincing/cajoling/incentivizing the people that can advise you but haven’t identified/advertised themselves as angels right now?
Expecting VCs to change their behavior (rather the risk-reward tradeoffs they want) to suit one specific company’s needs is… slightly unrealistic 🙂 Especially if the VCs ARE already finding companies at the tradeoff points they are looking for!
Alok,
Firstly, smart work in fishing out these comments and putting these up as a new posting.
As someone who has tried to find early stage funding and is still looking, I can relate to some of Rad’s comments. I have not figured out as yet as to why I have not suceeded – could it be because I have a bad business plan or because somone has not yet understood the value in my business plan? Do not know, but in this answer lies the crux of the point that Rad is making.
Honestly, how many ideas do you see being funded in the early stage outside of the technology/communication/internet space – something to think about!
would love to hear more comments on this