As I look for seed investment opportunities I have narrowed my focus to critical mass plays ( Rs 500 per year from a million user type plays) that could potentially provide 400 crore exits in 4-7 years.
As the Indian economy expands some wealth creation has to come from companies that are just starting and my guess is that there will be atleast a hundred such 400 crore + companies in the next 7 years.
One of the key things I look for in entrepreneurs is the ability to accept “delayed gratification” and the ability to deploy capital efficiently. In an Indian context “delayed gratification” could mean taking a CTC of Rs 20000 a month while your peers get say Rs80000 per month. Sometimes the delayed gratification can take very long and it may never happen.
Like someone said you cannot have a baby in one month by getting nine women pregnant.
- Community Platform For Ward 103 - November 22, 2012
- Municipal Elections New Delhi-16 days for rolls to close - October 15, 2011
- The next Facebook ? - September 17, 2011
Sanjay
I have an business plan that could generate about 20 cr first year and about 70 cr from second year onwards with 1 million consumers.
Replicating this in about 10 big cities in India – well you crunch the numbers.
But how do I contact you .. ?!
regards
Krishna
Sanjay – I take your point in case of seed stage funding. Since you mentioned delayed gratification may take “very long time”, I assumed you were implying big pay cuts for founders thru the course of a startup. I agree that any entrepreneur has to be willing to go without (or very little) compensation for at least a few months or a year or so. But expecting a founder to work for peanuts thru the course of a startup is unreasonable.
Sanjay,
Good point about forward valuations being key. With IPOs, the Indian stock market will currently value anything at a ridiculous valuation, as you may notice. A problem is a) very few growth companies listed in the internet space and b) low floating stock of such companies. These tend to cloud the mind of an observer, but I’m sure that in the coming years, availability will be less important in valuation.
Does Naukri really deserve a 100 P/E? I can’t say until numbers come out and estimates are just picking figures from the air. A commoditised market like job and real estate portals isn’t going to grow at 100% y-o-y but that’s just my opinion. But you’ll note that the market is giving them a 100 P/E right now, and therefore an IPO valuation need not be anywhere close to the fundamental growth envisioned.
Coming to your other points about salary to Gaurav, I think you’ve said it very very well. I have thought about this quite a bit and am thinking of a way to have my company issue me stock against say 80% of current market salary; Meaning stock worth 80K per month if market pays 1 lakh per month. I have money to tide over 18 months – and if I can’t get traction in 18 months I’m a downright idiot. (for staying on that long) Heck, against that, I’ll take no salary at all – obviously the stock’s worth a heck of a lot more than currency. Legal issues are a pain point though, and I have no idea what investors might think of a such a plan – would they tell me to go suck eggs?
Have to chat. Shall use the Google.
Santosh,
You are right. The model is a relaxed one and it need not be the consumer who pays. I think companies who have proof of adoption etc. will be beyond the stage where I want to get involved. They may be VC ready. I am looking for companies that may or may not yet be formed but where the founder has a good vision and can articulate it. For me the chemistry is very important as I plan to get actively involved.
The four to seven is because I think exits will accelerate in India as entrepreneurs realize that time to market is important and because a lot more capital is available.
If you click on contributors names on right hand side panel you can find their profiles.
By the way I put this post up to get entrepreneurs to think. I can be involved in very few deals myself but will be very happy if the pace of entrepreneurship in India accelerates.
Gaurav,
At the seed stage if one crore is raised at say a two crore pre money then 33% equity is with seed investors. Each lac that is spent costs the entrepreneur 0.3% equity. Assume 50% dilution before exit. That makes it 0.15%. If the exit is 400 crores then 0.15% of 400 crores is 60lacs. Thus for any entrepreneur who claims to be serious about building a large company paying themselves well out of seed funding is not an option in my mind. For key employees paying say 80% of market salaries is okay but not for the founding team.
The equation becomes much better as you raise money at higher valuations and once an initial VC round is complete raising founder salaries to say 80% of market is okay.
If the founder takes nine months to raise a VC round and gives up say 4 lacs in compensation ( money in hand, taxes are less at lower compensation) then to the extent the founder really needs that money he/she can get it from a spouse, friends, family or personal loans. ( Debojit who won Saregamapa sang while his wife worked)
It is interesting that some working people take time off to do an MBA. If cost of an MBA is say 3lacs and they were getting 5 lacs in hand a year. Then they invest 13lacs in themselves. Compared to that is investing 4 lacs in your dream for which you have a passion too much ?
As a seed investor I often wonder what is the skin in the game for a founder. Will they feel pain if the venture fails ? The founder gets the lions share of the upside so they should have some downside if the venture fails.
In this game there is no one right or wrong way and everyone is entitled to their opinion. I am just stating mine.