Broadly there are two kind of stock investors – those who know the companies they are investing in and those who don’t. The first ones use insider information or put their analytical skills at work to predict which company would/should/must do well. They take a calculated risk.
The second ones (like me) just buy stocks of “seemingly-upcoming” segments, and they place their bets on how fast they can guess a rise in stock value of a particular market segment. Like i never tried to find out why and where would Idea invest the IPO money.
Its the lower risk and reasonably_good_profits, that make the people the second kind. The dumb but dangerous kind.
The same hold good for VCs 🙂
I have seen many IIT/IIM people on board of VC firms, just putting the raised funds up to whats_been_good_and_selling market. If my statistics are right a call/support center, service based companies, webized google add_word optimized product will never face deficits of funds. Web is a killer technology and sales platform, but not all problems can be addressed that way. You can never sell dog food online 😉
A unique idea with good value to customers = Good business. Period.
And, when you create a substandard mock of a existing idea you create mediocrity.
And i strongly feel, this is *not* the right way. No one thought web-search in 1996, No one thought virtualization could be commoditized in 2001, No one thought mobile phones could fit in pockets in 1990. Indian VCs (I feel) still are not betting on black horses. They are not ready to invest in intellectually-property or product based companies. They still are looking for 20-30% growth plans.
We have a reasonably sound product[1, 2] in place, which has already happy faced beta-customers.
And this is what we hear from VCs ;-
1. 60% we don’t invest in this area. (hmm, but your website covers all googlable computer science area)
2. 10% we don’t understand your product/market. May not be able to help ( Perfectly OK )
3. 10% You don’t have a proven team (Milind has 15 patents, and i have never lost – be it AOE/interview or JEE 😉 . But yes we are first timers)
4. 10% Why don’t you sell over web. (Dude, its an enterprise problem. Customer need to be told how more than what)
5. 10% – These are the good ones. And i have my hopes alive 🙂
This is also a reason why there is a mushroom growth of “VC consultants”. Infact, when i asked one VC_consultant, if he trusts the product. He simply said, he would have to :), and VCs also need not fully understand it.
No one ever gets fired by buying IBM or Microsoft products, but thats not the reason why good startups are born. Its the confidence they endeavor bring in and the risk they encourage the user to take, makes them a winning startup.
Indian startups (includes us) needs angels and sensible VCs who can understand entrepreneurship and promote startups with solid base and good Intellectual Property.
- India’s Hottest Startups - September 7, 2008
- The case of SonimTech – And lessons we can learn - August 23, 2008
- The Druvaa Story – III - July 14, 2008
Hi sanjay,
Thanks for your advise, i really appreciate that.
I appreciated your single day turn around time for rejecting the proposal, and its perfectly fair if someone doesn’t want to invest in your area.
Its hard to give of 40K lines of code, 3 patent pending technologies, 6 man years of product efforts and 4 beta customers testimonials in 1 million USD.
And its even harder to hear statements like – “Hey, are you going to do this over web” 🙂
i guess the wrong timing on our part to raise the money. We either should have raised some angel money some months back, or should have waited for few sales to raise early money.
But, the Indian VC mentality about taking chances on a few selected area like web 2.0 .. needs some thoughts as well. The same goes for indian entrepreneurs who are trying there skills creating mocks of already successful idea.
Jaspreet
Jaspreet,
You had sent me your plan and I did not consider it because it is not in my circle of competence/interest. If you were selling a smaller ticket size product to many more customers then it would have interested me. I also have no value add in your domain of disaster recovery. I did not want to waste your time or mine so I rejected it.
You seem frustrated and you seem passionate so I have taken the liberty of offering you a few tips. This may benefit others as well so I put it in the public domain
1. You will gain little by blaming the system. I think most VC’s are telling you that you are not VC ready. If that is the case accept it. It is great if a VC tells you no as quite a few string you along, make you feel good and do nothing
2. Once you have accepted that you are not looking for early stage money and more for seed money then position your pitch accordingly. Are you ready to give up 25% of your company for $250K- $500K and how will you use that money to then raise early stage VC money. If you do that then seed funds such as “seed fund”, “erasmic” in Bangalore etc. may be interested. You could also try Band of Angels
3. I have also seen another model where some experienced entrepreneurs or angel funders will take upto 76% of your company but give the management team 24% non diluting equity. If they need more money then they will either put it themselves or dilute themselves and raise it. I do not like this model much but I have seen it in the market and its defenders claim that even with the VC route by the time an exit is achieved the founders team have been diluted to 24% or so.
At the end of the day I hope you do not get into the trap of wanting to raise a large amount of third party money at a high valuation and get frustrated. A few people manage to do that but most get frustrated because they do not understand how the game is played.
In 2006 , the company i worked for (Veritas/Symantec) tried to bill Mahindra Ugine Steel $350,000 for a disaster safe data backup solution which did not work 🙂
This made the founders wonder, if disaster recovery products could be sold to Asia pacific SMEs for their data and cost requirements.
We delivered them a better product (still beta, expected price $30,000) and its been running on their test site for 4 weeks now with almost 60% performance improvements.
It takes some money to take a beta class enterprise product to market. (qa/support/training)
I just don’t see what else VCs need as a proof. And don’t know any angels.
Looks like would choke soon 😉
Totally agree with you Jaspreet, Indian VC’s are happy to bet behind proven models that have been successful outside and are being copied in India or outsourced services model. You always hear you should be unique and not me too but you still have all the travel dotcoms funded.
But I am not sure if you are in pure web based play what are the chances of making a great company by copying what is already successful because majority of Indian internet audience is English speaking and if there is a good English website why should people go to yours unless you are solving India specific problem.
It is different probably in China where if you copy internet model with Chinese language you will get huge traffic example baidu.com.
Only model where you can start in India and hope getting big is if the model involves logistics, but again if the model is successful outside India and involves logistics (which means large investments) I am sure you will have one of the big Guys Reliance, Bharti and others entering it. Like what happened in DVD rentals Reliance announced their interest in the space and all small companies trying to break the ground got wiped off.
So if you are going to make big in this flat world either you need to solve problem which is at global level or something which is specific and unique to India. Majority of investors do not believe that first time enterpreneurs and that too sitting in India can do something like this. But I guess as you mentioned that there is that 10% which gives us a hope to continue trying.
I second what you said, especially about Angels being able to play a bigger role. Many VC firms, especially those operating in India, just do not have the talent to spot and groom winners.
How’s the response been from angels to your product?