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
A lot of times , and especially in India where the tech startups are just beginning to take hold, I think a lot of us misunderstand the VC business model. I am not implying that, it is that case with you, but generally speaking I guess a lot of times the fault lies with entrepreneurs also ..and that I guess is mostly because most of us are first timers just growing up.
My understanding is that fundamentally VC’s are inclined to fund businesses which not just have a good potential for profitability but also a chance to become explosive businesses. Typically businesses expand explosively in two cases : firstly either the business provides a radically differentiated solution in an existing market (Eg. Google search) or secondly the business provides an proven business value in a exploding market (eg. SNS sites working out of India).
The reason most VC’s are prone to funding internet ventures generally because relatively speaking internet is a new medium and everybody is convinced about its potential to create block buster businesses. The same logic goes for SNS sites operating out of India -almost everybody knows that there will be one big hit – which means that every indian SNS startup out there has a chance for explosive growth, which might not be the case with a much technically advanced shrink wrapped piece of software. Even though it might be a better product and profitabliity might be ensured but the lack of potential for an huge upside (no matter how small that may be or how crowded the market might be) might make it less attractive from a purely VC point of view.
However, at the same time I guess you dont really need to have a substantially differentiating idea in place to create a blockbuster. A lot of times such ideas are discovered by great teams in due course to create a profitable business, but then again investing and identifying such teams is something which is done at an angel level rather than at a VC stage.
Hi Mohammed/bb,
Entrepreneurship is more a state of mind, than a post or a responsibility.
What i wanted to say, was the Team is strong and motivated, but never tested on the grounds of entrepreneurship.
And, yes raising non-institutional money is not a good way to go.
As guy says, Its your money in the customers purse.. think of ways of getting it out 🙂 . Yup, all the founders have been changing hats to meet customers and get feedback from tech/market/feature point of view ….
Lets see how it works out …
regards
Jaspreet
Hi Mohammed,
I like the idea of using social networking sites for bootstrapping a company till it gets VC/angel money, but i guess the cons outweigh the pros. a few issues are:
If one is accepting deposits from the public, one has to comply with Company Law rules, which would also involve disclosing the financials to the public.
If founders want to accept the money as a personal loan, then there is an issue of governance and tracking proper utilisation of the money.
While Web 2.0 is a good tool for networking, i’m not sure how many people will actually part with money to someone unknown to them. Parting with money makes one think twice. As it is, it is very difficult to get loans from our own circle of friends.
Lastly, rather than making an effort to get small sums of money from a large number of people from Web 2.0, it would make more sense to focus on getting 1 or 2 customers interested in your idea and then proceed to get a decent size amount from a HNI.
If customers are interested in an idea and if one can demonstrate credibility and references, i guess it would become easier to raise funds, VC or otherwise.
Jaspreet, keep focussing on the customer. best of luck.
Hi Jaspreet,
I wish you well. I think the below point is valid.
10% You don’t have a proven team (Milind has 15 patents, and i have never lost – be it AOE/interview or JEE.
As an innovator your passion and zeal may make you step aside potential weakness in your product and long term sustainability. Having patents doesn’t make you a successful entrepreneur.
Spend some time convincing big names in your field to assess the product potential and join you. If they are not joining then you can get inputs that further strengthens your product and helps make a better pitch.
Why don’t you try getting money from retail investors using the power of the web especially “Social Networking” sites linkedIn? Personally, I am interested to invest in your idea. As a INDIA based software engineer my savings aren’t that significant.
I would never say you abandon the product of your labor in one mighty fling because half of the world found it crappy. If deep inside, you have a feeling that it’s a winner, then it is. Do not prevaricate. Rather than expecting others to *trust* your product, you must go the extra mile to disprove them by demonstrating on your own how well the market welcomes it.
Nobody, I repeat nobody will *understand* or even try to understand your product as much as you do and your customer will ; because you are the only pair having an interest in its functionalities and outcome. A VC’s interest is focused on your team’s ability to market it, its scaling / revenue potential and based on that, the ultimate enterprise value. A VC often bets on the team not on the product. He does not take the risk entirely, he just partakes in it. A good team will try, err, fix and eventually entrench the product in its logical destination – the customer’s mind.
When founders pop the question prematurely “do you trust my product”, they have no choice but to reply in the affirmative simply because it’s not the VC/consultant’s business to get pleasure out of knocking an upstart cold – when they actually mean is `if your product is indeed great as you say – let’s hear it from the market”. They stop short of saying that because it would be just elaboration of the obvious. The founders who get judgmental too soon, blame the indian mentality, self-inflict the wounds in an impulsive tirade and begin to sink in a sea of wallow even as the game has hardly begun. My advise – don’t.