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From Bootstrapped to Angeled : Is it your idea or product ?

You’ve shaped up your business idea to flag off. You have a pool of talent believing in that idea and lined up with working prototype with feedback. Now, it’s time for funding to take your idea to concept to design to product to a successful business.

Depending on the idea, startup projects can be particularly expensive and often incur new, unforeseen costs. That is particularly true of technological ideas, which are currently in vogue but require exploratory costs (to pay experts to determine if the idea is feasible) and initial product development costs. Even if a team proves the idea is feasible, they often need to build a working model or prototype to prove that to investors, which can sometimes add thousands of dollars to startup expenses.

Bootstrapped to Angeled_To_Raise_Seed_Capital 1

The vital idea behind bootstrapping in commercial means is to borrow as minimal finance as possible. In two words, you only rely on either on your own budget and savings, on some crowdfunded amount or simply on loans from friends and family. This scenario urges you to borrow insignificant amounts of money and thus keep interest costs minimal. But as the market dynamics populates further, the wider entrepreneurial community starts delivering differing views.

Guy Kawasaki has proclaimed that “you should always be a boot-strapper… too much money is worse than too little” but goes onto to suggest “if you do get offered venture capital, take it, but don’t spend it”.

Most people focus all their time and attention on building their idea, and forget that even the coolest product or service is worthless if people don’t use it. Creating a successful product or service requires two things:

  • A solid implementation of the idea.
  • People that use it.

For the best chance of success, you need to identify the smallest core of your idea that has value to your potential users, build only that, and release it.  This “minimum viable product” or MVP serves as the ultimate idea testing ground.  It lets you build a relatively inexpensive version of your idea, test it with real users, and measure adoption.

Investors see a lot of ideas, which is why they won’t sign an NDA (your idea is not original, no matter what you think). But if you have a team that has delivered products in the past, worked through adversity, and has a failure or two to learn from, then the investor can see a group of people who will protect his investment, and has demonstrated the skills to do so.

So No. An idea will not get you funded.

To be investible, a start-up needs to have a good product-market fit and the potential to scale up quickly to a large market. It needs to be defensible with intellectual property or some other competitive advantage. And it needs to have a credible team in place, people who investors will believe can execute. And there needs to be some kind of proof, also called validation, also called traction.

Building an early prototype also helps you attract tech talent, because it gives people something to look at and play with, and it communicates your idea in a more “tangible” form. Then you can shop it around to potential technical co-founders to get them excited about your vision. If you have the means to actually build a working prototype, so much the better!

Most Angel Investors (and VCs) won’t pay much attention these days without some other sign of traction, especially because the financial and technical barriers to entry are getting lower and lower. Bootstrapped to Angeled_To_Raise_Seed_Capital 2

Additionally, the current market size doesn’t matter. The market size in 10 years is what really matters. You want to be in a small but rapidly growing market. You can change everything in your start-up except the market. So spend a lot of time up front to make sure you’ve thought through your market. “Having value” and “being fundable” are two completely different things.

Two of the most valuable things that the investor community seems to have been seeing from close quarters are: customer feedback and data from pilot research, which can enable them ask questions that lead to product breakthroughs. Angel Investors would need to know how your idea has improved to a bit more than a fledged product wireframe, so that their willingness to invest into those ideas via money, and social reach can increase to ensure that the success of your product is further defines by cutting-edge product development process.

Following guidance is thus seems to have gained ground and immovable traction for all the aspiring entrepreneurs who are progressing from a Bootstrapping channels to Angeled funding:

  • Be value-driven rather than fund-driven
  • Be independent of technologies that make you lose control over your idea
  • Make the customer a base for your product than profit
  • Base your ideas on supply and demand and not on the money it can attract

Once again, this isn’t a strict definition, but the seed round is normally used to fund the initial stage of your company where you’re finding product/market fit, and the following rounds are meant to help with scaling. That said, the road from concept to readiness (aka product MVP) is long and winding. Entrepreneurs’ single greatest challenge in this sphere of activity is balancing bursting creativity with structured, method-driven decision making.

 

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Dymystifying Valuations & Investors – an opinion from an entrepreneur!

Valuations often have seemed to be a “Black Art”, but they seem to be crucial in determining your strategy for outside investment!

Are they really? How is the early stage entrepreneur going to decide what is reasonable?

Some other questions that routinely come up in the mind of entrepreneurs:

1. How does the process of creating value effect me, my co-founders, my team & investors?
2. How do I maximize value for everyone?
3. How do I get the best valuation in case of an exit?

Entrepreneurs need to understand how money works and see the world from the investors world.

One of the area VCs in the US once described to me this scene sometime back, just after their firm had decided to invest in the start-up:

“There was a lot of interest in this company, and the founders had a fair amount of leverage. They used every ounce of it to extract a higher valuation,” he said. We kept saying that our firm would bring a lot more to the table than money, and that the mentoring, strategic advice, network resources, and political capital we could offer were almost unmatched.”

“The founders however set all that aside and made it about the money. It left a bad taste in our mouth. The deal was still worth doing—barely. But we have less of an equity stake in the company than we would ordinarily want, and given all the other portfolio companies that need my attention, I don’t feel any obligation or desire to give these guys additional assistance.”

The point is that the founders undervalued the non monetary value resources the VC firm had to offer, or they assumed that mentoring and strategic support would inevitably be available from the firm. Given that the negotiation for money and term-sheets is a high stakes exercise with various emotions and personalities
present in the mix, one should not forget that the document at the end lays out how much equity and control a VC will have in return for its cash is all about assigning rights, carving out protections, and haggling over claims to future returns.

So these negotiations are fundamentally about picking the right long-term partner and forging a relationship that can survive the inevitable disappointments, resolve the unforeseen conflicts, and monetize the mutually earned successes to come.

Now as a management consultant, I have tried to put these dynamics into some of the mistakes and solutions of how to avoid them in this blog.

At the end of the day, term sheets can be difficult to understand, and you may need help determining what the various provisions—liquidation preference, anti-dilution protection, pay to play, drag along rights, vesting schedules, no-shop clauses, and so on—imply for your current and future rights and obligations. At the very least, you should contact other companies in the VC firm’s portfolio to find out what was negotiable, why they made the choices they did, and what terms were the most consequential in the months and years after the deal.

So try to check out various VCs and see who you can work with, who has done investments in your space (target market you address) and what it has been for others to work with them.

“Remember you are looking for a partner for the long term and people who you work with will matter in terms of bringing value to your startup especially

the non monetary type!”

So here are some things to consider –

Understand your leverage

One of the thing is the more alternatives you have which means number of other VCs who are interested in your startup, it gives your more leverage. Try to use this to fight for the terms that are important for you. Sometimes one common problem is running out of cash since its hard to forecast the burn rate, and too little willingness to give up equity. As a result, you may fail to take in enough money during early rounds of funding. So look for someone who is willing to fund subsequent rounds or offer bridge loans without significant dilution of founder equity. Its better to negotiate this during the first round of financing when you have numerous alternatives and could command a better price. Many founders have discovered that doing a slightly bigger first round than seems necessary—or perhaps negotiating an acceptable formula for future bridge loans at the outset—can pay off in the
long run: It’s bad when you have few options, but considerably worse when you are running out of options and out of money!

Its okay to look at the long-term goals of the VC partner and take the time to understand what the other side cares about and hope for from their investment which includes accepting money in installments tied to milestones with no dilution in equity.

“So don’t just focus only on your own options.

Understanding the other party’s interests can give you leverage”.

Strive to maximize thrust for win-win situation

Imagine you are the verge of closing a big financing round at the end of the month. When you pitched
last month, the business was gaining momentum and you are on target for all your financial projections. Since then, a major customer deal you were counting on falls apart, and a key employee is on the verge of leaving. Question would be if you would have any legal obligation to reveal this situation, probably not, but imagine you picked up the phone and revealed it. Maybe you think they may re-negotiate the terms of the deal. But most often than not, VCs would reward you for your honesty since they would like to put a premium on your trust! They would value your upfront gesture of delivering bad news as you would deliver good news to them!

Another thing would be around terms, to comparison shop, and to use whatever leverage you have to renegotiate the deal. Its all okay as VCs expect you to ask for better terms, but not after you have given your word on an agreement. The VC world is small and they all keep cross checking on each others deal flows all the time.

“In VC relationships, as in any long-term partnership,

It’s much easier to build  trust than to rebuild it.”

Focus on value and not valuations

If you’re selling your house, for instance, you might not even meet the buyers, and despite issues such as inspections, financing contingencies, and the closing date, the selling price is far and away the top priority. In this case focusing on a single, top-line number sometimes makes sense!

But in case of accepting someone’s money at a startup, the signed contract is the beginning of the relationship, so its a mistake to focus too narrowly on price and not enough on drivers of long-term value. Its like when negotiating a job offer, for example, people tend to obsess over the starting compensation, but factors such as geography, responsibilities, prospects for learning and advancement, and even length of commute can have a greater impact on their enduring happiness and success.

More than one VC has identified this shortsighted emphasis as founders’ biggest mistake.

“Entrepreneurs focus too much on valuation and not enough on control,” one VC told me. “It’s amazing how much control founders are willing to sacrifice in order to obtain a $4 million valuation instead of $3.5 million. These numbers don’t matter much in the long run, but the impact of diminished control can last forever.” The tendency is especially remarkable when you consider the passion most founders have for what they are trying to create, for their company’s mission, and for their vision of its future. Once founders have sacrificed board control or ceded voting rights on too broad a category of decisions, those decisions are, of course, technically out of their hands. Most VCs are very reluctant to use their control rights to contravene the wishes and objectives of management, but if conflict or a breakdown in trust between management and the board occurs, founders may find themselves severely constrained, if not replaced.None of this means you should ignore valuation—it’s an important consideration. But it’s a mistake to confuse it with value, given that most founders also care a lot about factors such as their role, prestige, self-identity, and autonomy.

“To maximize valuation without regard for non-financial considerations

is to sign something of a Faustian bargain.”

Strive for Understanding not Conflict

Even when control is not the concern, you ought to pay close attention to terms other than valuation; there are additional provisions that can have a huge impact on how much money you’ll eventually see. And if you look at them carefully, the terms a VC firm proposes can help you understand its unspoken concerns and assessments of your start-up’s future.

Well as in any relationship you need to look well beyond the contract and far beyond today. The lessons offered above are targeted toward those who are striving to create strong partnerships with VCs—but they are relevant for anyone negotiating in a world where a signed contract is not the end but merely the beginning.

So folks go develop products & solutions and please don’t forget to connect your wares to a customer persona and a pain-point they may have to resolve and rest will follow!

I will do more posts on understanding terms like liquidation preference vs. participation for example in term-sheets from the perspective of an entrepreneur.

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Tête-à-tête with Ram Shriram

A mentor and guide to many, Ram Shriram, managing partner at Sherpalo Ventures and one of the first investors at Google, addressed a rapt audience last week at the Bangalore office of [24]7.  Opening the hour long session with his reaction to the start up scene in India, Ram Shriram applauded the dynamic vibe of the IT capital of the country, even as he lamented the lack of infrastructure and the paucity of good Universities to channel the talent of the nation.
A few snippets from the conference for those who missed it.

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If you want to do something, don’t over-analyze it! We do mostly Series A Funding! Helion Ventures #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India. This interview is done with inputs from Shashi Bhagnari.

think-investor-helionHelion Venture Partners is a $600 million venture fund focused on India with offices in Bangalore and Delhi. The company is an early to mid-stage investor in Indian startups in sectors such as Enterprise software, Internet, Mobile, Outsourcing, Retail, Education and Financial Services. In a conversation with iSPIRT, Helion’s Alok Goyal, Partner, talks about the company’s funding strategy, evaluating projects and making the right investments.

Tell us about the company’s background. What is its focus? What is your current fund? What is it looking at?

We formed the firm in 2006 with four founders that included Ashish Gupta, Sanjeev Aggarwal, Kanwaljit Singh and Rahul Chandra. Besides our team of analysts, our CFO doubles up as an operating partner for finance. We also have an HR advisor who works closely with our portfolio companies. We recently got someone in Product Management from Google to help portfolio companies. We are now a group of 15 people and have our offices in Gurgaon and Bangalore in India.

We focus our investments on early to mid-stage ventures, investing in technology-powered and consumer service businesses in sectors like Outsourcing, Internet, Mobile, Technology Products, Retail Services, Healthcare, Education and Financial Services. We have done about 60 investments so far.

In our current fund, we have raised about $250 million. The focus of this new fund will be divided between technology side and tech-enabled consumer investments. We will continue to look at Internet services like Makemytrip where we invested earlier, taxi services like TaxiForSure etc.

What’s your strategy on verticals? How do you characterize them?

Within e-commerce, we are bullish on Internet-only brands and marketplaces. For example, YepMe–a Web only brand focused on tier two and tier three markets. We have also invested in a venture called ShopClues which is an eCommerce marketplace.

Within consumer services, we have invested in consumer facing travel ventures like TaxiForSure. We have also made an investment in a company that makes planning travel experiences much easier. We have also funded a housing and real estate venture, Housing.com.

What stage of investment are you most interested in? Seed funding or later stage investments?

We are mostly the first or one of the first institutional investors in the company. Our sweet spot would be Series A or Series B funding. I would imagine 70 to 80 percent of our investments are in Series A. We invest between $10 to 20 million over the lifetime of an asset.

Any interesting investments you have made recently?

We had been looking at investments in the healthcare sector for a while now. We have recently invested in Denty’s, a chain of dental care units. This Hyderabad based company focuses on dentures, jaw replacement and other high end dental care treatments.  We have also invested in the area of enterprise mobility, in a company called Rapid Value that provides services in the area of mobilization of enterprise applications. Another recent investment is Linguanext, which has created a unique technology for language translation. It allows Independent Software Vendors (ISVs) and enterprises to translate any application from one language to another without any changes in the application itself.

How do entrepreneurs get in touch with you? Is there a defined process they need to follow?

Entrepreneurs are at the heart of the venture capital eco-system. It is as much or more of our job to find entrepreneurs than they reaching out to us. In fact, we use a lot of our bandwidth to get to reach out to entrepreneurs.

Entrepreneurs are most welcome to reach out to us directly. There are two ways entrepreneurs typically get in touch. First is through our personal network. Second way is through bankers. We also like to make ourselves visible in forums and events so that entrepreneurs can reach out to us and we can reach out to them.

We also have a strong outbound program through a team of analysts.

What is your due diligence process? Is it specific to all?

We view around 1500+ business plans each year. The process is similar for most. Usually the first meeting takes place with one of our analysts, unless it comes from personal contacts. Different analysts focus on different areas and they all gain a good idea after the first meeting, which is then followed up with another meeting with one of the partner(s), to understand the business better.

Due diligence for us is more Market Diligence. We also do primary research, secondary research and make reference checks. After we are through with the entire due diligence, we invite the entrepreneurs to present their business plan to the whole team.  If the partnership is positive, we issue a term sheet after which financial/legal due diligence cycle along with documentation is completed.

The entire end-to-end process is completed within a month and a half typically.

How do you interact with your entrepreneurs? Is there a process outlined for this?

Investment is not only about money. We have developed reasonably strong relationships with our entrepreneurs which begins when we start the process of due diligence. We have both formal and informal interactions on a periodic basis.

In the early stages, face-to-face meetings are held every quarter, in addition to monthly calls. But outside of that, we do not interfere in their work at an operational level. But entrepreneurs reach out to us whenever they need help. For instance, if they need clarity on product direction or to connect with other prospects, they contact us. Those interactions are in fact, quite regular. However, I personally find myself being in touch with them on a very regular basis.

Do you have any avenues where you meet your portfolio company CEOs informally during the year?

Yes, we are doing this once a year. We have also started to form groups now. For instance one group that focuses on product management can share tips with portfolio companies in that area.  We also reach out to our portfolio companies through webinars.

Tell us about your recent exits? What do you think of the climate for exits in India like?

We are just an eight years old entity, so there have not been too many exits. Our first was an IPO exit from MakeMyTrip when they went public. We also exited redBus when it was acquired by Naspers. Then we got out of Amba Research. We are hopeful that the market climate in the next few years will get a lot better for favorable exits.

What excites you about entrepreneurs these days, and what is it that you like to see in them?

In all my discussions there is a general belief that the quality of entrepreneurs has gone up significantly. We are also seeing a whole class of entrepreneurs moving back from the US. We are seeing a generation of entrepreneurs starting their second ventures now. Their scale and thinking is different, very bold.

What we’d like to see is stronger talent in Product Management. It is relatively more difficult in India compared to a place like the Bay Area. We are also not seeing as many deep technology assets. What we are seeing are more applications based and light IP based businesses from India. Over a period of time, I have no doubt that India will create more deeper technology companies as well.

What advice would you like to give young guys who want to start a new venture?

You should ask yourselves if you have the entrepreneur inside you or not. If you are over analyzing, you are probably not. An entrepreneur has to be “foolish” enough to purse the dream besides being passionate about it. If you want to do something, don’t over-analyze it. The important thing is the ability to take the plunge.

Entrepreneurship is not a solo sport; but a team sport. You need to find complementary capabilities in others. The bottom-line is that you should be able to pull together a team that has complimentary skills and the same passion to do it.

A startup is successful because it is focused. Defining that focus is important. Startups succeed because they choose a specific market segment or a specific problem or a specific customer set etc. and serve that market better than anyone else.

Lastly, it is important to be close to the market. You need to continuously listen, learn and act with agility. It is important to be able to iterate quickly. 

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The redBus Founders on Motorbikes Story! Interested in India Domestic Consumption Start Ups! Seedfund #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

Seedfund is an early-stage venture capital fund, with operations in Bombay, Bangalore and New Delhi. Seedfund was founded in 2006 by Bharati Jacob, Mahesh Murthy and Pravin Gandhi and the team has grown to include Paula Mariwala, Sanjay Anandaram, Sarabjeet Singh, Shailesh Vickram Singh and Tarana Lalwani. All Seedfund team members have been entrepreneurs at some point or the other in their careers. Seedfund investees include AFAQS, CarWale, Chumbaka, EduSports, Fetise, Frontier Markets, Healthizen, Heckyl, Ixsight, Jeevanti Healthcare, Jeeves, Level10 Comics, Lifeblob, myDentist, Nevales Networks, Printo, redBus, RupeeTalk, Sportskeeda, ThinkLabs, Uhuroo and Vaatsalya.

ThinkInvestor-SeedFund

 

 

 

 

 

ProductNation sat down with  Sanjay Anandram, Venture Partner of Seedfund for this interview.

Here’s what we heard :

What is Seedfund? Tell us a little bit about your fund, stage, investments you like? How are you structured? What’s your current fund? How far along are you in your current fund?

The name Seedfund implies only seed funding but really is a seed or early stage fund that likes to get in early and stays on through multiple rounds of funding. We can invest up to $5M in a company. The sector is India Domestic Consumption – anything that the Indian consumer spends money on; financial services, entertainment, travel, hospitality, healthcare, education, etc,. We are structured like a regular VC fund. Our first fund was a small $15M fund but our second and current fund is $55M. The first fund is nearing its end of life and the second fund is about 2 years and 10 months old.

How do you get to know companies and entrepreneurs? What’s the best way for an entrepreneur to get in touch with you?

Sanjay-AnandramWe are less driven by broad trends than by the specific opportunity and the category we find them in. In many cases, we have invested in companies that created a whole new category. For example, when we invested in redBus, there was no category called Bus Ticketing Services but they created one! Our investment in Vaatsalya created a category called Hospital Chains for Tier 2 and Tier 2 towns. Our investment EduSports created a category for Physical Education Services for schools. Sportskeeda is a Sports Online Community site. All these have been started by people completely embedded in that space.

We have a large network and many companies and entrepreneurs we get to know through referrals. We also have a number of companies approaching us directly also. I started in 1999 an online magazine aimed at entrepreneurs. In 2002 I started one of India’s first VC fund called Jumpstartup. Since 2006 I have been associated with Seedfund as a venture partner. All of this means that we have been long enough in this space to build a large network and get to know people. That’s how we get a lot of referrals and many of them come in directly as well, through email for example.

How long does it take for you to do the due diligence process? What is your due diligence process?

At the stage of the companies we are dealing with, there is usually not a lot of due diligence we could do because many of our portfolio companies create their own categories. That said, we place a few phone calls to check out the space a company is in, any competition they may have. Apart from the usual things like checking out the team, sometimes, we may need to clean up existing company structures if they have involved a lot of friends and family investments. Sometimes companies need time to pull things together for us to do due diligence. All of these typically take from about 3 to 5 weeks time.

What kinds of interesting new categories are you seeing in India? Exciting business models, technologies?

There are two ways to look at the categories we see – one could be the mode of delivery – cloud, mobile, SaaS, etc. The other is along verticals that correspond to consumption of the Indian consumer – financial services, education, healthcare, entertainment, travel. The interesting companies we are seeing deliver something faster, better, cheaper to the Indian consumer in these verticals using one of these delivery methods.We are not seeing a lot of fundamental technology advancement plays from India. We are seeing  more innovations in Business Models, throwing together unusual methods of delivery being the innovations.

Although we are focused on the Indian market we have invested in a company like Heckyl that provides financial analytics that includes social media targeted towards brokers and traders. This company has international markets in its scope.

We are very excited about Chumbak, a designer, a brand and a retailer that does India designed Motifs and colors. They have a presence in Japan, have retail stores also in addition to the online one and growing extraordinarily well. Chumbak is creating a brand new category for Indian designed, Indian made products. 

AxisRooms is a one of a kind cloud-based start up in the hospitality industry. It enables an exchange for price and inventory discovery to bring together agents and consumers in the hospitality industry with hotels in real-time. Till now there has never been a single place where all travel agents, consumers and hotels can interact, transact business, and get contracts done.

Sports advertising market is about $800M in size and growing at 25% per year. Sportskeeda is right in the middle of this market to serve consumers with a multi-sport content and community platform. Jeeves is a portal for in-warranty, extended warranty and out-of-warranty appliance repair in India.

What caught your attention about redBus? Any stories or interesting pivots you want to share about that company?

There are a few remarkable things about redBus. They proved that you can build a large company in a very ethical way, focusing only on the Indian market, and building a strong consumer brand without splurging money on marketing and advertising. They also proved that it is possible to create a category by co-opting all the players – the bus operators, consumers, ticketing agents and the Government. It wasn’t easy at all; they had lots of roadblocks but they overcame all those! They made a high-end service possible for the end consumer and at the same time, made it transparent to the bus operators how much money they can make by using redBus, and where their weak points were with consumer feedback. Now a lot of the bus operators’ growth is tied to redBus’ growth and vice-versa, a symbiotic relationship! It was a very unorganized, unprofessional, not transparent business. redBus made it a transparent, democratized one!

Here’s an not often mentioned story about redBus: It was one of those early days when they were selling 30 to 40 tickets a day which was really, really small.  As happens in small start up companies the co-founders were helping man the customer service phone lines one evening. They got a very angry call from a customer whose Bangalore to Mumbai bus was cancelled and he was stranded in the middle of nowhere with his luggage! It was late at night and Phani, and one of his other co-founders got on their motorbikes and met this irate customer where he was. From there they took him and his luggage on their motorbikes to Bangalore airport, bought him a ticket on a late night Air-India flight to Mumbai and saw him off! Although they were not directly responsible since the bus operator was the one that cancelled the bus, they took it upon themselves to make sure that their customer was treated right! The customer reached Mumbai, wrote them a nice letter thanking them for their service and has been a loyal customer since!

Another remarkable thing about redBus is their commission structure for the tickets they sell for large bus operators and smaller ones. It has been the same and they have resisted lowering it for larger operators that bring them more business or increasing it for smaller operators that don’t bring them that much! It is always a standard transparent one for all of the operators. They have done this in spite of intense pressure from larger and smaller operators alike! Over time everyone understood the value of a transparent, consistent commission structure.

The point I am trying to make is that it is possible to conduct business in India this way – ethical, fair, transparent and consistent!

Once you have invested in a company, what’s your engagement model? How do you interact with these companies?

It’s informal and easy-going (but not at all lax). We focus more on helping the portfolio companies build their business rather than manage from spreadsheets. We focus on strategies and tactics for the company; hiring, customers, business model tweaks, what would the next round of financing look like, partnerships they need to create, what kinds of mentors and advisers they need to bring on board, etc,. We see ourselves as partners rather than investors who write a check, and disappear.

There are formal board meetings with the companies on a pre-arranged calendar. Beyond this the informal interactions are all driven by the entrepreneur needing us to help with something. We share interesting anecdotes, articles, meeting minutes, etc,. Apart from these, we do have CEO meetups a few times a year where they share problems, solutions, experiences, lessons learned, especially in the areas of hiring, sales, etc,.

Let’s move to exits! How do you help them prepare for exits? Do you prepare them for exits?

We believe that you build a good company the exits will suggest themselves automatically! CarWale built a good business around a portal for buying and selling new and used automobiles. The German group Axel Springer and the India Today group did an acquisition.  With redBus we were out raising funds when the Naspers group came along and acquired it.

There is no general preparations for exits. Our responsibility as investors is to see the company grow and if they grow well, exits will happen automatically.

What are your thoughts on what’s happening in India? Advice for entrepreneurs and start ups? What’s your advice for people leaving stable jobs for start ups?

There is a lot of activity in India currently. However, we advise entrepreneurs not to get too excited after reading TechCrunch and things happening in Silicon Valley! You need to be excited about opportunities that happen in India! There are enough problems to be solved right here. The customers are here, you can build partnerships here. It is important to be grounded and present in the market for you to build something worthwhile.  It is possible to build big,  interesting companies, businesses right here in India. But for that to happen, you really need to understand the customer problem you are solving and why they would write a check for your business. A lot of youngsters get excited about what’s going on in Silicon Valley. But you should be spurred by customer problems here, not what’s happening in some other market.

You don’t do a start up because you want another job. Not for sex appeal or the glamour! You do it for the passion. You do it because you want to do it! You may need to get used to downsizing your life significantly. You may not have the same compensation and others things that go with a stable corporate job. You may need to deal with social pressures because your friend continues in a corporate job and has bought a brand new house and a Mercedes recently! I have written extensively about these economic and social pressures, why should you be an entrepreneur,  and should you be an entrepreneur. When your passion to go out and do something is greater than the analytical assessment of all these costs, you should do it! You will have to deal with a lot of emotional issues such as self-esteem.

Think of all the possibilities! Don’t let constraints come in the way! It is easy to blame the ecosystem, the lack of money, VCs, Angel Investors, etc,. This question is like asking Is it possible to climb Mt.Everest? Yes. It’s always possible. The key questions are what is required to make it happen? You need to be physically fit, you need to know the lay of the land, you need to have people who have knowledge and experience with doing it before, you need to have the right equipment, a timeline that is suitable and all other resources for such an expedition to succeed. You need to lay all of these in sequence and execute and in 18 months or so you may be on top of Mt.Everest. Constraint based thinking make us give up too soon when you lack one or more of things that are needed. Entrepreneurs use possibility based thinking to address and overcome these limitations one way or another. That’s the difference!

What’s your take on companies getting Mentors? When should they look for one?

Before answering this question it may be better to get some terminology defined correctly since people tend to use words rather interchangeably.

A Consultant is one you bring in to solve a transient, bounded problem. How do I put in an IT system? How do I do Risk Assessment? How do I design a compensation plan?

An Adviser has a longer term strategic and functional objective. What should my IT Strategy or technology be? How should I be doing my marketing?

A Mentor is a like a coach helping them become better. 

In Mahabharata, Krishna tells Arjuna to aim and kill Duryodhana below the waist. That’s a Consultant!

When Krishna give Arjuna advice on how to kill Bheeshma, he’s an Adviser!

Before the battle, Arjuna asks Krishna how he could kill his cousins and grandparents in battle. He’s very conflicted about this. Krishna’s advice then is Mentoring!

It depends upon what the entrepreneur needs. Mentors are needed for high level coaching type of advice. Not for finding customers or helping with this or that. You need to be sure that the problem you have needs a Mentor, not an Adviser and definitely, not a Consultant!

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We invested in Ezetap, the Square for Emerging Markets! Mobile, Internet, Payments interest us! AngelPrime #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

AngelPrime is a Seed-stage fund that sits between incubators/accelerators/angels and large VC firms. Started by serial entrepreneurs, Bala Parthasarathy, Shripati Acharya & Sanjay Swamy, Angelprime believes in getting deeply involved with the companies they invest in. They have been serial entrepreneurs that understand that entrepreneurship is a long and lonely journey and having multiple minds spend sleepless nights on the business dramatically increases the chances of its success.

ThinkInvestor-AngelPrime

ProductNation sat down with  Sanjay Swamy, Managing Partner of AngelPrime for this interview.

Here’s what we heard :

What is AngelPrime? What’s your Stage, Focus and typical investment sweet spots?

We are a group of serial entrepreneurs and we bring the perspective of an entrepreneur to our fund. We are very seed stage and we are hands-on investors. In the early 70’s  in Silicon Valley, VC firms worked side by side with entrepreneurs building their companies. Later on, they evolved to become more of financial investors. India now is somewhere in the middle. However, we believe in working side by side with the entrepreneur in building companies. We help our portfolio companies in product definition, building teams, building products, getting them validated in the market and building a global strategy if needed. There are Angels and Incubators that may invest in the order of a few lakhs. Typical early stage VC firms may do $2M to $5M and do 8 to 10 deals a year. We are in the middle, and we can dedicate a lot of time to the companies. We have bandwidth only to do 3 or so highly curated deals a year.  Our typical investments have a broad range,  from  $100K to a $1M. Our sweet spot is $400K to $600K.  Our focus is Technology-led Start ups, Mobile and Internet, Financial Services and Payments. All three founders of AngelPrime were volunteers with the UID program in India and so we are very interested in Identity related start-ups. We are seeing a lot of companies in the healthcare space and have invested in a recruiting start-up. Most important thing for us is how much value can we add.

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What’s the best way for an entrepreneur to get in touch with you? What works and what does not?

Referrals are still the best way to get in touch with us. However, we still get to know entrepreneurs and their companies through email. One of our portfolio companies HackerEarth, we bumped into at a conference! We are also finding early stage incubators to be a rich source of deals. We have found interesting companies at incubators like the Microsoft Accelerator, GSF India and Morpheus. We find that the deals we come across at these places have gone through some level of curation already, with something of a team in place, and some limited level of product validation already done. These are the kinds of referrals that we like! Typically we are the first institutional money and we are also the larger lead in a seed round.

How long does it take for you to decide on investing? What is your due diligence process?

The first thing we assess is the caliber of the entrepreneur; we look at the scrappiness of the entrepreneur and the typical two person (or so) team.  If the members of the team are similar in backgrounds, that’s not necessarily a plus. We are looking for teams made up of people who are complementary in backgrounds but work well together.

The second thing that’s important is the size of the market. This is not something you can create. It is what it is, but we assess how the entrepreneur is wanting to go take a piece of that market.

Coming to the due diligence process, we try to move very fast. We don’t believe in stringing the entrepreneur along but sometimes additional market validation may be needed. Typically at this very early stage, very little has happened that we can do do due diligence on.  However we look at how the company is structured and clean it up if we think it can create problems downstream.  We make sure that the founders, vesting schedules, CAP structures are all set up properly.  We look at the legalese and make sure that’s all good. We are very strong believers in clean and simple Silicon Valley style term sheets. No funky clauses; our liquidation preferences are usually 1X, non-participating.

Typical timelines for a decision have been as fast as 24 hours where the company is ready and it’s in our sweet spot. Sometimes we may need to go do some research on our own before a decision. Sometimes it becomes a question of our learning an area as well.  Due diligence and paperwork takes about 3 weeks.

Once you have invested in a company, what’s your engagement model? How do you interact with these companies?

There are two ways we interact with our portfolio companies. The first one is the formal weekly or bi-weekly meeting. More interesting is the informal interactions we have. We have a co-location space in our office where many companies situate themselves at this stage of their development. It helps us to have a number of water cooler-type conversations with them. We learn about new things and we also provide our advice as relevant, and asked for by these companies. We tell these companies that we can take on a variety of roles for them all the way from mopping the floors to wearing a suit and meeting with bankers with them.

There is another way to look at this hand-holding, in three phases:

1. Experiments: We help them in do a series of experiments both in the technical approach, and also with the business model. These days the cost of doing experiments is very low and the cost of not doing them, very high!  For example, in payments,  is it a per transaction fee or a subscription model? The cost of doing A/B testing these days is not much. Many times we  end up learning something from the entrepreneurs,  when they push back and say “this is today – this is what works unlike something five years ago”, because they may be  closer to the market.

2. Narrowing Down: The second phase is the weeding out of those experiments that failed and narrowing down the business and building the team for “scale-hacking”

3. Scaling: The third phase is scaling the business and in parallel preparing the company for the next round of funding. We address questions like – Do we raise additional monies here in India or the US and help facilitate introductions to suitable investors.

What are some of the exciting companies in your portfolio now? Exciting new business models?

Ezetap is a company we incubated, invested $5ook initially. It is a very exciting company where we took a very different approach than Square. We designed and developed the hardware in India instead of the usual approach of going to China for it! We took an Apple-esque approach to keeping all of the hardware and software development in house. The business model is also not a per transaction fee model like Square but a SaaS based subscription model. We raised a $3.5M Series A round from Social+Capital. Chamath Palihapitiya brought in other investors like Peter Thiel and David Sacks in this investment. Ezetap has gone on to raise another round from a consortium of Helion Ventures and Berggruen Holdings who are very well connected in Europe.

HackerEarth is a company that has put a nice business spin on TopCoder!. They are providing a very useful solution to the problem of sifting through 100’s of resumes in India to find those few programmers whose skills are  excellent! HackerEarth has solved this problem with some clever algorithms that automates this sifting process. Top companies like Adobe, inMobi and Symantec are using this solution for their hiring. The two founders are from IIT Roorkee, in their early 20’s and are phenomenal in their speed of implementation of ideas!

We have invested in another company in the Mobile Wallet space that we have not yet announced. This was also founded by two young entrepreneurs whose ability to execute is phenomenal, have boundless energy and ultra capital efficient! We have invested in another company, SmartOwner. SmartOwner is a company that allows individuals to invest in highly curated real estate deals for investment purposes.

ZipDial is not technically part of this fund but I am a co-founder, and we all individually are investors in the company. ZipDial makes clever use of the “Missed Calls” phenomenon in India where a call is made but never completed by mutual agreement. ZipDial piggybacks various kinds of actions – marketing, customer service, etc. You could send marketing messages or customer service can send back a message about being very busy now and other suggested times to call. Political parties in India like the Congress and BJP are using it for increasing engagement of voters. Out of AirTel’s 200M customers, only 60M or so have ever sent a text message. Text messaging literacy is not that high but number literacy is. They can dial numbers easily. By dialing a number toll-free (since it is a missed call), you can get feedback or information. For example, a market survey ZipDial missed call sends back a question about your MLA’s performance. It sends two or more phone numbers for each of the possible responses. You just do a missed call to the right one and it is done! This is a completely India-based business model but the funny thing is that the founder is an American, Valerie Wagoner! ZipDial was rated #8 in FastCompany’s most innovative companies!

What kind of advice would you have for someone interested in becoming an entrepreneur, especially from a stable job like at a services company?

There are some very great fortunes to be made in the entrepreneurial ecosystem. I think we need more people willing to be early employees in start-up companies. The risks look daunting but the rewards, especially in India could be huge! Get out of your comfort zone and take some risks! The opportunity cost of not trying is very big! The technical challenges involved in putting together an innovative start-up that changes people’s lives, could be rewarding in itself.  You get to conceptualize products, test them in the market and if it works out, watch it scale. If it doesn’t work out, you can always go back to a safe job.

A lot of entrepreneurs hesitate to say that they are in it for the money. Culturally, we are not yet attuned to this but there is no shame in it! Secondly, we are not accustomed to failure and fear the stigma attached to it! We don’t celebrate failure – the best lessons are when things go wrong!

Exits are crucial for Product companies to have money come in through the front door as investments. What are your thoughts on what’s happening in India?

There have been very good exits like  Little Eye Labs and the Redbus, The Little Eye Labs was a good technology company exit and Redbus took a dis-aggregated market and consolidated it nicely. MakeMyTrip had an IPO exit. There were also a number of exits that were not talked about – VentureInfoTech was a $100M+ acquisition by a european company. Prizm payments was acquired by Hitachi for over $275M. For technology companies,  Silicon Valley still seems to be the destination. Services companies are being acquired by European entities. Considering returns,  we need a little more patience in India. Things take longer but have started happening.

We advise our companies to think they are building houses as if they are going to live in them! People will come to buy the house at the right price if it is built right!

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We do Cross-Border Investments! Domestic E-Commerce and E-Retail too! Nexus Venture Partners #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India. ThinkInvestor- NexusVPNexus Venture Partners invest in early and early growth stage companies across sectors in India and US. They are a team of successful entrepreneurs with extensive investing and operating experience, who love to get their hands dirty. They understand the unique challenges faced by entrepreneurs and know that it takes teamwork and exceptional execution capability for a company to succeed. Their partner companies have access to the entire Nexus team in India and Silicon Valley for help in recruiting talent, forging new alliances, opening doors to new customers, shaping strategy and connecting with best-of-breed executives, advisers, co-investors and board members.

ProductNation sat down with Sandeep Singhal, Co-Founder of Nexus Venture Partners for this interview.

sandeep singhalAvinash Raghava of iSPIRT and ProductNation thanked Sandeep for his, and Nexus VP’s outstanding support and encouragement for the upcoming InTech50, a platform where Indian product companies showcase their arrival on the global landscape at the Leela Palace in Bangalore, April 9th  – 10th, 2014! More information on this event is here!

Here’s what we heard in the interview:

Tell us a little bit about Nexus Venture Partners – The size of your fund, stage and focus.

Nexus Venture Partners is a $270M fund. We are on our third fund and our funds are of the typical 10 + 2 years extension lives of venture funds. In each fund, the first half of the ten years is spent finding and funding companies, and the second half is used nurturing and finding additional rounds of financing for them. We raised our third and latest fund in March 2012. We are about halfway through the investment cycle for this fund. We are primarily a Series A investor. $2M to $5M is our sweet spot. We do some seed investments if the market is large enough, and the company still needs to think through its technology or market risk more thoroughly. And we are convinced that it is a company we need to support on a longer term basis. We have been involved in a few Series B investments also. These happen in case we missed out at the Series A stage and they took money from somebody else. Regarding our focus areas, we are primarily interested in cross-border opportunities; India based companies interested in the US market or US based companies interested in the Indian market. We are also interested in the retail space in India that is experiencing exponential growth; e-commerce, e-retail or e-commerce enablement companies. We are interested in Healthcare and Education verticals. Eye Q is a good example of our healthcare investment in the Ophthalmology space. We are interested in Hub and Spoke models, especially in Education.  We are also interested in enterprise technologies, mostly software (open source in particular) and cloud based. We haven’t done anything in hardware.

What’s the best way for an entrepreneur to get in touch with you? What works and what does not?

We are known to be approachable. While it is always best to get an introduction, we do respond to emails also. We ask people to send us a business plan if through email. We get a lot of referrals from our portfolio companies, and their founders. A number of these are already vendors to our portfolio companies. We also do outreach efforts like conferences where we meet entrepreneurs and get to know their companies. A number of entrepreneurs are still learning the ropes in India, and we want to help the ecosystem by being a bit flexible on how they reach us and at any stage of their development. We provide them feedback on how ready they are, or are not, for an investment. Sometimes it works, and sometimes that feedback is ignored!

How long does it take for you to decide on investing? What is your due diligence process?

That’s a very situation-specific timeline. In one case, we had an entrepreneur come to us for investment but 90% of their company revenue was from services and was not suitable for us. They however had a plan to switch their company from a services focus to a product focus and kept in touch with me. They had a clear marketing and sales plan to move to a product focus and when they came to us again, 80% of their revenues were coming from products. This took 2 years but is not typical. In some situations, if the company is very early but have a compelling product there is not much you can glean from numbers at that stage. We made a decision to invest in as little as 1 week in such cases. Typically it takes 2 weeks to a month for business diligence and a month to a month and a half for closure. Overall about 2 to 3 months for the whole process. Our process typically consists of Business and Financial Due Diligence.  For the business part, we are looking at four key things:

1. The Team – How good is the management team, are the members complementary to each other?

2. The Market  – How big is the market? What are the pain points in the market? How is this company addressing them? Will the customer pay for addressing this pain?

3. The Competition – If there are competitors in this market, who are they?

4. Capital Efficiency – When would the next capital event for this company be? How long would raising $2M to $3M last for this company and can they get to the next funding event successfully with enough growth?

These four areas would take about 2 weeks to a month to get a handle on. But as they are talking to us, we introduce them to potential customers and see how they do.  The Financial Due diligence for very early stage companies is not very much since the numbers may not mean much at that stage except looking at things like whether they are incorporated properly. If they have a few customers already, then we make sure that audits have been done properly. In India at least, with $2M to $3M investments, we have been a solo investor for the most part. In the US, it has been a mixed bag with more syndicates with other investors.

 What’s your style of engagement once you have funded a company?

We think of our role as a facilitator once we have funded a company. We have never taken a majority position in any company. We are an Active Investor driven mostly by what the entrepreneur needs from us. In the beginning it has to do with strategy and team building. Do they have the best talent available? If not, can we help them get the best talent? We help our portfolio companies with strategy around how to compete better, and grow faster as needed. Most of our entrepreneurs say that we add value on their boards of directors. We help portfolio companies with partner and customer introductions. We make sure that they are done at the right time, and in the right way. Sometimes the company may not be ready as yet for a customer introduction since the product may not be ready enough.

Do you have any formal meetings of CEOs/CXOs of your portfolio companies?

We have shied away from doing those kinds of meetings since it always inconveniences someone, to be away, and at a particular place. All of our CEOs are at our annual Nexus meeting. We end up doing a lot of things one on one. Every company in our portfolio is welcome to interact, communicate, and ask for help from anybody on the Nexus team, no matter who is on the board. This helps a lot since the chances of getting that help is more, with the entire team.Someone in our team may have seen a similar situation or handled a similar problem recently with one of their companies.

What are some of the exciting companies in your portfolio now? Exciting new business models?

All of our portfolio companies are exciting to us. We have had some exciting investments in e-commerce companies like BigShoeBazaar (BSB). On the product side we have had some exciting companies like Druva, Kaltura and Aryaka. Datagres relocated recently to Silicon Valley. Scalarc is an exciting investment in the cloud computing space. All these companies have already gone through the gauntlet of passing technology risks, having the products in the hands of customers and scaling revenues. Pubmatic had scaled quite a bit.

What are your thoughts on exits for your portfolio companies? Thoughts on recent exits like Little Eye Labs or Redbus?

We have had successful exits with 8 of our portfolio companies. all strategic mergers and acquisitions (M&As). All them were cross borders ones also. The US primary market for M&As is still showing a lot of strength, but not the Indian domestic market. I don’t expect things to improve till the elections are over. When it is over, I expect the demand in India for high growth companies to grow rapidly. Nexus Venture Partners does not build companies for acquisition but for public listing! We have found it useful to advice our portfolio companies to have a 5 to 7 year horizon and plan for revenues that will help them have a successful IPO. In the course of building such companies, successful M&A opportunities may arise and if they do well and good! Companies like Nimble Storage or NetApp were built this way and that’s what we advice our portfolio companies! The Little Eye Labs and the Redbus exits are all good news for the Indian ecosystem even though the former might have been an acqui-hire one. Exits like these make corporate development teams abroad sit up and take notice of Indian start-ups!

What advice do you have for the Entrepreneurial Ecosystem in India?

I have four pieces of advice for new entrepreneurs in India:

1. Work on global products – Test your hypothesis globally – Before developing a line of code test out your product hypothesis globally. May be with the help of a friend abroad if need be.

2. Build cross-Border companies from Day One – Focusing only on the India market first and then scaling globally will cost companies 18 to 24 months in time lost. Reduce this time by working with a cross-border co-founder from the start. This is will prove to be highly valuable.

3. Focus on growth and not just surviving – Growth is as important as cash flow. Speed of growth is critical. It takes a lot of confidence to grow quickly even if takes raising more money rather than just focus on cash flow.

4. Be more confident globally – We still see a lack of confidence in Indian companies when considering to go global. No reason to be so!

If someone comes to you from a services company with a product idea what would your advice be?

I would first assess whether this person understands what it takes to build a product and a product company. The services model is very different, The person may be very strong technically. I would still ask them to pair up with a strong product management person that has done proven products for the global marketplace. There needs to be a good marriage between the technical and product management skills. I still see a lot of Indian entrepreneurs come to us with Indian versions of products in the global marketplace, but wanting to compete on lower price. I strongly discourage these kinds of entrepreneurs since the labor arbitrage argument does not take into account the price of on-going innovation. Innovation and differentiation needs to be priced into the equation. You don’t need large teams but you need the best teams. They cost the same whether they are in Silicon Valley or Bangalore! Competing on price makes you compromise on innovation and in the long run does not work!

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Yes! We invested in Little Eye Labs! Lots of interest in Healthcare too! – Ventureast #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

ThinkInvestor-VentureEastVentureast is an Indian VC fund manager with close to $300 million under management. They have a history of investing in innovative businesses across multiple sectors, and multiple stages of a business – from seed and early to growth stages.

Guided by the singular credo “We Differentiate, You Win”, Ventureast has enabled over 60 businesses in Technology, Life Sciences and emerging sectors to become leaders in their individual spaces. The company has a proven track record of investments and exits, aided by a strong founding team which has been with Ventureast for over 15 years and who understand the entrepreneurial ecosystem well.

The Ventureast Proactive Fund, Ventureast Life Fund and Ventureast Tenet Fund II feature a wide investor base (Limited Partners) consisting of institutional investors from across the world.

They were in the papers recently when their investment, Little Eye Labs, was acquired by facebook.

ProductNation sat down with Sateesh Andra, Managing Partner, and Dr. Ramesh Byrapaneni, Venture Partner of Ventureast Tenet Fund, for this interview. Here’s what we heard:

 

What kinds of start-ups are you interested in? What’s your stage of investment and typical investment size?

Sateesh AndhraOur fund invests exclusively in IP-enabled companies. We are interested in Internet and Mobility related plays. We are very interested in enterprise focused start-ups among these. We are very interested in Healthcare and Healthcare related Information Technology plays also. We are interested in companies that address inefficiencies in areas such as Education and Finance with technology solutions. The filter that we use is that these companies address global opportunities in South East Asia, Europe and the US. We found a gap in the Indian VC market between what Angels can provide start-up companies with and Series A venture investors. In our current fund, we invest up to $1M a company. In our next fund we are planning to increase this to $1.5M to $2.0M per company.Most of our investments happen at the concept level; they understand the concept well, there is a prototype, and some early revenue validation.

How does an entrepreneur get your attention?  How does an entrepreneur get in touch with you? What’s the initial process like?

Dr. Ramesh ByrapaneniEntrepreneurs get in touch with us in a variety of ways. We are panel sessions in conferences and some get in touch with us there. We also get introduced to entrepreneurs and start-ups are demo days at accelerators. Sometimes investors in incubatees at these places introduce companies to us. Introductions through our professional links and references are always welcome. Look us up in social media like LinkedIn and Twitter. See who we follow there.  We have  also engaged with entrepreneurs and start-ups that have come in with a nice relevant email. They are all good people to introduce you to us. Our big expectation is for you to know us as an investor before you pitch us! Out initial process is quick. After an initial meeting we would let you know in an upfront and candid way, whether we would invest or not. We provide candid feedback on why we are not investing. Entrepreneurs may not like it but these are only the reasons why it does not make sense for us.

Let’s say you are interested in exploring a company further? What happens next? What are your typical due diligence efforts? How long does it take for an investment?

We have a very strong team on our side that can evaluate the Product Market fit for the start-up we are looking at collectively. It is fairly important to us. In early stage start-ups creating the product is easy. Achieving Product-Market fit is tough. From a Product Management/Product Marketing perspective, we look at the value proposition and how they address customer requirements. At an early stage, start-ups may not have a crystal ball but we still need to see 12 month metrics; Profit & Loss and Cash Flow projections. They need to have a decent idea about these. We also dive deeper into distribution channels, feet on the street. The initial team is also critical. The timeline for investment decisions vary. Some take only 2 to 3 weeks if they already have a lot of traction. Some take 6 weeks and some take 8 weeks if there is a lot of financial due diligence to be done. Companies are doing pivots take longer. If there are regulatory frameworks involved as it happens sometimes with healthcare investments, it may take much longer.

How hands-on or hands-off are you with your portfolio company? What’s your style of engagement with a portfolio company?

This is a tricky question! We are not the kind of investor that drives from the back seat. We don’t dictate that this is the way it needs to be. We ensure alignment. In one of our healthcare start-up companies, post-operative care after a stay in the hospital was important. We got involved in that case and helped arrange things.  We do monitor a simple set of metrics depending upon the company. We monitor the number of product releases, beta customers, etc,.We also monitor how our portfolio companies incorporate feedback they receive.  We don’t give the portfolio companies all of the money upfront. They are done in stages and closely track progress they are making. We make introductions, go on cold calls with the portfolio companies once a month. There are quite a few informal meetings along with the formal ones. We engage with quite a few CIOs and do introductions as appropriate. Our style and approaches are different for different companies. There is no single formula.

Let’s talk about your interest in Healthcare and Healthcare IT Companies. Tell us about some recent investments. What kinds of things are you looking for in this area? What excites you in this area?

SmartRX is an investment of ours that serves post-operative care of patients. Usually after operations in hospitals, when patients are leaving for home, prescriptions are gone over and that’s where it ends. It becomes very difficult to make sure that the patients are taking their drugs properly. Doctors find it difficult to communicate after that with patients and vice-versa. SmartRx ensures that periodic messages are sent to the patient; common do’s and don’ts. Patients can also have small consultations back with their doctors through SmartRX. This is focused on the US Healthcare Market and is related to Meaningful Use Stage 1 and 2 of the Healthcare Reform effort going on currently in the US. The founders for this company were with Microsoft in the US, came back and started this company. To us, domain expertise is key, as in Healthcare and Healthcare IT start-ups..

We recently invested in OneBreath, a medical device company. OneBreath makes portable ventilators that have the same functions as  expensive high-end ones but at a tenth of the cost. One of the founders is on the West Coast of the US and this is targeted towards the global market. We help portfolio companies get the CE Marking so that they can target Europe and other markets if we think FDA approval for the US market may take long.

We invested in Seclore, an Information Rights Management company incubated at IIT Mumbai.  Their solution enables organizations to manage information access policies through the cloud. It enables their clients to manage access to documents across computers and tablets. 50% of their customers are in Europe or the US. It is one of the cool companies to watch for.

HealthHero created a device that resided with the patients, monitored vitals such as Glucose, BP levels etc. Patients can input the readings into these devices, doctors and nurses can analyze this data remotely and get back to the patient if necessary. This is now part of Bosch Telehealth.

We are very excited about the use of Smartphones in healthcare – they are the last mile to patients!  They represent a humongous opportunity! The computing power within Android and iOS devices make possible some radical disruptions.

 Now, let’s talk about Exits. What do you see coming in this area?

The Nest Acquisition by Google shows how much they value vision. Our belief is that you need to create value for exits. With a little bit of luck and timing this will happen! Exit multiples are very important to accelerate exits in general.  The macro trends are very positive! We have seen some exciting exits; Portal Player acquisition by NVIDIA, Qontex, a spin-out from Pramati Technologies was acquired by Adobe , Yasu Technologies, a Business Rules Management System company was acquired by SAP. Healthcare, Pharma and Biotech companies are all seeing momentum right now. We are seeing a lot of investments in cloud based Value Added Services companies; distributed applications and globally relevant!

What about some parting thoughts for entrepreneurs?

Just wanted to reiterate what we are looking for in start-up companies; a strong product management team with strong technical skills, ability to look at things from a customer angle, sales and marketing knowledge, excellent people management skills. We are looking primarily for deep understanding of technology, clear understanding of the customer landscape and excellent program /people management skills!

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Want to get our attention? Talk to the founders of our portfolio companies! – Blume Ventures #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

ThinkInvestor-BlumeVBlume Ventures is an early-stage seed & pre-series A venture fund based out of Mumbai, India. They provide seed funding in the range of $50K – $300K to early-stage tech-focused and tech-enabled ventures. They are proponents of a collaborative approach and like to co-invest with like-minded angels and seed funds. They then provide follow-on investments to stellar portfolio companies, ranging from $500K – $1.5 million.

ProductNation sat down with Karthik Reddy, Managing Partner, Blume Ventures for this interview. Here ‘s what we heard:

What made you focus on early stage investing in India? And your observations of this market?

Karthik Reddy - Blume VenturesAdoption of innovative technologies has always been a challenge in India. Early on we realized that growth has to come from other global markets like the US or Europe. We also realized that there was a huge gap in the venture market in India for investments between $150K and $3M. Our intention in our first fund was to bridge these gaps. They proved to be larger than what we thought initially. The venture market at the top of the funnel (late stage) was very wide, the middle had also widened but the lower end offered opportunities for us. But this market has its own problems – bridging the gap between this level of funding and the next stage. Series A funding of companies has been a continuing problem but we have found ways to bridge these gaps. However, with our next fund to be raised next year, we plan to stick to the same strategy, but with a larger fund.

What has been the effect of exits like redBus.In on the Indian ecosystem? Do you think that this improves the outlook for more early stage investing?

Yes. Exits like redBus.in are good for various things in the Indian ecosystem. If not for the individual exit, more examples like redBus are needed sorely. Typically, companies like those take around 8 years to enter, and exit. The public markets are not good options as yet for exits. We do not as yet have a culture of acquisitions within India. Indian companies don’t do them. Companies like Naukri should really consider acquisitions and grow inorganically. Large companies in the US are beginning to take notice of possible acquisitions in India and have started doing some cross-border transactions.  This kind of ecosystem did not exist but things are beginning to change. We still have a huge need for innovative ideas. Ideas that can get built into $40M to $50M companies and get exits are key to putting the ecosystem into higher gear.

How does an entrepreneur get your attention? What kinds of start-ups interest you? How does an entrepreneur get in touch with you?

We are driven by themes. We are not reactive investors. We are interested in Smartphone/Mobile plays and are not interested in web applications. If we see a plan first addressing a web version of an application we are not interested, but those that go straight to a mobile app will get our attention. Our themes are chosen so that they can grow fast and get to a Series A comfortably. The entrepreneur needs to think like a VC and ensure that whatever they are working on is capable of such growth. Founders of our portfolio companies know our themes best. Get in touch with them, see if there is a mapping between what you do, and what we are interested in. Get one of the founders to introduce you to us after this initial filtering. This way, you won’t waste your time and you will get our attention! We do get cold referrals that go through our associates and it will be a long winded process. If you come through the founders of our portfolio companies it will be faster and it can also make sure that there is a mapping between what you are thinking and what our investment themes are. We get 60 to 70% of the introductions like this, with 125+ founders in our portfolio network.

Let’s say there is a mapping between a start-up company and your VC firm. What happens next? What are your typical due diligence efforts? How long does it take for an investment?

We are primarily looking for leadership in these companies that can survive the long haul of entrepreneurship. Can they survive the first year of marriage, primarily between the co-founders? Do they have 2 to 3 layers of leadership in the start-up, not just a single layer with the co-founders! And are the co-founders super-compatible with each other? We have seen too many founder breakups! We are not looking for problem solvers – people who solve a problem with a technical solution. We are looking for business builders. Can they build a business around it? They are not the same! In 1 or 2 meetings (in 2 or 3 weeks) you can get an idea of whether we want to proceed ahead with due diligence or let you know that the fit between our themes and your business is not there. If you can find co-investors on your own is a positive thing in your favor. The ability to excite other investors is key to us. The ability to line up other clients or customers during this period is important to us. We look for some red flags during the due diligence period – like being very casual about relationships or client opportunities. The fastest investments have been made in 4 to 5 months from introductions. The slowest ones have taken 12 to 18 months. The latter ones are usually because of syndicated investments.

Let’s say a start-up gets funded by you. How hands-on or hands-off are you with your portfolio company? What’s your style of engagement with a portfolio company?

Portfolio companies should consider us a Super-Concierge on Demand. They should be comfortable with knowing exactly when we are needed and come to us. In the early stages they come to us with quite a few problems for advice and guidance. Luckily our founder network usually has many of the answers.  We have a Google group for our portfolio company, sort of a private Quora. This helps solve 70 to 80% of the problems our start-ups face. Someone has come across most of the problems any new portfolio company is facing.  Typically these will be questions like whether to incorporate in the US or not. We are more like a platform than a VC firm in that sense, an 18-24 month accelerator program. We are as hands-on or hands-off with companies as needed. We do take a board seat as a seed investor and invariably meet with each portfolio company in person, at least every couple of months.

Let’s talk about going beyond the early stage funding and getting to the next level of funding and growth.

Series A funding  is becoming more difficult with the bar being set higher and higher. There are only 10 to 12 active Series A investors in India doing 1 or 2 investments a year. With such a thin ecosystem for Series A investing, pitching the wrong partner may mean not getting funded. The other problem is making these businesses 10X propositions for Series A (they are not interested in 5X business plans)  that require these companies to become $200M companies. We do bridge rounds that can get start-ups to get the growth necessary to qualify for a Series A funding. We are planning to raise a larger fund next time so that we can make these kinds of deeper investments.

Do you think it is possible to build a $200M company focused on the Indian market?

Yes. There are some promising areas in India that has that potential – travel or taxi services. Technology solutions like Knowlarity, NowFloats, and Exotel have that potential. The Enterprise market in India is too slow but the SME market in India has the potential to build some $200M companies. That market will also explode only when the smartphone/mobile market in India leapfrogs. The SaaS market, especially when built for a global market could grow a few $200M companies.  We are optimistic overall and feel that lots of opportunities are yet to come.

Now, let’s talk about Exits. What do you see coming in this area?

The subject of realistic venture exits is the one that somewhat dictates what the focus of a start-up should have been. Hoping to get acquired by a company in India is somewhat unrealistic. However, there are a number of companies in the US that have started coming to India to acquire Indian companies and grow inorganically. Autodesk is hiring a person in India to look for such companies, They have done a number of acquisitions already. Unfortunately, the Indian arms of Google and Yahoo are not empowered to make acquisitions.There are some companies like WebEngage and OrangeScape that are focused on foreign markets that could make good acquisition targets for companies outside India.

What about some parting advice for entrepreneurs?

Go outside India for markets. You cannot grow fast enough to raise funding and grow focusing on Indian markets currently. This is true especially if you are a technology play. Someone in Silicon Valley could start 2 years later than a company in India and beat them to it if a company is growing only in India. Grow fast and get acquired!