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Funding Game – The rules and the hacks via @skirani & @BKartRed

The weather in Chennai was finally getting kinder & more pleasant in tune with the time of the year, much like the funding climate which has been less testing on the entrepreneur in general. Depending on whether you ask a consumer product entrepreneur or a B2B SaaS product entrepreneur, the level of optimism could vary, but it’s optimism all around.

As a pre-event runup to SaaSx2, we met at Freshdesk’s office in Chennai, for the Roundtable on “What it takes to fund a SaaS company?”.

Shekhar Kirani from Accel and Karthik Reddy from Blume, joined by Girish Mathrubootham from Freshdesk, anchored the conversations.

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Shekhar and Karthik started the round table, with some pretty interesting nuances about what numbers ought to add up, for their investment to make the returns they promised to their limited partners. The conversation touched upon what it takes to get funded at the early stages (upto Series A) and what it takes to be on that path, beyond Series A. Girish chipped in with personal examples of how Freshdesk got funded and his first-hand insight into looking at early stage startups that get funded (or not)!

Here are some bite-sized insights from the conversation that lasted for 3 hours:

On the options for the entrepreneur

  1. Indian B2B entrepreneurs have bootstrapped their startups remarkably well that it’s not an exception. If you are a B2B entrepreneur bootstrap or do more with less. Wait for the right strategic opportunity to scale. With numbers backing you up, raise for growth.

2015-10-07 11.12.22On what drives investors’ decisions

  1. Don’t get discouraged with ‘No’ from a partner of a VC firm. They have their biases and baggages. It’s the partner who has a view and not the firm. Find your champion.
  2. Most investors don’t like it if the outcome has a cap to it — there’s a maximum that you can do in the market and that sets a pretty hard ceiling to crack. In such cases, you’ve to out-execute everyone else and that’s a hard ploy and makes less exciting for the investor. Example: Would you start another CRM company now and if so why would you do what the rest of the 1600 have not done. Even if you execute well, what market share can you capture?
  3. VC firms pitch to Limited Partners (wealthy individuals, family offices, pension funds etc.) more than startups do to investors. They’ve the same issue of having to convince an LP that a certain startup that’s pre-revenue will get an exit worth $100M in 7 years. To do that in India, when there was no such exit till recently, made it even less credible.
  4. Most funds last for 10 years. 3 years to invest and 7 years to grow and nurture those investments towards exit events.
  5. Among the top quartile or decile of startups in a portfolio, one company returns the entire fund. Top 5 companies return 90% of the capital.
  6. Each startup has to be a prospect for a $500M exit, for the fund to meet its “Return on Capital Employed” goals.

On what investors look for in a startup?

  1. In a SaaS startup, front loaded costs are high. So your first two rounds are not about revenue or profitability but more about Product-Market fit and elimination of business model risks.
  2. Integrity, smartness and hard working ethics of the team are important but not sufficient. There has to be a potential for $500M exit for that startup for investors’ math to work. Anything less is already a sub-par outcome.
  3. It’s the job of the entrepreneur to make the VC look and realize how big the market is. They see a 1000 pitches a month and carry stereotypes. Help them make the context switch.
  4. Integrity cannot be stressed enough — Questions about India’s professional ethics do come up.). Indian LPs too find it hard to fathom that it’s possible to legally generate a 25x outcome from a startup, given where they come from and what they’ve seen.

2015-10-07 11.12.37On how to negotiate investment terms

  1. Clauses are there to protect the downsides for an investor. If you understand why they are there it’s easy to have a conversation around them.
  2. Most dissonance that an entrepreneur feels is because s/he does not understand the responsibilities the investor has to his/her fund and their LPs.
  3. Clauses such as liquidation preferences are there to protect the downside of the investments. So long as you cover the down-sides as an entrepreneur, your negotiation leverage for not carrying over these clauses to subsequent rounds is high — Don’t get it yet? Ask entrepreneurs who’ve raised several rounds, on how to negotiate.
  4. Drag along clause is there so that an investor can get the fund its returns as the fund comes to the end of life. If that goal conflicts with your startup’s, look for funds that are early in their life, to take money from and thereby give yourself a better runway.
  5. Everything is negotiable if your numbers are good. All downside protections kick in only during the bad times. So the best way to stay on top of the negotiations is to execute well.

Contributed by Ashwin Ramasamy, ContractIQ

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Are you in India/SaaS, and not at #SaaSx2? You missed transparent mind-blowing insights

SaaSx event is a meetup organized by a bunch of SaaS entrepreneurs for all SaaS entrepreneurs in India. SaaSx Chennai event enables SaaS start-up founders to learn and share tribal knowledge from SaaS (software-as-a-service) start-ups in various stages of the evolutionary ladder.  Every participant registered for the event and was vetted for fitness with theme of the event. (Do events really have qualifying criteria for participants beyond collecting money?)

A good number of us going from Bangalore to Chennai climbed SaaSy bus early in the morning. For everyone who climbed the bus, our learning started in SaSSy bus from Bangalore to Chennai. Entrepreneurs got comfortable with each other quickly and most seem to be in the mind-set described by Yamini “Running a company becomes a lonely job after a point. Super excited to meet other co-founders”.

After crossing to Tamil Nadu, we had breakfast and climbed back to bus. This followed with ice-breaker session where everyone self-introduced themselves and shared 2 things that worked for them and 2 things that did not work for them. Sharing brought the journey to end in Chennai. Some attended private roundtables, followed by lunch, SaaSX2 event started. FireSide Chat was kick-started with Aneesh Reddy of Capillary Technologies on ““The Nuances of Enterprise SaaS” by Ahi and Asha Satapathy.

  • Lonely initial start-up days when it was not cool to work on start-ups. That was okay and they got time to work focused.
  • Shared their approach to balance developing a product and customization needs of customers, how they make decision whether to do customization or not and when to actually execute customization.
  • Shared the challenge to collect money from customers after delivering service and the approach they took to streamline the same. For delays with large enterprise customers, one needs to evaluate whether it makes sense to follow with customer for smaller payments.
  • Shared being lucky not to take hard calls of firing people in India. He thinks firing makes it very difficult to hire senior people at some point of time.

Asha made Aneesh to share personal life tips by asking his advice to young entrepreneur’s to find life partner, which Aneesh coolly as “If you are entrepreneur or plan to be one, marry daughter of business man. She would be able to relate to you as she is already used to relate to her father”. The Next FireSide Chat was started by Sumanth Raghavendra with the man who has mapped SaaS growth from seed funding to Series B and beyond. Yes, Girish Mathrubootham. Earlier he welcomed us sharing his inspiration from thalaivar (leader) Rajinikanth, Tamil film actor. For me, Girish story is very similar to Rajinikanth movies, film world made real in software world.

Girish set context of his learnings and insights might contradict with Aneesh by sharing the difference between order ticket sizes in their individual business. Some of insights shared were

  • Focus should not be just about features in product, but any user must get value in 20 minutes without help from anyone.
  • B2B SaaS is never a winner takes it all market. There will always be a set of 2 to 3 credible players.
  • Decision to spend $40K money earned through Microsoft Hackathon to explore different marketing channels and evaluate their effectiveness. Required courage to spend on marketing against conventional wisdom of boot-strapped start-up booking the money for other purposes.
  • When customer land on the website, product experience starts right at that moment. The customer needs to like what he sees and when he signs, he needs to get value out of the website. If customer ends up saying atleast a vow, there is more probability that the customer might spend time in the next 30 days evaluating your products.

In between sessions, I loved the concepts of #onething at conference where entrepreneurs are asked to share one thing as response to a quick round of questions. Here are few fresh in my mind.

      • #onething “Simplify and communicate “helped team to scale was awesome #communication among team members. The context was the presence of start-up team across multiple geographies.
      • #onething “Should we change focus from Minimal-Viable-Product (MVP) to Billable-Viable-Product(BVP) ?” No money flowing is opinion but cash on table is fact. The Value of BVP: After 30 days of trial, will we get revenue on day 31?
      • Today internet earnings are migrating from advertising to commerce. With more commerce happening, product information is core to the future of brands and market.
      • Choice of Cloud in 2008 enabled us to establish India ecosystem for health management /diagnostics technology products and created a whole new SMB market of SaaS offerings.

Dorai moderated Unconference session. The session started with narrowing down to 3 topics based on audience preference of topics. It just happened that first topic “Inside Sales for SaaS products” took most of the time. It was nice to see exchange of folks with challenges asking questions and folks who cracked challenges sharing their insights. It was nice to see Suresh and Girish stepping up to share their inputs for most of the questions. May be this is exactly how real knowledge sharing should happen.

iSPIRT continues its focus to encourage learning and sharing among entrepreneurs as support for their journeys and here is second event in 2015 to demonstrate their commitment. Here are my thoughts after the event

  • Each questions of entrepreneur’s comes from real world challenges. The answers are not in text book and the answers have to come from real world experiences and are not available in textbooks or class rooms.
  • Learning from SaaS start-ups is tight connected with the context where SaaS start-up operates. Without context of the start-up, insights are of little or no help to entrepreneurs, as learning of SaaS start-up in first context contradicts with the learning of SaaS start-up in second context.
  • No one tried to create good impression. All were open to share their mistakes and what they learnt in the rough way. Indirectly saying that “Failure is first step towards success”.

Here are #bigMistake heard from Bangalore entrepreneurs in #SaaSyBus

  • Sold to friends & thought we were good, product ended up weak. Should’ve sold to toughest customers 1st to make prod strong
  • Hired for start-up experience and skills. Should have hired for attitude and culture fit.
  • Build the product along with sales. First few paying large customer got pissed off and jumped away.
  • Following templates for success does not work. Need to find your own path and your own means to succeed.
  • Took a lot of money from investors and became complacent. Will bootstrap next time.
  • Build a product for a market that was 2small. Now moved to a bigger market and trying hard.
  • Corporate experiences and start-up life are poled apart. Do not worry about other, competitors.
  • Being too passionate when things get hot. Need to step back and take a hard dispassionate look and face reality.
  • Trying to hardsell. Now we just do demos, show the value, if they see the value they will buy.
  • Selling operational cost efficiencies in a fast market does not work.
  • Customer say wants, not need. Product roadmap cannot be based on customer inputs, must come from deep within.
  • Delaying product launch to polish it. Need to launch fast and get market feedback and face reality.

Guest Post by G. Srinivasan

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Where the best meet the brightest – Announcing #SaaSx Chennai – 26th March

In India’s SaaS startup context, Bangalore and Delhi are the cities spoken of repeatedly as beacons and dens of great innovation and entrepreneurial activity, and deservedly so. But still, there is another city, a rather quiet, unassuming metro that characteristically keeps churning out great companies but remains stubbornly under the radar. The sea blown streets in the old British trading capital of Chennai are buzzing with a different kind of business these days and iSPIRT is proud to play a part in it.

SaaSx_headerOver the course of several weeks of conducting the SaaS roundtable in Chennai, the quality of the ecosystem in city has become evident. And with the idea of leveraging the knowledge for the city’s younger entrepreneurs as a whole, we conceived an event called SaaSx which is now live and will be held on the 26th in Chenna(Venue to be confirmed soon).

SaaSx Chennai will be a one of a kind event organized by SaaS entrepreneurs for SaaS entrepreneurs. Reason being that the knowledge needed to grow SaaS business from zero to $10k to $100k to $1m in MRR is rare, and the only people who can tell you something about it are the people who have done so already.

Which is why we have assembled an all-star team that you can speak to and get advice from, including Avlesh(WebEngage), Girish Mathrubootham(Freshdesk), Niraj(GrexIt), Paras Chopra(Wingify), & Suresh Sambandam(KissFlow). The iciing of the cake will be a talk by Aaron Ross, celebrated author of Predictable Revenue and renowned SaaS guru. Register here, there are few seats and the event is only open for SaaS Founders.

We will also be launching A Jump Start Guide to Desk Marketing and Selling for Mid-Market SaaS. The goal of the guide is: Let the truth be told – SaaS businesses are amazing. Predictable recurring revenue, great margins and inbound marketing. Best of all, the ability to operate from India and sell to the world. Stay tuned. 

SaaSx Chennai will be another milestone event in India’s SaaS community, a batch of entrepreneurs who are making the world sit up and take notice. iSPIRT is delighted to play an integral part in this movement.

See you in Chennai!