All posts by Mukund Mohan

My discipline will beat your intellect
Personal

On generosity, selflessness and bias towards action

27 Comments

I dont quite know how to separate my public, business and private life. I treat all of the people I know as friends. I got that from my mom. She is the most privately public person I know.

On Tuesday, she had a pounding headache at 812 pm and was taken to the ER at a hospital near home. My mom does have a history (recent) of both high blood pressure and diabetes. This, though seemed serious.

Since I got many calls (apologies, I ignored them all) and text messages asking for more information, I thought I’d outline what happened, whats the status and what’s possibly next.

My mom had and aneurysm on one of the vessels carrying blood to the brain. Medical experts mention that many people do have the same, and it does not cause immense damage to most people. The aneurysm was 2.7 mm in size and it spewed blood all over the brain. Since it was the main vessel that was carrying blood to the brain, the spread of the blood was extensive. Combined with the fact that she had very high blood pressure at that time (nearly two times the normal) and that she was taking blood thinners, the spread of the blood was fast and vast.

She went into a coma almost immediately and did not respond. A CT scan done at a little before midnight revealed the extent of the damage and the doctor’s at that time gave her a 10% chance of surviving. What they did say was that the next 48 hours were crucial.

She was transferred to an neuro-ICU later in that night. The blood pressure was an exceedingly high 180/120 and things were not looking very good.

Early Thursday, things did not get much better. The doctors mentioned that surgery to block the aneurysm was out of the question since she was not responding to sensory moves. In the scale of responses she was an M1 or M2 (very low on the scale of response to external stimuli except involuntary). In clinical terms she was a 5 (most critical). She remained in coma, responding to nothing at all.

After a routine check in the afternoon it became clear that unless her condition improved – which would be calibrated by normal vitals (blood pressure in safe range, pulse normal and breathing normal) the neurosurgeon would not risk any attempt to either a) do surgery to block the aneurysm or b) do any surgery to remove the blood from the brain. The former was extremely risky and had very little chance of doing any good, and the latter was going to cause more pressure in the brain since the blood in the brain was extensive.

The doctor equated the brain to a pressure cooker, which if was let to relieve pressure from one side, would have the opposite side compensate by putting more pressure to create a “balance”.

That was possibly the lowest point – 2 pm on Thursday. The vitals were not stable, the prognosis was bleak and the outlook desolate. She remained in a state of coma.

A slight positive turn of events occurred when my ever optimistic sister spoke to her at the ICU and saw a few responses – attempt to pick her hand up, move her body. These were largely calibrated as “involuntary by the doctor”. The vitals stabilized during this point as well.

If you know my mother, you would know that the number of lives she positively touched with her generosity and selflessness was amazing. Prayers from all over were pouring in. Turns out, it worked ever so slightly. She was still coma, the situation was still extremely critical, but she stabilized.

Late Thursday night, things got even more “normal” – enough to have the critical nature of the situation to remain at 5, but the sensory perception moved up ever so slightly to nearly M3.

Early Friday things improve a little more (she was and is still in coma) but she was responding to our voice and attempting to hear / understand and respond.

The doctors now deemed the situation sufficient enough to warrant a surgery to prevent the aneurysm from rupturing again. This does not necessarily improve the condition but prevents another rupture from happening.

There were 3 possible options – Surgical clipping, Coiling or using a stent. These options are largely determined by a combination of the patient’s state, the size and location of the aneurysm and cost of the operation.

Surgical clipping, puts a metal (high end metal) to clip the aneurysm at the base preventing further rupture. This is an option only if the patient was normal – which my mom was not and hence, ruled out.

Using a coil was deemed the best option to prevent any further bleeding, which if it occurred would cause a further and irreparable damage to the brain.

The surgery, however, would not necessarily make the chances of her recovery better. It was to prevent a further deterioration of the aneurysm which could rupture again. Since my mom was deemed relatively young at <70 years of age, there was a good chance of her responding well to the coil. Given that all other functions were “normal” we remain positive, but we realize the chances are rather slim.

The key part of this equation still remains her own ability to fight through this trauma and get herself back on a track for the rest of the medicine to work. She draws positive energy I am sure from all the prayers and positive thoughts from you all.

Update on Friday at 5 pm – the surgery (2 coils were inserted) was completed successfully and she remains stable.

Other

Why it is awesome to start a company when there’s a downturn

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Over the last few days a slew of bad news on the economic front (falling currency, stock market tumbles) has had many entrepreneurs and folks in the press ask me if they should put off their entrepreneurial venture to a later year.

My own experience is summed up by an attitude I developed many years ago “Everywhere I go, I always take the weather with me”.

The best entrepreneurs dont care what happens around them. They are acutely aware, keenly observant, but largely undeterred and unconcerned – about the economy, macro conditions and price of fuel.

There are 3 great things about downturn.

1. There are far fewer companies starting, because the fence-sitters develop cold feet. So the “competition” is much less.

2. Since there are far fewer companies starting, the fight for both talent and funding is less so. I hired the best folks in 2001 and again in 2008 (when the sub prime crisis hit).

3. Everyone who is a service provider from lawyers and accountants to landlords and the telecom provider is willing to cut you a good deal.

As Nike says – Just do it.

Entrepreneurship, Funding

Outcome based ownership – an Accelerator model for the future

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While accelerators have helped nearly twice the number of companies grow and start, there are still many questions about the value they provide to a startup. Which is why I see a dramatic change happening in the next few years in the model that accelerators operate in. The change, will be subtle but will have dramatic consequences on their operations.

Startup entrepreneurs are largely used to paying for outcomes – they don’t mind paying (in India they will negotiate a lower rate, but will be open to paying) for customers acquired, revenue produced or key resources hired.

I think the same will happen to accelerators. As entrepreneurs start to question the value of the accelerator, some of the progressive accelerators will start to offer outcome based ownership ratchets. Currently most accelerators get a fixed 6-10% of the company in exchange for $10K – $50K, regardless of outcomes.

The future will see a sliding share of ownership based on outcomes the accelerator generates for the startup.

This will also coincide with the un-bundling of services offered by accelerators. Currently the services include – space, some money, mentorship (advice, guidance, consulting) and network (access to the investor list, partnerships, etc.)

I can see the future when the initial amount of money (which itself will be optional) invested results in a small fixed ownership (say 2% – 3%) and then a 1-2% on closing the financing round which was initiated or supported by the accelerator or 1-2% per customer closed or 0.5% based on the accelerator helping hire a key resource, etc.

In fact many accelerators will offer the initial seed money as an option as opposed to a default.

Startups would then choose whichever services they see value in or those that they seek outcomes for.

Why do I think this will happen?

First, the perception among most entrepreneurs is still that accelerators are for “first time”, “student” or “inexperienced” entrepreneurs. The large exits and even larger companies are being created by entrepreneurs who skip the accelerators and directly go after financing by an angel or venture investor. Accelerators want to ensure those experienced “hot” startups or entrepreneurs also come to the accelerators as their first choice. These experienced entrepreneurs though, dont value all of the services equally, thus the un-bundling.

Second, many entrepreneurs are still not clear on what the value is that is being provided by the “mentorship” or the “network”. While the seed money provided has definite value, it is a very small amount to warrant a 6-10% dilution.

Finally many entrepreneurs still dont believe accelerator interests are aligned a 100% with theirs. Although most entrepreneurs know that the success of their startup is largely due to their own efforts, they should expect to see tangible value from the accelerator to help put them on the right track towards success.

Do you know of any accelerators that are aligning their interests to the entrepreneur’s outcomes? Any progressive accelerators that are trying this model?

Angel investing, Funding

How to apply MapReduce() to your #startup #funding process

MapReduce comprises of 2 parts – Map() –  filtering and sorting and Reduce () performs a summary operation. The “MapReduce System” orchestrates by marshalling the distributed servers, running the various tasks in parallel. This speeds up the entire process dramatically.

I met with a startup founder who made the rookie mistake of “talking” to 3 angel investors, focusing his discussion on only 1 person, who was going to lead. He then realized after 6 months that the lead investor was in, but others had gone sideways and were not going to invest. He did not spend enough time with the other investors, assuming that the lead investor would corral them.

You will need a lead investor for your angel round. As the founder you will have to recruit, manage and keep the lead investor engaged. There are other investors who may not lead, but are going to be a part of that round.

Your first priority is to identify the lead. Then you have to soft circle and get the rest of the folks to pony up commitments.

Most founders talk to investors who are not leading in serial fashion, going after then one at a time. I would suggest you MapReduce the process.

I know that many folks recommend you have one person in your team responsible for fundraising. I would suggest you filter your investors and assign one person in your team -Map() – to keep other investors “in the loop” – emails, scheduled phone calls or in person briefings.

You (the person responsible to raise the round from investors) should be responsible for the collation and summary – Reduce ().

This reduces risk of waiting for 6 months to finally figure out that you need other co investors and also “involves” your co founders in your company to help with fund raising.

If you go about it in a serial fashion, (i.e. one investor at a time), the elapsed time to get investment done increases dramatically but your risk of closing the round is still the same.

What do you think? Anyone tried this yet?

Angel investing, Entrepreneurship, India

Accelerators have supported twice the number of entrepreneurs to the Indian startup ecosystem

10 Comments

I have been researching the data from Thomson Reuters to understand the optics of the accelerator business in India. There are 37 accelerators we track, who give a little seed money and take a percentage of the company in return.

Based 2012 data, accelerators have funded 89 companies with their first check, compared to less than half that done by angels and VC’s in India.

Most accelerator funded companies take 6-8% of the company in exchange for 5-10 L ($10K to $25K) in India. That 6% dilutes to ~4% at series A (assuming 20% for angels and 30% for VC’s).

The first scenario for you, the entrepreneur, is to get funded directly by a VC. The chances of that happening in India are low – 1.4%. The other challenge is that those companies got relatively poor valuations (average about $1.4 Million pre money). Only 19 out of 1300 entities got funded last year to raise their series A through a VC directly. In this case you will possibly dilute 30-40% and still own >60% of the company. I have used 30% dilution in the chart below.

The second scenario is to get angel funding and then in 18 months get VC funding. The chances are better that you might go through this scenario (2X more – 43 companies got angel funded last year), and then venture funding. You will end up owning 56% of your company (by giving about 20% to the angel investors). The valuation challenge persists with angel investors as well, with the average valuation being less than $1 Million.

The third scenario is to get into an accelerator. The chances are twice as much (nearly 9%), but give up 6%, then get angel funding and finally a venture investment. You will end up owning 52% of the company now compared to 56% in the previous scenario. The 4% should get you a better valuation and it does for last year’s data (Average valuation was $2.3), nearly 60% higher.

See the chart below for the data.

Accelerator Metrics
Accelerator Data

The numbers on top of the boxes are the # of companies that got funded last year. The number in the parenthesis is the % of companies of the previous box.

The numbers at the bottom in percentage are the % of your company you will give up to that entity.

The circles at the far right are the % ownership of the company you will have post that path.

I’d love for you to let me know if there are any mistakes in this analysis.

This data will change as accelerators get older and have been around for some time, since most of the VC deal flow is still not through Accelerators or Angels. I suspect as companies from accelerators get more mature and the accelerators get better at running their programs, we will start to see a better benefit for entrepreneurs in India.

Thanks to Anand of Accel, Rahul of Canaan and Abhijeet of Bessemer Venture Partners for reading drafts and reviewing the information. Amaresh & Hanaan at Microsoft brainstormed this model.

All the data above is for Series A valuations and numbers from Thomson Reuters. Overall, there were  143 – 155 companies that reported receiving funding last year in India, and many of them were follow on financing (series B or later).

India, Learning, Marketing

A/B testing your email messages

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I have about 30,000 friends who follow my blog on email, and the open rate is about 8% (which according to Mailchimp is very low) on each blog post. Besides this I have another 9,500 friends and acquaintances that I send an email update to once a month on key blog posts I have written during that month. That has an open rate of 17%. Roughly about 5000 of my friends read a blog post, which gives me a fairly good sample size to do some serious A/B testing on my blog post titles.

My email friends are about 61% from India, and 25% from the US (largely the valley). This was inverse just 5 years ago in terms of %, but the number was about 3200. So a nearly 10 times growth in 5 years. 

Since wordpress does not allow me to segment the email by friends, everyone gets the same blog post and title as soon as it is published. But the email acquaintances is where I have a lot fun.

Here’s what I found last week in 3 sets of 2000+ subscribers.

I had the same body of the message but changed the Subject of the email.

First subject (Sent on a Thursday at 10:30 IST): Where is analytics headed in 2020? An insight gathered from 25 top #startups – 14% open rate

Second subject (Send on a Friday at 10:30 IST): The future of analytics is in offerings based on derived insights – 11% open rate

Third subject (Sent on a Saturdaya at 10:30 IST): How analytics companies are making 92% margins compared to software companies – 21% open rate

I am shocked that the Saturday message had best open rates, since weekends have been consistently low on my open rates.

The message though was one of margin – which I think appeals to Indian entrepreneurs a lot.

What do you think is the reason that the first subject got a better open rate than the second? Is it more specific?

Entrepreneurship, India

How the risk appetite of entrepreneurs affects their exits in Silicon Valley, India and Africa

17 Comments

I run this fun experiment each time at most events I speak at. I ran is again yesterday at the CII event yesterday in Bangalore. The experiment is to gauge the risk appetite among entrepreneurs. It is not scientific nor is it structured. It has though, given me a sense for the risk appetite among the entrepreneurial class.

I have run this experiment now over 30 times and have had fairly consistent results. If there are over 100 people in the audience, I ask folks three questions and request a show of hands.

Q1. If I gave you a 10% chance of making $2 Million from your startup, how many of you will take that outcome? I get a show of hands at this point.

Q2. If I gave you a 1% chance of making $20 Million from your startup, how many of you will take that outcome? Show of hands again.

Q3. If I gave you a 0.001% of making $1 Billion from your startup, how many of you will take that outcome? Final show of hands.

Over the last 3 months, I have spoken at 2 conferences in the US, 1 in Zurich, 1 in Africa, Singapore and over 5 in India.

The results give me a quick sense for the hypothetical risk appetite for entrepreneurs in that community.

In the US at both the conferences, the distribution was 30%, 10% and 60%. In Zurich it was 60%, 30% and 10%. Africa was very close to the US surprisingly, at 35%, 15% and 50%. It is almost as if Africans have nothing to lose and Americans don’t care for small outcomes, but both end up at the same place.

In all the conferences in India, it has been 70%, 25% and 5% (and that’s being generous in 2 conferences including yesterday, where 2 out of 150 people opted for the 3rd choice).

Rather than draw quick conclusions about the risk appetite, I thought I’d think about it more and understand why Indians are happy with smaller outcomes.

Given that the effort over several years to create a $10 Million outcome at your startup is the same as one that has a $1 Billion outcome, why dont we focus on the large opportunities?

  • Is it fear of failure?
  • Is it that we are “happy” and content with even the small things?
  • Is it that $2 million is such a large change in our lives that the $1 Billion does not seem worth it?
  • Is it that we really don’t aim big? Notice I did not say think big, I said aim big? Nuance, but a big difference
  • Is it lack of exposure to large markets?
  • Is it that we are not hungry enough?
  • Or is it something else?

I don’t quite have an answer. When I mentioned that I dont have an answer to the moderator Mohan Reddy yesterday, he expressed dismay. He was looking for an answer – was it our cultural background, our education system, our values, our government – someone or something had to be blamed.

I dont know the answer, but have a deep desire to find out.

Why?

As we start to invest in the early stage startup ecosystem in India, it is important to calibrate the possible returns and allocate funds associated with the returns. If most entrepreneurs in India are okay with smaller returns, it makes sense for us to allocate fewer fund here than China, Israel or Africa.

From our experience at the accelerator, where, over the last year we have “invested” our time, resources and energy in 23 startups, we know that the risk appetite is much lower among startup founders in India, compared to those in Israel for example.

We have already had 2 small “exits” and 3 closures in India. Israeli companies are still out there, fighting for their series A and beyond, while 1 company had pivoted dramatically in Israel, only to start again.

Is the reason something completely different? Is it that we are realists and don’t think the billion dollar outcome is even possible?

As Henry Ford said:

“If you think you can do a thing or think you can’t do a thing, you’re right.”
Research, SaaS

Where is analytics headed in 2020? An insight gathered from 25 top #startups

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The most amazing part of my job is that I get to learn from the smartest entrepreneurs in the world. I cant think of too many people who get a chance to talk to 3 entrepreneurs via video conference in California at 8 am, 2 startup founders from Singapore at 1030, have lunch with 4 amazing big data analytics company promoters in Bangalore and then wrap up the night with a conference call at 830 pm featuring a recently funded analytics company in Boston.

Most VC’s get a local perspective, Silicon Valley, Tel Aviv, Bangalore, or Beijing. I get pitched from all over the world. Most investors in the valley will tell you the best and brightest come to the valley, but I believe there’s a big shift happening. More on that later.

I wanted to share one very insightful thing I learned after 25+ detailed (over 1-2 hour) briefings with entrepreneurs who are all innovating in the analytics space.

The future of analytics is in offerings based on derived insights.

I just gathered this insight, so let me explain.

Historically the analytics space was filled with services companies. In fact  consultants would take loads of data and gather insights to help their clients with their business objectives. The best known analytics companies that dont call themselves analytics companies are Mckinsey, Bain and other management consultants. Then companies like MuSigma and others decided to “offshore” this insights service. The problem with this type of offshore services business is obvious – low margins (net of 20% and since they are people intensive, they dont scale as fast).

The purveyors of the software model of analytics are those that provided a SaaS product – names such as Cognos, Business Objects etc. Companies like Kaggle crowdsourced your analytics and there are hundreds of companies providing SaaS analytics, such as GoodData, Insights Squared, etc. The problem with this type of business is that most of these software products are “generic” hyper cubes and data warehouse / data mart models. Their margins are better than services, but still nowhere near the 80% gross margins that some industries command.

Since we all know that software is eating the world, many companies in industries such insurance, banking, finance, manufacturing are all facing a threat from new age software companies, who are re-imaging the businesses.

The next generation of analytics companies are those that take the insights gathered and create an offering in that specific area so they can benefit from the insights, instead of providing those insights to others in the industry who make more money from it.

Let me take a simple example. Global Analytics just raised $30 Million. They are an analytics company. They used to provide their insights to financial institutions by way of giving them “leads”. These leads were those customers who were worth extending credit to. An average lead in this case cost their client $30 – $100 (depending on quality).

While that in itself was a big and large market, the larger market is to extend the banking facility themselves, which means with their analytics and insights can directly offer short term cash loans to those that their analytics deems are the best. The average customer in this case will make them $500 – $5000 (depending on the size of the loan). They did this via their own offering Zebit.

Now, most founders with a background in software will say “Wait a second. what business are we in? Software or Financial Services”? That’s a good valid question.

But when you get into the “Financial Services” business there’s loads of things you can re-imagine and redo the right way with a “software frame of mind” as opposed to being a “financial services insider”.

Huge difference in revenue and margins.

That’s the future of analytics.

Using the insight gathered from the analytics to offer a product / service direct to customers and not selling the insight or analysis to existing players.

Let me give you some more examples.

Lets say you are foursquare. You have analytics and insights into where people check in, where they go, what their patterns are with respect to travel.

Would you rather sell this treasure trove of data to marketers (and face a bunch of privacy issues) or would you create an offering based on those insights yourself?

The value to a museum of information that a potential customer is near their location is possibly $2.5  (that’s quite high I imagine if the tickets are $25).

Instead if foursquare offered a virtual museum tour or a personal crowdsourced guide to the museum, then they could sell that for $10 and have 40% margin on that offering.

Imagine if you had driving habits data about car owners – how they drove, what time, how fast, how safe, etc.

Instead of selling the “best driver” data as a lead to the insurance companies, who might pay you $100 – $200 per lead, you could create your own insurance offering based on miles traveled, safety of the drive etc., changing the long standing model of one-size-fits-all car insurance.

There are lots of examples that entrepreneurs are dreaming up these days and the most audacious ones I am talking to want to upend large established industries. It is both exciting and scary at the same time.

That’s exciting. Software will truly eat the world.

Entrepreneurship, Funding, India

Which universities produce the most #startups in #India?

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It is not uncommon to see most startups have founders from IIT and other top schools in India. I wanted to only take a look at the funded startups (Yes, that funding is not a guarantee of success is not lost on me). While Crunchbase only has about 103 startups from India in their database, most of them are not funded.

I expanded the list of early adopter VC’s in India to take a look at their portfolio list from their websites (yes I know that many dont list all their investments on their website, but we have to start somewhere). That produced a list of 219 companies in total.

Thomson Reuters gives us about 316 companies funded both by angel investors and VC’s since 2010 in technology. This is possibly the most comprehensive source of funded startups.

This produced a total of 478 founders and co-founders. Of those, 228, 47% came from the IIT’s and IIM. That’s a lot. Even for funded companies that is a lot.

I only took the top 9 colleges (since there were 3 colleges that all were #10). All this data is from Linkedin (where available). I also realize that most people do not put all their educational qualifications on Linkedin, so this data may be slightly off. I do know that 60% of the LinkedIn profiles associated with the founders were complete.

There were 11% of these (52) that had both an IIT degree and IIM degree. Here is a list of those colleges and the # of founders.

Tech founder universities in India
Which universities do tech founders graduate from

Keep in mind these are funded companies alone, not all companies. I was not surprised that IIM A and IIM C were near the bottom of the list, but what surprised me was that IIT Kanpur was lower than IIT Mumbai. Why? Most of the folks I know in the US (entrepreneurs and others) are from IIT K. The image has IIT Bangalore, which does not exist, and it should say IIM Bangalore.

This does raise a few questions that I would like your opinions on. Lets just dwell on one question first.

Why is it that nearly 50% of funded companies have founders from top colleges? Is it a selection bias – given that over 60% of investors (VC’s) are from IIT and IIM?

P.S. I know all the data heads and junkies want access to the “raw data”, but Thomson Reuters, which is a paid service, will not let us share this.

P.P.S If you compare this analysis to top universities in the US for funded startups, they make up a far less % of funded statups.

Learning, Management

The most admirable part of Amazon’s culture that #startups can benefit from

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I am a big fan of Amazon. I read Jeff Bezos first “letter to investors” back in 1998 (a year after they went IPO) and was super impressed by his focus on customers above all else. I paraphrase, but he said, we are a one trick pony – our trick is to keep customers happy.

The most amazing part of their culture is the way it permeates and allows each and every employee to be a part of the experience. I dont know how they do it.

There’s another part of the culture that amazes me. How can a company that’s 100,000 people able to get all its employees to sing off the same hymn book? I know companies that are 10+ people that struggle with this. At 100,000 employees (not including contractors), Amazon is humongous.

Let me give you an example. There are many people in the Bangalore office in India, who are part of Amazon’s foray into eCommerce who I know well. Most, if not over 90% of them are not related to AWS in any way at all. Well, they may be users of it for their applications, but not evangelists by role or title.

The previous weekend we had 2 events, which I happened to be at. One was at our accelerator and another at a location in a local college.

I know the key evangelists from AWS fairly well and expected to see them at these events in full force. Except I saw more than 2 people and none of them from the AWS team.

I walked up and talked to them before the events and was surprised to hear that they were “all hands on deck” to support startups on AWS. Many of the folks in the Bangalore (and other offices as well) volunteered to be at these events to help startup developers understand AWS and be evangelists for it. And this was not part of their MBO or their job description. They were doing it because they liked it.

Try getting that from any other large company. Most large companies operate in “silos”, with each team focused on their own turf.

Startups as well for most parts have people “responsible” for certain roles. Getting a developer to support customers can be a challenge but that’s what you should as a startup founder aim to build as a culture. Similarly getting your marketing folks to help with testing should be par for the course.

This is possible to do when the company is 10 folks or so and even possible at 50 people. Beyond that is very rare.

At 100,000 that’s near impossible.

If Amazon’s done that, then it is something to learn from, admire and find a way to emulate that.