All posts by Mukund Mohan

My discipline will beat your intellect
Entrepreneurship, India, Learning

Delhi entrepreneurs will outsource technology, Bangalore will outsource sales, and Mumbai, everything but finance #startups #entrepreneurs

2 Comments

 

Tweet
Tweet

I put a half serious tweet last week based on several conversations I have had with entrepreneurs in Delhi, Mumbai, Pune, Bangalore and Chennai. I have been to Hyderabad as well, but the numbers are low.

I have limited data, since I am not in Delhi often. My observations are based on looking at 51+ applications from Batch 1 and about 60+ applications from batch 2 of our accelerator from NCR.

Besides that I have interacted in 5 events in the last 6 months at Delhi – Think Next at Saif, Reverse Pitch at 91 spring board, one VCCircle event, one at Leela with people matters and an event of Media companies and startups at Le Meridian. In all at these events I met a cross section of about 120+ companies and founders.

The following are my observations, so use a grain of salt.

1. I met fewer than 5% of developers and technical architects in these events and fewer than 2% of founders from our applications at NCR. The deep technical people dont come to these events or apply to our accelerator. We prefer meeting and dealing with developers, technical folks than generalists such as domain experts, marketing or sales founders. In contrast to those numbers, developers make up 14% of Bangalore applications and Pune a close 10%.

2. Delhi founders dismiss strong technology plays as “engineers building solutions in search of a problem”. This statement is my interpretation of a “show of hands poll” that I did in 2 events.

3. In our internal database of 402 technology and software companies we track at Microsoft based in Delhi, our own biased, internal ranking of “technical” expertise at these companies, our average rating is at 2.9 on a scale of 5. Bangalore and Chennai top at 3.7 and 3.5, followed by Pune at 3.3. I cant share more details about the ratings yet, but will do so as we get more comfortable with sharing this data and not getting people flaming us for that.

While we are certainly not dismissing Delhi as a non-technology startup hub, we certainly dont see deep fundamental technology startups in storage, cloud infrastructure or networking from Delhi. Bangalore or Pune are likely better bets for those. This data was reconfirmed to me by both SAP and Intel who have startup engagement programs in those cities.

Venture Capital

Why forced mergers in the eCommerce space is a good thing

6 Comments

Right now there are many distraught entrepreneurs and industry watchers who are either a) saying “I told you so” or b) saying “this is bad for startups”, when they read the latest “forced merger” between several eCommerce companies. While many felt it started with Flipkart and Letsbuy, the most recent BabyOye and Hoopos has more commentary on the negative side.

While we in India, have been witness to these mergers only in the last few years, this has been happening in the valley for eons  The new age name given to some of these funded startup exits is acqui-hire. Somehow acqui-hire in the valley is great and forced mergers in India is not.

There are and were many naysayers when there was a raft of funding in the eCommerce space a few years ago. Many folks were right about unsustainable business models, rampant discounting, unsustainable customer acquisition costs, etc. To them I say:

From Alfred Lord Tennyson’s poem In Memoriam : 27, 1850

“‘Tis better to have loved and lost
Than never to have loved at all.”

The eCommerce bubble in India has created a new set of entrepreneurs. They did it with other people’s money. No one really lost except for the LP’s who I am sure are now once bitten, twice shy about returns from Indian startups.

Honestly though, I have talked to 5 Limited partners at large organizations who are disappointed with returns from Indian Venture capital, but also realize they dont really have much of a choice but to stay invested.

There are some that claim that other deserving entrepreneurs, who were working on non eCommerce startups, were ignored during the eCommerce bubble. That’s absolutely nonsense.

In India over the last 3-5 years, if you were a good entrepreneur with a good business, great team and chasing a large market, you were able to raise money. The ones that did not get funding, either were chasing smaller markets, were going to grow slowly or were not sufficiently good teams.

Now what do I claim that mergers are good for Indian startups?

1. They help companies and their employees consolidate to create one large player in a mid-sized to big market, instead of 10 players chasing the same market and being extremely competitive.

2. They provide a means of employment for the many employees at those companies who were not the founders or the investors.

3. They give hope to the many entrepreneurs in the making that you can have a “failure” and still be considered for another opportunity in a startup.

4. It provides the investors an opportunity to consolidate their portfolio and hence double down on their winners, without spreading themselves too thin. That way the remaining portfolio companies win.

5. It frees up time from several investors having to spend time on middle-of-the-road companies, and gives them more time to spend chasing new opportunities.

6. It is easier to merge a company in India than it is to shutdown. The process to shutdown a company is also a lot more expensive.

Anything I missed on the other goodness from the eCommerce forced mergers?

Entrepreneurship, Focus, Tips

When does serendipity play a role and when does it not?

M. E. Graebner describes serendipitous value in the context of the acquisition of a business as “windfalls that were not anticipated by the buyer prior to the deal”. source.

As the new buzzword in the startup world is serendipity I thought I’d take a few minutes to share the fear I have of many folks engineering serendipity.  Put many interesting (or intelligent) folks in a room they say and serendipity happens.

I do though unfortunately feel many folks are taking it to the extreme. Given the many conferences, meetups and events that occur for startups, I am sure its very tempting for entrepreneurs to make sure they are at all of those meetings, to ensure they dont “miss out”.  If you are however meeting the same people again and again and doing the same things, talking about the same 10 startups, there’s little room for serendipity.

At most startup events, I see the same folks who make up 50% (increasingly) of the audience both on the investors side and the entrepreneurs side. While its good to see many familiar faces, I am doubtful that there’s much serendipity and goodness that will come out of it.

As an entrepreneur the one thing you have on your side is time, besides your ideas and intentions. I dont believe you can really waste any time and much worse, attend meetings just to make serendipity happen. I would highly recommend a very strict discipline of attending events that you believe you will have a good chance to get something done, and then hope for more serendipity to happen.

If your sole purpose of attending events is to make magic happen just because you are there, then you are going to likely waste more time and get little done.

Entrepreneurship, Funding, Learning, Venture Capital

What should you expect from an accelerator?

9 Comments

I have written previously about how to evaluate accelerators and choosing the right accelerator since there are so many of them these days and also about what the goal of an accelerator is.

I wanted to share somethings that entrepreneurs should expect from an accelerator from a perspective of a startup founder. I think the best thing that has happened is that so many accelerators have opened in the last few years. Similar to eCommerce companies in 2010-11, I expect many to close or shut down within the next 2-3 years.

There are 3 top things an entrepreneur needs according to me:

1. Access to customers: Whether it is beta customers for feedback, early adopters for providing traction (paying customers) or larger customer for growth, startups thrive on customers. Depending on the stage of your company, if an accelerator does not help you get customers, they are not doing their job. That’s the first lens I would adopt to judge accelerators. If you have access to customers, you can practically write your own destiny. If all the accelerator does is provide advice on getting customers but does not provide introductions to customers, or have customers be ready to adopt and review your platform, you are not going to get much traction or be “accelerated”.

2. Access to talent: In India, for startups, good development talent is hard to get , marketing & sales talent is harder and design talent is extremely challenging to get on board. If your accelerator does not help you with talent sourcing or provide talent in house to help you tide these critical areas when you need them most, you should run away. I have heard the notion that the graduates of the accelerator will help you, but entrepreneurs helping other entrepreneurs by providing time  is not very sustainable. Most of the very successful startups and their executives are extremely busy. While a sense of pay-it-forward does exist, its just not sustainable is what I have found. There’s no substitute for dedicated people to help you with development issues, help you with User experience and design (mockups, wireframes, HTML/CSS development and information architecture) or marketing talent to roll up their sleeves and run campaigns.

3. Access to capital for growth: While I am personally not a big fan of funding as a metric for accelerators to gauge their success, capital is nonetheless needed to grow and thrive, especially in India, where most founders are not serial, successful entrepreneurs or those that come from a “rich family”. So look for an accelerator that provides you an extensive and wide set of investors from seed to early stage and from venture to growth. If all the accelerator does is “showcase you in front of several investors” but does not actively nudge investors to help take a closer look at your company, I dont think they are doing their job.

There are several other things that matter which include a support system of the existing entrepreneur network from their previous batches, access to meetings internationally that possibly help get some global exposure, and a great space to work from, besides other things. However if you dont have access to customers, talent and capital, there’s no value in joining an accelerator.

Entrepreneurship, Funding, Management

Affirmative action (Qualifying by Quota) for startups does not engender success

10 Comments

Ed: By now if you have been reading my blog for a while you will know that I tend to try and write controversial headings to generate some reaction from the greater community. My hope is that the heading draws you in and the body of the post actually makes you want to express your opinion (which I am perfectly ok with being different from mine).

I had a very difficult question to answer 3 friends and investors last week who questioned how and why we chose a specific company in our batch at the accelerator. The fault was entirely mine, so it was very challenging to “justify” my position. Any way you looked at the situation, I could not tell them with a straight face that I really believed that the company we chose, would do a great job and they deserved to be picked. If I did, then they would question my judgment, and if I did not they’d question my ethics. Not a great position to be in either way. I would rather be an ethical person with poor judgment than the other way around.

Here’s the situation and the analysis from my standpoint.

As with most companies, institutions and organizations, we really want to be inclusive and diverse in our selection of companies at the accelerator. I dont think anyone would argue that we need to include many more women, students with no experience or entrepreneurs from tier-2 and tier-3 cities in our startup ecosystem.

We do try to keep the bar extremely high and that ensures only the best (according to our criteria) get to participate with us.

The trouble is when we try to meet specific numbers and commitments prescribed by the MBO (Management by objectives) and metrics driven management culture that most of us use as a guiding principle.

While many other accelerators and investors will tell you that they are not compelled to do a single deal if they dont like it or dont believe it will succeed, they also will tell you that they are driven by the same metrics, judged by the same criteria and “scorecard-ed” by the same characteristics as the rest of us. Let me give you an example.

Yesterday I had a chance to talk to an investor from a relatively passive fund. He was bemoaning the fact that they are hardly known in the ecosystem and most entrepreneurs dont even know that they invest in the early stage. Well, the reason most entrepreneurs dont know their fund, is because in 5 years they have invested in 8 companies. Compare that to an active fund, that invests in about 20 over a 5 year period and you can easily understand why this fund is “unknown”. So he was being judged and scorecard-ed by entrepreneurs and the media, and relegated to being a “passive, niche fund”.

We dont want to be a passive, niche accelerator.

That can only mean, that we “compromise” and include companies that serve the diversity mix but end up with a sub optimal set and lower the bar for certain sets of entrepreneurs so we can comply with our affirmative action criteria.

Luckily we know (or at least I think this to be the case) that deserving companies are not being ignored or being cast-aside to make room for those to meet our affirmative action goals.

I have though come to the realization that the amount of work needed to get high quality startups that also moves the ball forward progressively on affirmative action does not generate the returns from those efforts.

The same effort towards helping all high quality companies, generates more if not better returns.

So the question is: should we care only about returns.

Unfortunately while that was not the case a few months ago, it is becoming increasingly the case going forward.

Its disappointing and not a great situation to be in.

I am pained when in a batch of 50+ companies shortlisted we see not a single person who is a woman, or a very young, inexperienced student or a person who has a significant disadvantage relative to entrepreneurs from large metros. I feel its my responsibility to make room for them so we can create a few successes which will motivate more of them to join our “religion”, but I am at loss to figure out how to ensure that the ones we chose dont feel a tinge of disappointment when in doing so we lower the bar somehow.

To be clear, not all companies that are founded by these groups are “lowering the bar”. My issue is that there’s very few of them. If there are more than a handful, I’d be thrilled.

Entrepreneurship, Venture Capital

What I learned from attending 5 Venture capital outreach events

1 Comment

Blume Ventures, Accel, Matrix partners, Nexus partners and Bessemer Venture partners all had their CEO meetings and invited between 100 and 200 portfolio company CEO’s, angel investors, entrepreneurs and other venture investors to the meeting. Most of these meetings were held in Bangalore, (Blume did others in Mumbai and Delhi, and BVP in Mumbai). The format of the meetings was fairly similar – cocktails, an introduction to the fund, a few select portfolio company CEO’s either in a panel or individually on stage talking about their company or industry trends, and finally dinner and networking.

Of the 200+ people in each event, about 120 are the usual suspects ( these numbers are my own guesstimate, not very accurate, but in the ballpark). They include some up-and-coming entrepreneurs, media folks, wallflowers and other luminaries.

These events are both a way for folks to catch up and network, and also for the fund to showcase potential CEO’s to later stage investors for follow on rounds.

The most interesting are the 50-60 folks who are “new entrants” – they are wannabe entrepreneurs, “friends of the venture firm” – typically large company executives who they are trying to either get on the advisory list of their invested companies, or keep the close so they can be the first source of funding when the executives decide to “start something”.

Meet these folks and you quickly get a sense for the firms “proprietary dealflow”. While most of them may not like to acknowledge it, regardless of their “sector neutral” stance, their biases show very clearly.

Although most of the VC’s claim to dig “wide and far” to source deals, and spend a lot of time on planes, they rarely go outside their comfort zone. That’s on an individual basis. I dont think its because they dont have the intent. They also dont have the time to make and maintain new relationships.

Why does this matter for you the entrepreneur?

Say you are an entrepreneur looking for the next round of investment after your initial seed round. The first thing you have to realize is most of these firms prefer being “the first institutional check” into the company.

So remember what I mentioned earlier – Dig your well before you are thirsty.

If you are looking for a round of funding in 6 months, its ideal to start creating a top 5 list of individuals in each firm (not VC firms, but individuals within the firm) who will be on your target list. Then meet and network with their executive list – those 50+ folks I mentioned before. They are the most likely to perform the due diligence on your company before the VC invests.

Each VC firm has their top 50 folks, so technically in India, there are not more than 500 of these folks (after accounting for the fact that some of them overlap VC firms). If you take into account your specific sector and area, I suspect there are not more than 10 people you will have to meet.

These are the taste makers. They are not entrepreneurs, but the ones who will have a strong “No” on deals. Their yes may not translate into an investment, but their no will surely kill it.

Have you attended any of these? What other observations did you derive from these events?

eCommerce, India

India eCommerce future: The “XYZ of the month” Club or Subscription eCommece companies

8 Comments

There are now according to my own count (not comprehensive) about 141 subscription eCommerce companies in the US that send you a package of “stuff” every month – from food to cosmetics, and toys for kids to cigars.

Subscription eCommerce is the fastest growing category of eCommerce according to Internet Retailer magazine.

So will this come to India soon?

There are a couple here already, but none that can solve the logistics problems with any amount of significance.

Which sub categories are ripe for subscription commerce in India?

I think subscription commerce in apparel, books and electronics are fairly niche markets. Whereas food and snacks, daily personal needs and music might be more suited for it.

Who are the likely players? New ones or the existing players?

Given the problems of managing subscription payments monthly (some may take the entire money of the 12 month subscription upfront) I suspect most existing vendors will start to offer this as a service to their partners. Which means new providers in these categories will work with Infibeam, Flipkart, Snapdeal to fulfill their customer’s request. I think there’s room for 1 or 2 good new providers, but the markets they will target will be fairly niche.

How will the new providers manage logistics?

I think there will be a smart local+central logistics player in eCommerce who will start to work this model well and deliver the goods from a local vendor.

What do you think? Any good subscription eCommerce companies in India that you are using? Are they delivering? Are they good? Am I missing any categories?

Other

What I learned in my first month of the new accelerator batch

A total of 13 companies have joined the new batch 2 of the Microsoft accelerator. I thought I’d follow up on my promise to keep the conversation open about what I learned from working with very early stage entrepreneurs after my experiences with the first batch.

1. The biggest ask from the companies of us is our time, which we have the least of. Most of the companies have mentioned that they have very little time with us compared to what they thought they’d get. I know this for a fact since the last batch I’d spend a lot more time with the companies on product, go-to-market, etc.

2. Its amazing to see progress when there’s a lot of peer pressure. One of our companies is very nascent – less than 5 weeks ago, they started working on their idea. Last week I was pretty hard on them not having a demo to show, instead having PPT slides. This week they “wowed” the crowd with a killer feature. Just one feature, but I’d absolutely use their product just for that one feature.

3. A lot of what I believe we are helping with us product direction, go to market and customer development, but this time  am spending equal time on entrepreneur development. Coaching many of the folks on hiring, building a high performance team and keeping spirits high during periods of not-so-visible progress is what I am spending time on in this batch.

Personal

The fallacy of “funding” event as a key media story

10 Comments

Every one of my journalist friends asks me for “exclusive” stories, which I can understand. What I am very upset about is that their next request is for “exclusive funding stories”.

I had a reporter come by to talk today to me about our companies. He mentioned that his opinion was companies that were funded performed better than those that were not.

His primary reasoning was that those companies were  “filtered” by investors and the “due diligence” was done, so they were “better” companies.

There are many times I would disagree but keep quite and move on. This time I did not.

 

<Rant>

This was one of those times when I felt the person was just plain misinformed, misguided and did not really look at any of the facts, but preferred to have anecdotal information color his opinion.

The mountains of evidence that proves his opinion incorrect was insufficient for this reporter  to change his fundamental position.

1) Funded companies have higher % of failures than unfunded companies.

2) Funding does not guarantee success but success guarantees funding.

3) The value that an investor provides towards “due diligence” is limited. If you take a look at venture returns over 90% of funds do not have any success in picking “winners”.

I am the first to admit that its extremely hard to get any kind of funding. Its harder in India, but does that mean companies funded in India are somehow “better” than those that are not funded? At best my argument is they have just about as much chance of success as any of the others.

What does a funding event really tell you about a company?

Its tells me that the company needs money and was able to get it.

Does it tell me that the company will succeed? No? Exhibit A is the eCommerce companies that many investors funded in 2010-11 in India.

Does it tell me that the company is targeting a large market? Possibly, but that’s true of the many other companies that did not get funded, but are chasing the same market.

Does it tell me that this company has potential – it has as much or as little as the others that are not funded.

In fact over 73% of publicly listed companies were not venture backed.

I would consider any reporter downright lazy if they left the “due diligence” only to investors alone, because investors overall (including me as an individual) are more wrong than right.

Why do I make a big issue of this with reporters as opposed to any other person?

1. They are supposed to be objective and fact based as opposed to have their opinions color their judgment.

2. They are supposed to question their assumptions and seek the truth not report fallacies.

3.  They wield an inordinate amount of power given the number of people that read their pieces.

I’d love a counter argument and understand why reporter love “funding stories”.

P.S. I also dont understand why people wont debate their positions. It tells me that they are not confident about any of their hypothesis or positions and would rather be ignorant and prefer to have misinformed opinions.

</Rant>

Entrepreneurship, India

The Indian startup ecosystem should look at Israel as a role model

12 Comments

I love Israel. Having been there 7-8 times over 5 years when I worked for a company (Mercury Interactive, acquired by HP) that had its development center there, I believe they have some of the best developers, product thinkers and execution oriented folks.

They are also amazing at marketing. They have successfully convinced the world that they are the “startup nation“.

Never mind that they have 1/3 as many product startups as India produces annually and never mind that Indian companies acquire or get acquired twice as much as Israeli companies. Indians also make up 52% of Silicon valley startup founders, whereas Israelis make up less than 8%.

Take a look at those 3 data points and tell me they are not facts. The PWC report is for 2012, so its relatively recent. The # of companies we track in India versus Israel startups in our database is three times as well. The # of companies on Angel list or Crunchbase reveals a similar statistic.

Still its Tel Aviv that creeps up on Silicon Valley as the top startup center. If you read the startup genome report, you’ll be convinced of the same based on their methodology.

What are the arguments I have heard against India being the startup nation?

1. Quantity not quality:  We produce numbers, but not quality. Many of our startups are clones of Silicon Valley companies featured on Tech Crunch 3 months post launch. I looked at the 3 top Israel incubators and found that over 60% of the companies they were helping were clones as well.

2. Exits: We dont have a significant number of $billion or hundreds of million $ exits. I have found that while we do not have those exits, the number of companies listed on the stock market in the US for both Israel and India are comparable.

3. Market access: Israel has excellent knowledge, insights and know-how about US markets. Since Israel itself is a fairly small market, most Israeli entrepreneurs focus on US markets solely, even though they are geographically closer to Europe. Technically the # of people with market knowledge of the US in India far exceeds that of Israel, but they are not in product startups but at large companies.

4. Services mindset & positioning: Thanks to the ginormous success of Indian services companies who helped position India as the “world’s backend” (comparable to China being positioned as the world’s manufacturer) we have been already positioned as low value, low margin, consulting providers.

5. Late start: Even though Israel is 60 years old and India as a nation is a little older, we had a late (2001 or so) start to technology startups. Compared to Israel which had some interesting companies (need references here, what I have heard is mostly anecdotal) in the late 90’s as well.

Why do I still say Indian startups should look at Israel as a role model?

1. They champion their startups very well. They are very well vested in their startups success. They are constantly talking about how good their startups are, how they are possibly better than the valley and why they have the best talent in the world focused on startups.

2. They take significant risky bets. The # of investors in Israel (seed, angel and institutional) is comparable to those in India even though the number of startups is a third.

3. They look out for each other. The community is so well connected with each other that they genuinely look out and help each other. I dont know of any other place that supports their own as much as Israel does.

If you have been to Israel or have lived / worked with Israeli’s please tell me in the comments if there are a few data points I missed.

If you have any good data (not anecdotes, I have enough of those) to counter any of my arguments, feel free to call those out as well.