Category Archives: Entrepreneurship

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?

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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

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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

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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?

Entrepreneurship, India

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

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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.

eCommerce, Entrepreneurship, India

The goodness from the eCommerce bubble in India

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Over the next few weeks and over the last few months, many naysayers have been & will be talking about “why the eCommerce bubble is going to  (or has) burst”.

Its true but misses the point.

Yes, over 21 companies that raised over $500K in funding have “merged” or have “been acquired” for paltry sums.

Yes, the model was unsustainable with discounts ranging from 30-70% off list price.

Yes, end consumers made hay while many institutional investors funded their “free shipping”, “COD” and “no questions asked returns policies”.

I am undoubtedly an optimist, so I see many wonderful first generation entrepreneurs that came out of the ordeal alive.

That can only mean one thing – serial entrepreneurs are for the taking.

Assuming some / most of them start companies again.

Some of them have talked to me about how they learned from the experience and how it will shape their new venture. Others are venturing into investing in startups.

The BEST thing that’s happened to Indian startups in the last 5 years is the rise and fall of eCommerce.

Of the 450+ eCommerce companies (of which 75+ raise some money either from VC or seed investors), a full 63% were first time entrepreneurs. (source: Microsoft India startup research).

That’s amazing. Really awesome.

They will live to tell the tale and venture again.

I have one request though:

The next time you meet an entrepreneur who had started an eCommerce venture and moved on, thank them for taking the risk. They did something so its easier for you to convince your family and relatives that starting a company is glorious. Even if it is not a runaway success it teaches you about taking risks, venturing on your own and going down a not-so-well-trodden path.

Side note: The hare and tortoise story though still has a lot of merit.

I personally know 5 companies in eCommerce, growing at 30-50% annually (not monthly as the VC’s wanted 2 years ago) and breaking even. A few companies chose to not raise capital (or truthfully no one would give them capital when they tried to raise it) were forced to focus on profit and sustaining pricing models. They are stronger and better after their experiences.

Entrepreneurship, Tips

Why founders split? 3. The shiny new object syndrome

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R, Ra and M were the 3 co-founders of a SaaS company, I met first more than a year ago. R and Ra were related to one another and M had worked at a company that R was a client at. R was the “domain expert” and knew the business problem fairly well, whereas M was more the “tech person”. While M was not a developer per se,  he was most technical of the 3 co-founders.

Ra was the “business development” person whose role it was to talk to customers, get some “partnerships” signed and talk to potential investors. (Side note: I dont understand business development roles in any small company. Either you are a sales person or you are a developer. Everyone else is overhead). In other words a catch-all bucket.

Ra was asked to join by R, who felt that between M and himself, they both did not have enough of a sales background and decided to get someone they could trust to do the role.

Ra himself was previously a new business development executive at a large corporate bank. He had done well at the bank and had made his way to associate vice president in less than 5 years. He had very little knowledge about the space in particular or passion around it. He wanted to do a startup and since he was approached by R to be a co-founder, he was pretty excited about it.

For the first few months, getting potential customers to talk to, with respect to the new product they were building, was not difficult. Most people who R knew were interested and keen to talk and learn about the new product. Ra was involved in all discussions and was trying to get up-to-speed with the intricacies of the market and customer problems.

R was the most passionate of the lot and knew the most about the problems, while M leveraged 2 external outsourced resources to get the initial prototype ready. Things were going well apparently and I met them at the Microsoft accelerator during an event.

4 months later I heard that Ra had left. I did not meet Ra, but R had spoken about him highly, so I was curious why he left.

R said he could not close any new deals and did not “understand the market”.

While I pointed out that R knew about this before since Ra was not a market or domain expert, he evaded the question with “but I expected him to learn quickly”.

When I spoke with M separately he mentioned that Ra never got really passionate about it and there was little effort on Ra’s part to understand the market. While he felt that Ra setup a lot of meetings with other potential customers and investors, none of them really “closed”.

Ra, sent me a LinkedIn request a few weeks ago. In his invite he mentioned he was working in a new project and would like to come and meet me. Over email I quickly asked him why things did not work out. He said that in his perspective the market was clearly not ready for the product and he found that he could find better things for him to do with his time and he “lost interest” because he found a really awesome new idea that he was focusing on.

The final in the series why startup founders split is something I have heard from 2 teams, so I dont necessarily think I have enough data yet to confirm that this is a trend, but its important to document.

Founders usually split because they have different visions for the future of the company or one of them is not executing to the plan.

The shiny new object syndrome occurs when the company does not have enough or sufficient traction and the founders finds something new that they would rather do.

There’s a lot to learn from the story above that talks to more than why they really split, but the bottom line I gathered was Ra was not completely bought in and did not have the passion for the space, so the shiny new object got him more excited than anything with limited traction.

While I think its fair to lose passion for something you dont see too much traction, many a time I have personally seen that you need to spend a lot of time before you really get significant momentum.

Entrepreneurship, Learning

The mystery of success and the articulation of failure

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Yesterday a comment was made about why I dont interview successful founding teams instead of focusing on why founding teams split. Actually I did. I spoke at length with Sachin from Flipkart a few weeks ago as I have done several times with Amit Gupta of InMobi and Phani of Redbus and Vivek of Interview street.

Successful people are loathe to describe their success, often talking about “luck” and most often calling themselves “not yet successful”.

Those that failed, however, at anything are often able to point to 1-3 things that they believe were the reasons they did not take off.

I think its relatively easy to assume that 100 things need to go right to be successful, whereas only a few things (or in some cases 1 thing) needs to go right to be a failure.

That directly contradicts my core hypothesis that in any given startup its never one thing that causes failure but a series of things that are not executed well – back to Mark Suster’s comment about lines not dots.

I also think most people analyze failure a lot more since it hurts. That’s a contradiction as well. I  would think most people would not like to think about things that are not “fond memories”. Turns out we remember bad things better because they affect our memory systems more. There’s research that suggests this to be true.

Still that does not explain why people cant articulate success as well as failure. Or am I just asking the wrong questions of the wrong people?

Entrepreneurship, Hiring

Why do founders split? Performance and Execution

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Both A & V met at their company cafeteria a few months before they decided to work together and start their venture. A was a front-end developer and V was a SEO and web analytics consultant. They both worked at the large company separately for 3+ years but did not have the chance to work together at all.

They were both in different teams and their paths did not cross very much. While standing in the cafeteria line, they got chatting about a weekend event and found they had several common interests and similar aspirations.

They decided to spend the next few months, talking about various ideas they had, mostly around starting a new venture in the eCommerce space. Neither had much experience in ecommerce, but they figured they would be able to add an operations person later.

4 months after their meetings they chose to build a online platform (one that held no inventory, but sold multiple products) for computer and mobile accessories of all kinds.

A, built the first version with some help from another friend who was the backend expert who offered some time in exchange for coming on board full-time if the venture got funding.

V focused his efforts on talking to suppliers and also helping A on some of the SEO work. Besides setting up their social media profiles, he also spent time taking to courier, payments and logistics partners to setup relationships.

3 months after starting they did a launch with friends and family. Response was good (relatively speaking), with 3 orders in the first day and over 5 in the next week.

I met them when V sent me their plan and asked for a meeting to discuss their seed funding requirements.

Given that I have had a poor track record with eCommerce companies and I dont like investing in them I declined the meeting.

A few months later, I met V at a startup event, when he mentioned that they both had split. He mentioned that the site kept going down and A was a good front-end engineer but not a strong developer overall, he said that they both had decided to shut down their venture.

I have not met A, but did check out his work and website. While I would not call his work legendary, it was not too shabby either.

The second biggest reason why founders split besides having differing vision is they both dont believe the other person is performing or executing as well as they are.

Rarely do they look in the mirror to see their own shortcomings.

There have been 2 other cases where I saw this similar situation. One person is either not executing at all – for various reasons or a deliverable or two is missed and friction sets in.

In one case a founder had a new born child within a month of the venture getting off the ground and had to spend a lot more time at home, which made the co-founder irritated and angry. They split and eventually closed the company.

I was surprised that they did the venture together knowing that one of them was going to have a baby.

When a pattern of execution and delivery on commitments is not set, then friction sets in very easily.

Its very hard to figure out if someone is executing well based on their “resume”. Most resumes are inflated (I am guilty as well) to “sell” and “position” the candidate in the best light. Even if they have worked at a position where its fairly easy to determine if they deliver and execute or not, it is mighty difficult to discern whether they were good because of the system built around them or because their manager extracted the best from them.

The only way to determine that is working together.

What takeaway do I have from this second reason for founder’s splitting?

I prefer to fund teams that have worked together in their new venture for more than 6 months. That’s an arbitrary number no doubt, but I dont have an alternative.

Teams which have worked together before, need to be working together again before I am sure that they know how to work with each other in a new environment without the support system they had before. There are exceptions, but they are rare.

I am hoping again that this is a demand and supply issue that resolves itself in a few years. Right not there are too many opportunities (thanks to Angel List) for good companies with high performance teams that have worked together for a while for me to even consider teams that have relatively younger working histories.

Entrepreneurship, Learning, Personal

Why do founders split? 1. Differing visions

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Over the last 4 months, I have heard of or at least 8 companies closing down because of “founder issues”. Overall this number of companies that I have been tracking personally where the company closed was 14. So relatively speaking the number of companies that closed because the founders split is larger than “lack of funding”. The only other reason I have heard have been lack of traction. These are companies in the valley and India BTW.

Why do we have so many companies which close because of founder issues?

I tried calling and talking to many of the founders separately to understand what the issues were and its not clear that there are the same that plague most “marriages”.

Most married couples split because of financial issues, compatibility issues or “cheating”.

With most founders, I cannot point to the 3 main causes yet, since I have limited data, but I can share what happened in some of these cases, based on my understanding of their situation. Sometimes, my understanding was colored by my impression of one of the founders, but I tried to remain objective about the situation.

Differing vision of where to take the company. This was cited by most of the founders.

“We  used to talk about where we wanted to take the product. We had a general direction and were fairly aligned. Then it started with a few features that we had different opinions on. In a matter of weeks we would constantly fight about every feature. The constant fighting drove our team mad and we decided to split”.

“We started with targeting large enterprise customers, since my co-founder had a few relationships there. We found that many had a long time frame to get us on board as a vendor. Then we decided to change our target to mid-sized companies. That changed the vision of our product and some key features, which the developers could not deliver on. I still thought we could focus on larger customers, but my co-founder did not and we decided to split”.

Many times, the vision of the company is considered very sacred by the founders. Which is a good thing. Alignment of vision is hugely important. I can also see how the vision changes at times, since the initial assumptions made, usually change as you go to market and meet customers.

Some founders are flexible about that change and are willing to be patient about finding that vision, whereas others want to stick to a vision they originally came up with.

If you are a solo founder and are looking for a co founder, it is hard to determine flexibility of your co-founder since most people seem reasonable and fairly flexible during the first few months. I tried to formulate a list of questions to ask – largely scenario based, such as what would happen if this were to occur, or how would you react if this happened?

Most times when I asked those questions of people I got fairly good answers which I consider are reasonable.

These questions did not help very much though, since as we talked about before, vision’s change and so do people’s impressions.

When you ask the objective question in a non threatening situation, it is easy to be collected, objective and composed.

That’s rarely the case when product shipments are behind, payroll is delayed and a customer contract is taking longer than anticipated.

What takeaway do I have from this main reason for founder’s splitting?

If you have not worked together for a “significant period” of time, its very difficult to find out if your co-founder is flexible to change.

So what do I now do as a result of this learning?

I prioritize teams where founders have not worked together for a significant period of time, much lower. If you have a co-founder you have met at a hackathon event, or a startup event, and have been working on your company for 4-6 months, then I would likely pass on your company.

Its not because I dont like your idea or product, its because of demand and supply. Right now, I get many more companies where co-founders have worked together for much longer and have recency of shared vision.

In the next post I will talk about another reason why founders split – performance and execution.