Should we aim for quantity or quality in Indian startups?

October 5, 2012 Mukund Mohan 10 Comments

I had a very good discussion with 2 folks over the last week about the current state of technology entrepreneurship in India. The rough estimates from multiple sources indicate a varied number from 250 (low estimate) to 1000 (high estimate) technology product startups each year in India. Compared to that, the US produces tens of thousands and even Israel beats India by having 3-4 times that number.

There are a few folks in the ecosystem that suggest that we should focus on fewer but better quality startups in the technology space. They have some strong points in their argument which include a) the total amount of funding available in the system will only support 50-100 companies annually b) if more companies were to be started, more will fail, which will deter more folks from becoming entrepreneurs and c) there are not too many experienced entrepreneurs & seasoned executives who can tackle issues of scale yet.

I fall on the other camp and my focus is to get more people to buy into the religion. I agree with the premise that most startups fail and that’s the nature of the beast. That has not changed much (or at all) with the number of accelerators or incubators in the last few years. Startups die for multiple reasons and many of them are not easy to fix.

The main reason I think we should focus on quantity first is so we can increase the pool of risk-takers in India. Entrepreneurs take the most amount of risk in the ecosystem. We need more of them, in fact more than the system can really handle. So how do we address the arguments from the “Quality first” side?

1. Most product entrepreneurs I meet in India (I meet a new batch of 5 EVERY week) dont really want to build a company to exit. They would prefer to build strong profitable companies and run time for a long time. They do need some funding initially when they are ready to test a few of their hypothesis. Many build products that take a few pivots to get right and most operate in markets that take long to mature. So what if the ecosystem can only support 50-100 currently? We should be able to find ways to get the not so successful ones to pick up, dust-off and get on the horse again. The other point I make that we really have a lot of money sitting on the sidelines in India, with a fairly immature angel investment ecosystem. Each week I meet one new person interested in investing in technology companies, usually a technology executive at a large software company like Microsoft, SAP or VMware. They are enough to get our entrepreneurs started and build good companies.

2. If the percentage of startups that succeed is fairly constant, then the argument for more startups is even stronger. If we increase the pool of startups and the failure rate is still a constant, we should get more successful startups. The failure rate has not dramatically increased or decreased over the last 5 years, so if we have 2000 startups and a 99% failure rate we will still have 20 successes vs. 250 startups and 95% failure rate.

3. The best way to have “serial” entrepreneurs is to have more people go through the experience once. Regardless of whether they failed at their first startup, the success rate of a repeat entrepreneur is dramatically higher. They are more experienced, seasoned and more willing to understand the importance of persistence.

I believe that we need more, not less technology startups overall to help our ecosystem grow dramatically.

Entrepreneurship

The early adopter customer database & connections for startup entrepreneurs

October 2, 2012 Mukund Mohan 16 Comments

As a startup entrepreneur one of the first things we need is customer validation. It is the one thing that takes the most amount of time in India. Most young entrepreneurs dont have enough connections with potential customers (both on the B2B or B2C side) and neither do they have the resources to acquire customers initially.

As part of the Microsoft accelerator, we realized this problem for most of our startups. So we are building connections to 100+ early adopters among large companies (we currently have 63), over 70+ SMB companies and about 15,000 early consumer adopters (our goal is to have over 100,000) in India. This is not just a database. We are actually building connections into these early adopters using our network so every person in this private connection network will answer calls and respond to emails from our startups.

Our goal is to setup meetings with top executives & customers within 3 days for entrepreneurs.

In the large enterprise side, these are companies like Microsoft, Times of India, Nokia, etc. which have over 5000+ employees and have problems that startups can address. If an entrepreneur wants an introduction to the head of marketing to discuss a new campaign solution, or an introduction to the head of HR to possibly demo a new recruitment offering we can make that connection.

The companies in the early adopter list have made commitment to try any new technology to give it due process quickly and provide feedback very fast. The benefit to them is the ability to see and try new technologies before anyone of their peers do. The current list of companies are from primarily technology, telecom, retail, financial services (banks and insurance companies), education (colleges) and healthcare (hospitals and pharma companies).

Our next step is to have a demo day exclusively for the top executives of these companies so they can see all these in 1 day rather than setup one-one meetings with each. That will probably happen in the next quarter.

In the SMB early adopter side these are CEO’s of companies that are between 1 CR ($250K) to 10 CR ($2 MM) in revenues. Currently we are focused primarily on the manufacturing and education spaces, besides smaller and mid-sized technology companies. Since most SMB decision makers in India tend to be the managing directors themselves, we are also thinking about using the connections to educate them about the advantages of being an early adopter.

Finally for consumer Internet startups, (who sadly have the toughest time in India) our goal is to have 100,000 early adopters in the mobile (Android phone owners, Windows phone 8 owners and iPad/iPhone) and most with 3G connections. These users are across demographic segments of age (many are college students, and most are in technology companies & financial services) and gender (currently 8% are women). Most are in the large metros (Delhi tops the list, followed by Bangalore, then Mumbai and Pune, Chennai and Hyderabad). We are maintaining a list of their email address, phone number and facebook, twitter accounts. This is a dual opt-in, invite only list. The obvious benefits to them are the bragging rights to be part of any new product and get it to try it before anyone else does.

As the number of startups in India grow, these are the things I believe that will really make a huge difference in helping companies move as quick as our Silicon Valley counterparts and encourage more people to join & start new companies.

India, Learning

What I learned in my first month of running a startup accelerator

September 28, 2012 Mukund Mohan 18 Comments

I have been the CEO of the Microsoft Accelerator for the past month. There are 11 companies as part of the batch and it has been an exciting ride. One of the things I focused on is trying to make the program a lot more structured than YCombinator and modeled it around a finishing school that I always wanted. Here are the top things I learned.

1. Dont try to change an entrepreneur’s idea. They have to come up with something they like themselves. This seems fairly trivial. There are many incubators and seed funds that believe if you dont have an idea, but are great entrepreneur material, they will “give you ideas”. That rarely works. Entrepreneurs have ownership and pride only for things they believe “they came up with on their own”. Anything borrowed (even if its a clone or knock-off idea from a US startup) is theirs. They will put more wood behind their idea than anything you ever propose.

2. Indian entrepreneurs have varied expectations from accelerators. One entrepreneur wanted “execution” help in actually doing the design (preferably a full time designer and user experience person for a few weeks to do it) and another wanted better quality food at the cafeteria. Some think the biggest value proposition of an accelerator is the “quality of the space” (i.e the physical location), while another thought the value was the other startups who would egg them to get better.

3. Regardless of what you offer, there’s always someone offering more or better, which I think is the “grass is greener on the other side syndrome”. If I had a penny for every time someone said “I have heard YCombinator founders get XYZ” or “500 startups gives more ABC”, I’d have enough money to fund all the startups for a year.

4. Indian companies need a lot more user experience and design help than any US company. I have invested in over 20+ companies in the US and about 11 here in India. Its extremely hard to find good user experience talent in India. This is a different person from someone that just does Photoshop and illustration. We interviewed 23 “highly recommended” designers and user experience professionals in India. Most were average and were still charging rates from $20 / hour to $100 / hour. No negotiation.

5. The Go-to-market challenge is largely under-appreciated in India among founders. Many need more help here than any other area, but tend to relegate the problem to “lets hire someone to do that”. Unless one founder is deeply involved in the customer development process, we largely build technology for the sake of it.

Entrepreneurship, India, Marketing, Mentors

Startups and mentors: How to look for a great marketing mentor? & A list of top marketing mentors in India

September 23, 2012 Mukund Mohan 5 Comments

After the first post on technology mentors in India, the next person who can help the most as a mentor to startups < 2 years old is someone that can help with product & customer knowledge (or understanding user / customer behavior if its a consumer startup).

There are 3 primary categories of “marketing” mentors I’d recommend you think about. You dont need them all, just be clear who you need for what kind of mentorship.

Product mentors are people who can distill what customers would need and say into what you need to build in your product. There’s a big difference between a product manager and a business analyst. The latter, typically found in many Indian services companies, tries to give the customer exactly what they want, and end up building largely a custom piece of work for that client. Product experts on the other hand, observe customers, ask them tough questions and direct the technology team to build what the customer really wants.

Sales mentors are people carrying a quota (target). They are pounding the street or directing teams that are selling every day. They understand targets, compensation, lead nurturing, managing deals and sales opportunities. There are many types of sales people but largely they are either “farmers” or “hunters”. Farmers end up expanding your current opportunity and Hunters get new business from new clients. They both have their place. Mostly, I have found sales people dont make very good mentors because they are largely unavailable, but there are a few good guys around. Ideally they would help you understand and grow your sales team from “CEO is the sales guy” to building a repeatable, growth-oriented team.

Marketing mentors would help you with positioning, building awareness, lead generation and digital marketing. They can typically help you at the stage when you need to launch (largely after product-market-fit). Most marketing people tend to talk lots and do little, so if you get someone that can give you practical tips on how to build your funnel and grow your customer base by spending as little money as possible, then you have the right person.

The question usually is why do you need so many mentors. The answer is you dont. It all depends on the team you have and if they need advice, help and mentorship. I have seen startups with 5 mentors and many with none. Most have 2-3 mentors to complement the team. You can get as much value from mentors as much time you put into the relationship. I typically recommend most entrepreneurs to setup 1 hour every other week during the initial days (<6 months) and then 1 hour every month and finally 1-2 hours every other month.

Some recommended Product mentors:

1. Amit Somani (Make my trip)

2. Varun Shoor (Kayako)

3. Vijay Anand (The Startup Center)

4. Girish Mathrubootham (Fresh Desk)

5. Sridhar Ranganathan (InMobi)

6. Amit Gupta (InMobi)

8. Preetham VV (InMobi)

9. Dhimant Parekh (Hoopos)

Some recommended Sales mentors:

1. Madhu Lakshmanan (ex Photon)

2. Abhay Singhal (Inmobi)

Some recommended Marketing / Online customer acquisition mentors:

1. Pankaj Jain (Startup Weekend)

2. Ravi Vora (Flipkart)

3. Karthik Srinivasan (Flipkart)

4. Sanjeev Gadre (Consultant)

Angel investing, Community, Entrepreneurship

Technology product startups, angel and venture market comparisons – US and India

September 19, 2012 Mukund Mohan 12 Comments

There is a lot of activity and interest in technology product companies in India, as there is in the US. I spent some time reviewing numbers from NVCA, VCCircle and pulled some numbers specifically in the areas of Internet, software, technology products and eliminated services companies. Here is a simple table to keep things in perspective. All sources are at the bottom.

	USA	India
Total number of technology (Product & services) companies formed annually (average)	24,169	412
# of companies that secured angel funding	15,233 (1)	65
# of companies that secured seed / early stage from VC	1,682	58
# of companies that secured late stage funding from VC	658	31

I am yet to do any “analysis”. Right now the data validation process is what I am going to embark upon.

What is your analysis.

Relevant Links:

1. Crash Dev – eye of the needle

2. UNH center for angel investment research.

3. NAV Fund John Backus

4. Product Startup Landscape in India from Zinnov . (Thanks Pari!)

5. NVCA National aggregate data for US investments (Excel spreadsheet)

India, Review

Early access: Quick review of BoxTV.COM

September 16, 2012 Mukund Mohan 1 Comment

A good friend Abhishek from Tlabs gave me a preview access 2 weeks ago to BoxTv.com. Its dubbed as “Hulu for India”.

I am not a big TV or movie watcher (We dont have a TV at home, have not had it for many years now), so take this review with a grain (or more) of salt. I have only watched 1-2 partial movies. They dont have any TV shows yet.

The top things I liked:

1. Content selection (especially Hindi and English) is excellent. There are hundreds of movies that I have not seen at all (again that’s not saying much). The old hindi movie selection is particularly good.

2. Streaming is instantaneous and quick. The overall experience was pretty good and there were no glitches. I did have a problem the first time I logged in, post which there have been no bumps.

3. Connecting with facebook allows me to see other movies my friends watch, which was interesting, but not very useful. I realize I dont watch enough movies and TV to even know which of my friends have similar likes and interests.

4. Very easy to skip to certain parts of the movie quickly. Yes, I only watch the songs and skip most of the movie (grin)

5. Below each movie page there are important clips (between 2 and 3 min each) which are like the highlights reel. Loved that feature the most.

Things I did not like:

1. No support for mobile phone. Most of my work is now on my phone. Its a fairly large screen device, so I am not using my notebook for much. Since BoxTV is based on flash, support for mobile phones is non existent.

2. No sports and limited content for kids. If there was ever a reason to watch TV I’d buy it for NFL, tennis and cricket. Everything else is a waste of time at our home. Kids love many of the cartoon shows, and there were very few of them on BoxTV.

3. The filters dont work too well. If all I wanted to see was the list of latest movies, it shows me a bunch of clips (scenes) instead. What I thought it would show me is a list of the top recent movies.

4. Not enough integration with movie reviews. I’d love to find out from IMDB or rottentomatoes, which movies I should watch based on the popular list.

5. Not easy to search by actor / actress, etc. I tend to watch primarily by who’s in the movie, so this was still “in the works”.

Have you used Boxtv? What did you think?

Entrepreneurship, Management, Mentors

Startups and mentors: How to look for a great technology mentor? & A list of top tech mentors in India

September 16, 2012 Mukund Mohan 20 Comments

I am going to write a 3 part series on mentorship and technology startups. Rather than write about why you need a mentor or how to engage with a mentor (next series) I thought the first step for most entrepreneurs would be to seek out great mentors.

As an additional bonus, I thought I’d list some good mentors in India so there’s a starting point (not comprehensive). Please feel free to add people who deserve to be on this list via comments (you cannot add yourself, someone has to recommend you, preferably 2 people).

We will focus primarily on technology startup mentors, which are < 2 years old. I believe there are 3 types of mentors you need at this stage: Technology, Marketing & Industry specific ones – that’s it. Everyone else is a ~~nice to have~~ waste of time.

Why?

Early in your startup, you should be focused on solving a problem and building your product, while at the same time, talking to customers and understanding their pain points. So if you are spending time doing anything else, its a waste. Mentors should help you do these things alone.

So, if you are thinking of getting that CEO of a 3-4 year old company which is doing well, as a mentor, he should fit in one of these buckets, else he a) does not have enough time to give you or b) does not have enough practical knowledge to share.

This post is about technology mentors. The next two posts are on marketing and industry mentors.

Technology mentors should help you think about the solution architecture, build & recruit a great engineering team and understand how to solve complex engineering problems.

I define technology mentors as people who are engineering managers, UX designers, architects & hands-on senior technical staff members in their day jobs. No one else qualifies. I would not put ex-engineering manager (now consultants at large, etc.) on this list. The reason is simple:

If you are not practicing, in the trenches, you don’t know the specifics and tend to give “Gyan” at a high level.

ps. US folks, I am trying to introduce some cool Indian lingo into your vocabulary, so please click on that Wikipedia link about gyan. 🙂

So how do you look for a great technology mentor?

1. Social proof – GitHub, Hacker News, Hackerstreet.in, HackerRank and Stack Overflow are great places to start. Also seek out folks at offline events such as Startup Weekend, Yahoo Hack Day and other such developer events. Dont look for technology mentors at generic industry or startup events. You dont find good technology mentors there.

2. Look at some awesome product companies – Cleartrip, Flipkart, Komli Media, Yahoo, Google (Map Maker), Microsoft Surface, InMobi, Facebook, etc. Get to know who runs their engineering and technology teams. Find out who their good senior, hands-on, architects and engineering managers are.

3. Reach out through your technical network: E.g. I am trying to solve this complex engineering problem, and we have a few areas where we’re stuck and would love some help. Can you please recommend someone who is a <machine learning expert> who is working on this area at <company name>?

Most good technology mentors I know like to work on really hard engineering problems, so the harder & more unique your problem the more likely you are going to attract a great mentor. Its a self selecting list (which is good) so if someone believes the problem you are trying to solve is not in their interest area, you dont want them anyway.

So now, on to a short list (soon to get long thanks to you all).

<EM> This list is biased right now. These are people I know, like and admire. Please feel free to help other entrepreneurs by recommending good people I dont know to this list. </EM>

Some recommended Engineering manager mentors:

1. Sachin Desai (Ericsson)

2. Mekin Maheshwari (Flipkart)

3. Hari Shankaran (Interview Street)

4. Jayanth Vijayaraghavan (Yahoo)

4. Indus Khaitan (Bitzer)

5. Bharat Vijay (ex Yahoo, Amazon)

6. Amod Malviya (Flipkart)

7. Srinivasan Seshadri (ex Kosmix)

8. Amit Ranjan (SlideShare)

9. Arvind Jha (Movico)

1o. Pawan Goyal (Adobe)

11. Pankaj Rishbood (Walmart Labs)

12. Rajnish Kapur (MakeMytrip)

13. Aloke Bajpai (Ixigo)

Some recommended Architect / CTO mentors:

1. Dorai Thodla (iMorph)

2. Prateek Dayal (Support Bee)

3. Shivkumar Ganesan (Exotel)

4. Avlesh Singh (Webengage)

5. Paras Chopra (Wingify)

6. Lalitesh Katragadda (Google)

Some recommended Cloud (AWS, Google App Engine, Azure):

1. Ravi Pratap (MobStac)

2. Perrraju Bendapudi (Microsoft)

Some recommended design mentors:

1. Sunit Singh (Cleartrip)

2. Rahul Saini (VideoPind)

Community, Entrepreneurship, Learning

Givers and takers – a post on being a parallel entrepreneur

September 9, 2012 Mukund Mohan 8 Comments

I often hear from many entrepreneurs about their desire to “give back”. Only after they have “made it”. What’s “making it” I ask? Usually its some form of monetary success or company milestone.

Here’s what I have learned – there’s no right time to start giving back. The right time is always. Right now. Today. This hour.

You may have heard of the term serial entrepreneur. Also the term parallel entrepreneur. I dont particularly like either term, but to me, a parallel entrepreneur is one that gives as much or as as quickly as she takes.

There are lots of takers, everywhere. Enough people seek out mentors, advisors, connectors and investors.

Not enough people are givers. Not enough people are coordinators, organizers, connectors and volunteers.

This has to change. You dont have to get enough to start giving. You can give a lot initially and trust me, the getting part happens extremely quickly.

We need more Avinash Raghava’s to help organize volunteer driven organizations.

We need more Subhendhu’s to help bring together Reverse pitch.

We need more Kiran’s to organize hasgeek forums.

We need more Chidambar’s to help bring Statup weekend’s to us.

I am missing many more. They are the unsung heros. They are really the parallel entrepreneurs.

I think they all deserve more of an applause than we give them. They should be an inspiration for us all to become parallel entrepreneurs.

Above all, be a force of good.

Angel investing, Entrepreneurship, India, Tips, Venture Capital

What should a series A funding process look like? Step 5: due diligence and transfer of money to the bank

September 2, 2012 Mukund Mohan

Please read series A funding plan and strategy, the first step of the process – the introduction to an investor, the 2nd step – first meeting and follow up, step 3 – present to the partnership, step 4 – Negotiations and Legal Discussion and now the final step: the due diligence and money transfer.

After the investor offers your a term sheet, they will mention that the final money transfer is subject to clearing their “due diligence”. Anecdotal evidence from 4 people in my VC network suggests nearly 10%-15% of companies which get a term sheet do not clear the due diligence. That’s a very high number.

What is a due diligence?

Its examination of the facts stated by you to ascertain if they were true.

The due diligence checklist (sample: pdf file), typically consists of anywhere from 10-15 (short) list of items to 10-20 pages of items. The items include your incorporation paperwork, tax and regulatory compliance, IP rights ascertainment, contracts signed, customer verification, and a host of other items.

Everything you mentioned in your presentations before (including customers you signed, revenue you currently are booking, etc.) will have to be verified.

Typically if you are a small startup doing little revenue, this might take 2-3 weeks, but if you are a larger entity it might take a month or more. Usually it is done in parallel with the term sheet negotiation, and will take up (in India) 1/2 time for that period of any individual. It consists of bringing together multiple documents and paperwork that you may have missed, filed or recorded.

This is one of the main reasons why fund raising becomes a full time job for one of the cofounders. I would also recommend you giving a heads-up to your Chartered Accountant or your lawyer so they can help you with these, but realize you (or someone you assign) will have to project manage this entire task.

Most investors (both in the US and India) prefer to transfer money in full to your account once the paperwork has been signed. Sometimes as part of the negotiation, you might get specific milestones that you might have to hit for more money to come to your bank. That’s typically called investing in installments or “tranche“.

Within 1-2 weeks of your final negotiation, you will be expected to put a “90 day” and a full year financial model and plan. You will be expected to hit these metrics (preferably go above and beyond). You should also expect a monthly (at the minimum) review of the key metrics (revenue, customers, hiring, etc.).

What might go wrong and how to fix it?

1. Your are missing certain items in your due diligence list. The key is to warn early. Tell your investors you are either missing or have lost or dont have a few items. You will be given time to get those fixed or in some cases they might waive it – it depends on the nature of that item.

2. There are some discrepancies between what you mentioned during your initial presentations and the documents you submit. That happens more often that most investors like and is probably the cause of most of the term sheets being rescinded. My personal suggestion is to be totally transparent and upfront with your investors before the due diligence so you can avoid this situation.

3. Some of the items in the due diligence dont apply to you, or they dont make sense or you dont like to share them. If they dont apply, ignore them and communicate. If they dont make sense, learn. You dont have a choice but to share everything with the investor.

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Angel investing, Learning, Tips, Venture Capital

What should a series A funding process look like? Step 4: Negotiations and Legal Discussion

August 26, 2012 Mukund Mohan 7 Comments

Please read series A funding plan and strategy, the first step of the process – the introduction to an investor, the second step – first meeting and follow up, step 3 – present to the partnership and now onto Step 4 – Negotiations and Legal Discussion.

Congratulations, you have achieved what nearly 95% of startups (anecdotal evidence) wont end up doing – getting to a “term sheet” discussion with an institutional investor. After your first VC meeting, usually this step happens about 3-4 weeks later in India and a week or two in the US.

Typically most VC’s and their associate / principal will make a trip to your office between this period. They will want to meet the team, check out your offices and make sure that you are a “real company”. My personal experience shows that you should use your “lack of funds and frugality” to your advantage. Dont try and have them meet you at someone else’s office (has happened once) or try and spruce up your office (keep it clean, but dont go overboard).

Question I get is usually “I am working out of my home / garage”, should I invite them there? Let the investor know that you work out of home and they will usually ask you what your plans are post funding. Most will decline to come to your home, but if you wish you can ask them to meet at a coffee shop near your home / garage.

Most investors like the frugal quotient in startup founders.That shows that you focus on hiring the right folks and building the right product instead of “AC offices” and plush “Aeron Chairs“.

Your investor champion will typically call you with a short message in which she will say the firm is pretty excited about your opportunity and would like to offer a term sheet. She will invite you for a discussion on valuation and quantum of funds, at their office typically, with their associate and/or principal – let me call them “investment professional” or IvP from now on.

The IvP would have done quite a bit of work by this time to review your financial projections and assumptions. They will have also called a few potential customers, a few existing customers, some industry experts and a few of your friends and past acquaintances (yes, this happens in US and India) to get more information about you, the market, customers and other trends.

The negotiations are never one meeting. It will take typically 2-3 (or more) weeks to discuss between you, lawyers at both parties and the IvP. In your first meeting with the investors, they should state clearly why they are investing in your company – we like the market, we think the team is good, we think you can make it big, etc. They should also give you feedback on what needs work – you need to revisit your assumptions on hiring costs, the revenue projections are aggressive, your channel strategy is something they can help with etc.

Then they will give you two numbers of your term sheet – the valuation and the investment. They will say something to the effect “We are willing to invest $1 Million at a pre-money valuation of $3 Million”. Or they might say “We are looking to invest $1 Million for 40% of your company”.

You should be aware of these terms: pre-money valuation, investment quantum and post-money valuation, ownership %.

post-money valuation = pre-money valuation + investment

ownership % (for money invested) = investment / post money valuation – this is also the amount you “dilute“.

So in example 1: If they are investing $1MM at pre-money of $3MM, then your post money Valuation is $4 MM. So the company is valued at $4MM after funding. Since they put $1 MM, they will get 1/4 or 25% of the company.

In example 2: They are investing $1MM and are looking for 40% of the company. Which means the post money valuation is $2.5M and the pre-money is $1.5 MM.

How they come up with these valuation numbers is a series of posts in itself, but suffice to say its part art, part science and largely a function of market conditions (supply / demand). If you have multiple investors competing for your deal, you might get a higher valuation if your company is *hot*. If the investors you are talking to are the only ones who are still interested, and you need the money, be prepared to dilute more.

After this meeting they will let you, the IvP, their lawyers and your lawyers hammer out the other “terms”. The term sheet (pdf file) will have many other conditions and clauses. I wont cover them all, they require a series of posts in themselves and enough people have written about them.

The most important terms are: liquidation preferences, anti-dilution, full ratchet, drag-along, tag-along (called co-sale in the US), ROFR (Right of first refusal) and board representation.

Keep in mind that your company will pay for your legal fees, and also the investors lawyers. You need two sets of lawyers so each party can protect their interests.

Most investors will say most of these terms are non-negotiable, but depending on the deal they will negotiate with you – through the lawyers, obviously. Realize that the lawyers really are the go-between. They wont do or ask for anything the investor really does not want. So, its pointless blaming the lawyers (they are a few errant ones, but they are largely service providers who do as they are told).

What might go wrong and how to fix it?

1. You dont like the valuation or you would like more money (investment amount). That’s negotiable and depends on the deal dynamic. Some investors low-ball and others will give you “fair valuation” Its rare that an investor will over-bid – (A16Z is an exception). Let them know your expectations and be prepared to defend why you think your valuation metric is the right one.

2. They term sheet is loaded with investor-friendly (anti-founder) clauses. Some of those are negotiable as well. I would advice you to pick your battles. Choose 2-3 items you consider very important to you and only negotiate those. The investors typically will do that as well. Most likely you’ll meet in the middle.

3. The lawyers take up endless time splitting hairs. In India, legal advisers will work on a fixed fee for the transaction model, but in the US that’s rare. So in India the incentive by the lawyer is to protect the parties interests but spend as little time as possible so they can bill at a higher rate. In the US though, the incentive is to take the “right amount of time”. Be aware though, that lawyers only do as they are told. Either your investor is telling them some terms are non-negotiable or your are telling your lawyer some issues cannot be compromised. Either ways, get on the call, and fix things proactively.

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The personal blog of Mukund Mohan