Entrepreneurship, Hiring

What constitutes a “Rock star startup team” ?

19 Comments

Here’s another question I have been pondering over the last few weeks.

I am personally not very fond of the word “rock star”, but have heard it from several investors in particular. They all claim to have invested in rock star teams.

So it begs the question – What is a Rockstar startup team?

It would be impossible to list all skills, qualities, attributes and traits of the individuals in that team because the list would be endless.

Let me first write down a set of things I’d like to think that its not, but I am open to be challenged on these.

1. Bunch of guys who have all graduated from the same “top schools and colleges”.

2. A team of people who had CXO title’s at large companies and have never worked together.

3. A set of high IQ mensa-type individual contributors who dont work well in teams.

If I were to put a set of things I believe they should have before with the attempt to put a 1 line definition before it would be:

1. They have spent time together and understand each other well.

2. They have previously solved a similar type of problem before.

3. They have great communication among themselves.

4. They have a very good understanding of the market they are looking to operate in.

5. They execute crisply and meet their deadlines consistently.

If I were to simplify the definition of a rock star team, I’d say a team that’s worked together and solved the same type of problem a startup would face at their current stage before in their career.

Or people that have been there and done that – together.

But this definition does not cover a team of co founders who were fresh out of college.They may have certainly worked together, but not have solved the same type of problem before.

I am open to a more crisp definition.

Here are some others that I reached out to who have defined it in their own words.

Shekhar Kirani from Accel

“Deep insights, exceptional performance in their previous jobs, pedigree as an indicator of competitive spirit, and commitment not to give up.”

Ashish Gupta from Helion,

Customer focused, Iterative, Nimble

Sameer V from Nexus,

Scrappy, Hyper-efficient (multi-taskers) with a solid focus on customer needs

Abhijeet M from BVP,

Somebody who knows the market quality, competition, his product, and its value proposition inside out and backwards.

Kiran B Nag from Saama Capital,

Experienced, Synergestic, Adaptive

Raj Chinai from Kalaari,

Exceptional track record, passionate, creative and execution oriented

Gautam B from Ojas,

Energetic, Honest, Complimentary skills, Go-getters, Though not necessary, would help to have relevant backgrounds, Good understanding between themselves

Ashwin R of India Innovation Fund.

Driven, Make things happen, Visionary, And of course the cliched term X factor comes to mind

Mukul Arora from Saif partners,

Super passionate about the idea, ideally with relevant and complementary skills/expertise, and capable of hiring high quality talent.

Rahul Khanna from Canaaan,

Bejul Somiah from Lightspeed,

Passionate, Force of will, Outliers, Unusual

Shailendra S from Sequoia

Bharati J from SeedFund

Rock star team – that finds unique idea and executes brilliantly

have also been asked to contribute to this definition.

I will update this post as they provide me their answers.

Other

The problem of “marketing spend” with Indian technology startups

27 Comments

I have a question which I am trying to get answers for from multiple people, but I am not sure I have the answer yet.

The average US technology startup raises a seed round of about $150K which lasts them 12-18 months. Most Indian startups look to raise a seed round of $250K which lasts them 12 months or less. Why is that?

Let me give you more clarity on both numbers.

The average YC company gets $25K from YC and a no cap convertible for another $125K. Most (>39% in the latest batch apparently) raise money before 18 months of graduating from YC, but many still have the money last 18 months. The average company has 2-3 people in 12-18 months until they have product-market-fit in the US.

The average Indian company gets by further along by bootstrapping and is not much further along (in terms of product-market fit) than the US counterpart. They raise $250K (per pocha below) $200K (1 CR) and that money they claim will last them 12 months. The average Indian product startup has 6-10 people in 12 months.

The money that’s spent is primarily on acquiring customers and payroll.

Even though we have more people in the Indian product startup, we have more-or-less the same payroll costs.

But most startup plans (business plan or execution plan) I see keep aside 40% of their raised capital for “marketing” costs. For customer acquisition – SEO, events, or “viral campaigns”, etc.

So here’s my hypothesis:

1. We need more money because paying customers are *much* harder to get in India than US. Most US startups spend ZERO in marketing (out of pocket costs) for the first 18-36 months from my personal experience.

2. We need more people because most of our startup founders are “generalists” not “specialist and generalists” who cant really code or run a digital marketing campaign or close a sale. They have to “hire” a CTO, CMO and Sales head to do that.

3. We need more money because cost of doing business in India is a lot more than US.

I dont know the answers, but I am very curious what entrepreneurs in India think is the reason product startups need almost twice as much money which lasts 2/3 as less than US counterparts.

Other

The pre-revenue conundrum among startups

12 Comments

I took 11 active seed and early stage funds (Accel, Blume Ventures,Venture East, India Innovation Fund, Ojas, Seed Fund, India Internet Fund, Nexus, Helion and IUVP/Kalaari) and 4 top angel networks (Mumbai Angels, Indian Angel Network, HBS angels and Hyderabad Angels) in India to understand their pattern of investing in pre-revenue startups.

Of the VC funds, the norm is about 10% of their portfolio over the last 2 years (typically 3-6 companies) that were funded were pre-revenue.There are exceptions such as Seed Fund (30%-40% pre-revenue, because of their incubator Seed Farm, Nexus (over 50% pre-revenue fundings) but they are truly exceptions and India Internet Fund (very few investments so their % are skewed to 40% and they incubate companies).

Pre-revenue companies getting funded by VC’s in India is the exception not the norm.

Of the angel networks, only MA and IAN funded more than 10 companies over the last 2 years. Both funded less than 3 companies each year that were pre-revenue.

Pre-revenue companies getting funded by angel networks in India is also the exception not the norm.

Then I took the 10 active seed and early stage funds in US (First Round, Khosla, KPCB, Sequoia, Accel, Benchmark, Emergence, Google Ventures, Founders fund, Union Square) and the 4 most active angel networks (Band of Angels, Investors Circle, Golden Seeds and Alliance of Angels).

Of the VC funds, the norm is about 20% of their portfolio over the last 2 years (typically 6-10 companies) that were funded were pre-revenue. Higher than their Indian counterparts but still an exception not the norm.

Pre-revenue companies getting funded by VC’s in Silicon Valley is also the exception not the norm.

Of the angel networks, Band of angels is the exception at nearly 30% pre-revenue. Others are higher than India, but at the 15-20% mark.

Pre-revenue companies getting funded by angel networks in Silicon Valley is not high, but better than India.

I had a chance to talk to at least 1 investor in a phone conversation from each company above, so these are not just website observations.

So who’s funding pre-revenue companies in India and US.

Accelerators and Seed-funds such as YC, Tech Starts, 500 startups.

So if you are pre-revenue, dont waste your time going to angel networks or VC’s. Spend time building your product.

India, Learning

Why me? Or why every Indian startup founder thinks they are the only ones with “bad luck”?

7 Comments

Its very hard to explain to an entrepreneur why another company got funded and they did not.

Or why they might not, even though they have “many boxes checked”.

It might seem fairly random. Correction – it is probably fairly random.

Raise your hand if you have read a techcrunch post that mentions a startup that raised an obscene amount of money and after reading the post 3 times you are still not sure why they got that much money?

Raise your other hand if you have read about a startup in the US Silicon Valley that is working on “pretty much” the “same idea” as your company is and you are schlepping code for 18 months and they have 45K daily users in less than 6 months (and funding to boot).

Now clap both your hands above your head. <Whatever>.

Most Indian entrepreneurs (in the technology space) consider themselves fairly unlucky.

They are baffled that Indian angel investors ask for revenue and monetization plans when the company is 3-6 months old.

The only comfort I have to offer is that its the same deal outside the valley.

Ask the Boston entrepreneur, or the New York entrepreneur. They also claim that companies there “suffocate” because the local investor ecosystem is fairly risk averse.

The second piece of knowledge I will share is that for every techcrunch post that mentions a funding for a startup, there are at least 25 failed funding stories that do not get published in the same space and general “idea”.

What then separates the funded versus the ones that did not get funded?

This is the point in the discussion when the entrepreneur blames their “luck”.

There are a few things I’d say that are easy to spot among the funded companies versus ones that dont get funding in the same “space”.

1. They usually tell a story dramatically different from that mentioned on TechCrunch or Pluggd.In or any other startup blog. The story the media publishes about dropbox is file sync across multiple devices. The story the VC’s bought is document virtualization.

“That’s just positioning” is your claim. I agree. It is. Storytelling is an art. Learn it well.

2. The founders are very credible, have a lot of background in the space and understand their customers / users very well.

3. They product shows the most amount of traction in the shortest period of time.

Thanks to angel list you can now target and get funded by Silicon Valley investors in India. If you have the same 3 elements – credibility, a great story and traction, you dont need to depend on luck any more.

Other

Survival is my Unique Value Proposition

5 Comments

On Wed I was at the NASSCOM Emerge 50 jury panel. Out of 360+ technology companies in Startup, Innovation and Growth areas, the team had selected 50 who they felt were awesome. Our job as the jury panel was to select 10 from the 50.

There’s one part of about the Indian entrepreneur that struck me as their unique value proposition.

Survival.

That’s it.

You survive after starting your company, beyond the first year, you deserve an achievement award.

The mortality rate of technology startups in India (based on actual data from our Microsoft Accelerator database of 3918 companies, all startups including services and products) is a whopping 49% within the first year.

That number blows my mind.

Nearly half of the companies fold within 1 year.

Nearly 20-30% are walking dead.

Closing companies in India is an absolute pain as we all know.

So when I heard company after company saying their revenues after 2-4 years of existence were between $100K and $250K per year, one part of me was sad.

Growth was literally non-existent.

The other side of me was thrilled. They survived to tell the tale.

Survival among Indian technology companies is a Unique value proposition.

Imagine that.

Angel investing, Entrepreneurship, India

One person can change the world – How Dave McClure being in US is disrupting Indian early stage investing

12 Comments

Last week over dinner with 4 top Venture Capitalists in India, the thoughts turned to early stage funding in India. As most entrepreneurs will tell you, seed stage investments in India are hit or miss. Entrepreneurs struggle to get angel and seed stage investors to move quickly. Most AA rounds take 3-4 months to close. Early stage (Series A) takes 6 months. There are angel networks that take longer.

I have been privy to several discussions that entrepreneurs have with their investors and its hard to help them close faster because many Indian angel networks and investors believe they want risk-free investments.

That all is about to change to a large extent.

The VC’s initially told me they were thrilled Dave was making these $50-$100K bets in Indian companies, since it gives them a bigger pool of good startups to fund.

Little do they know that most of the Indian entrepreneurs have different ideas.

Over the last week 500 has announced over 10 investments in the India (in less than 6 months), have hired Pankaj Jain full time to invest in Indian entrepreneurs and have publicly declared their intent to invest in 50 startups in 2013.

Just so we can all understand the magnitude of this commitment:

In all of 2011 angel and early stage investments went to 52 companies in India in the technology sector.

500 will match that in less than 1 year and will possibly do more than all other “angel networks” and individual angel investors in India – COMBINED.

I have talked to all the 19 company founders, who have received money from 500, yCombinator, TechStars, Startup Chile.

They have no intent to come to Indian VC’s to raise their series A.

They have access to US investors who move quickly, respect their time and are willing to make decisions with very little information.

Does that mean Indian VC’s are done for?

No.

It means a big chunk of the best and brightest who want to build global, scale-ready and capital efficient companies in Cloud, SaaS, Mobile and consumer Internet will go abroad and get money from investors in the US.

And Boom – just like that, Dave, Paul and Pankaj have changed the equation for Indian startups.

Sitting largely in the US.

Yes, that Pankaj is in Delhi is not lost on me.

One person can change the world – Believe you can do it and get it done.

Entrepreneurship, Focus, Learning, Management, Marketing

My discipline will beat your intellect

21 Comments

I meet 4-5 new entrepreneurs every week as part of my office hours on Go-to-market help for young startups. Most are based in Bangalore, but surprisingly some are from other parts of the world (Chennai, Singapore and Estonia, even, via Skype).

I have an observation about work ethic that I wanted to highlight among startup entrepreneurs from various parts of the world.

Most every entrepreneur will tell you they work extremely long hours. That’s par for the course. Some “older” entrepreneurs (usually over 35 years of age) will share their ability to “strike a balance” between work and life. Practically speaking (I hate to break this to them) that does not exist in a startup. If you have that balance, you are not serious enough about your startup.

I understand they have families and kids, but I have come to the realization that both smart work and hard work are necessary (but not sufficient) to run a successful startup.

For purposes of this post lets define success as a company that’s growing significantly and rapidly, but does not have an exit yet.

The difference between a rapidly growing startup and one that’s growing “well” is productive (smart) hard work, not just long hours.

If you mistake activity (# of lines of code, # of code check-ins, # of customer discussions) with progress (shipping product, usable and must-have features, or # of active users) then you are just doing long hours.

If you mistake milestones (funding secured, new employee hired) for achievement (# of paying customers, churn rate of existing customers) then you are just doing smart hours.

What then makes smart and hard work such a potent combination? And what really is “smart work”? And how many hours make up “hard work”?

I define “smart work” as a combination of 3 things – asking the “right questions“, having a plan and maximizing the number of experiments in unit time.

I define “hard work” as the most amount of productive work time, with limited to no distractions and ability to do it consistently, for years (not bursts of weeks, not months and certainly not just for a few hours).

Lets look at both smart and hard in detail. Smart, first.

The smartest people I know have learned the art and science of asking the right questions. They usually start with asking a lot of questions, and having literally, no or very few answers. Each answer leads them to more questions. Asking the “right questions” is what they derive from experience.They have assumptions that need validation, hypothesis that need testing and results that need to be measured.

They are also willing to conduct a maximum of 2-3 experiments and have a DIY (Do it yourself) approach towards conducting those experiments to see if their assumptions and hypothesis were valid.

Finally they have a plan to approach their experiments. Not just a “lets try this and if not lets try that”. They rarely “wing it”.

Its very easy to spot smart teams. They have a sense and measurement of what “Continuous Visible Productivity” is. They come to me with a list of 2-3 questions that they want to address in a meeting. They dont just come to the meeting and pick up the whiteboard and start to “brainstorm”.

Now lets look at teams that work hard.

Hard working teams dont ever mention “how many hours they did put in last week or yesterday or that they hardly got “any sleep”. They realize and are aware of their physical limitations and are usually well within those limitations. Rarely do I hear from them “We work the hardest of all the teams” or “We have not slept for 2 days”. They keep looking for time they can cut away from unproductive work to do more questioning, experimenting and planning. In other words they dont brag about their long hours. They assume its a given.

Hardworking teams also tend to compartmentalize very well. Some people call this “bucketing” or “chunking”. Just because they work hard, does not mean they dont give their brains a rest and goof off for a while. Rather, they “compartmentalize” their goofing off or exercising to derive the benefits of a relaxed mind and body.

Finally hardworking teams are consistent. They show up day after day, week after week and go through questioning, experimenting and planning with rigor and consistency.

I realize a that being smart at work and working hard as I have laid out is extremely difficult. In fact its rare. That’s why successful startups are rare.

The combination is what I call startup discipline. Which is why I firmly believe one startups discipline will beat another’s pure intellect (given that hard work is assumed) any day.

Entrepreneurship, India

Should we aim for quantity or quality in Indian startups?

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

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

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.

The personal blog of Mukund Mohan