November 24, 2005

"Make your VCs accountable"

Jeff Bussgang recommends entrepreneurs "not be shy about holding their VCs accountable".
Just as the board of directors evaluates the CEO/entrepreneur every year for their performance against results, the CEO/entrepreneur should have the license to evaluate their VCs for their performance. Who did they help recruit? What business development introductions did they make? Were they proactive in giving critical strategic advice? Were they available and responsive when needed for emergency issues?


The article also points out how VCs apart from being answerable to investors in their funds (the "Limited Partners" or LPs), also have to answer to their partners.
In a VC partnership, each VC is investing the money of their peers as well as theirs, and affecting the overall results of the fund. And so while an LP may not hold a VC accountable for periods shorter than 6-10 years (the period after which fund performance is well-known), VCs are accountable to their partner every week at the partners meeting. For 4-6 hours, the partners pour over their strategies for deploying the capital, high-priority projects and individual portfolios. Every week, each individual VC must stand and deliver and demonstrate in front of their partners that they are on track to fulfill their obligation to their LPs to make money.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

"One founder usually not enough"

Bangalore-based incubator/early-stage fund Erasmic has decided it will not invest in any company which has just a single founder. Subrata Mitra, Founder & CTO of Erasmic said at a recent presentation at a TiE-Chennai event that this decision was driven by the founders' past experience with their own start-ups plus, given their small fund size ($3 million), Erasmic's ability to take risks was that much lower.

Vineet Buch of BlueRun seconds this in his blog post:
The best tech companies were founded by two people. Oracle, Cisco, Sun, Microsoft, Google, Yahoo ... the list goes on. One is usually not enough, three is acceptable, but having four founders can lead to committee-think - the antithesis of creativity. So, my entrepreneur friend, the first thing I recommend is finding a co-founder who has complementary skills and with whom you are comfortable spending your evenings and weekends. Munjal and I complemented each other perfectly while brainstorming on Ojos (a.k.a. Riya); he had the market vision, I had the tech savvy and process discipline to channel that vision.

As a single founder myself, I agree totally with Subrata and Vineet. From an investor's - and even the company's own perspective - having just a single founder is a dangerous thing for many reasons.

If you agree too, you might want to check out my earlier post, on how to select your co-founders.

If not, please do post your reasons as comments.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 19, 2005

ICICI's unique loans for R&D

Businessworld has an article on ICICI Bank's "Sponsored Research and Development" (SPREAD) program that has "helped companies like Biocon, Shantha Biotech, Neuland Laboratories and Samtel lay their foundations".
Now SPREAD loans are being used for innovative products and processes only a few companies in the world have developed or, in some cases, are now developing. For example, Strand Genomics in Bangalore is using the loan to develop new methods of predicting the toxicity of drugs. Proalgen Biotech in Chennai is using the loan to manufacture natural beta-carotene in very large quantities. Electronica Mechatronic Systems in Pune is developing very precise magnetic tapes for measurement. And so on. These companies would definitely sell their products in the Indian market, but their technology would be contemporary enough for them to sell in the global market too.

It is not difficult to see the impact of these projects on the Indian industry, as early stage funding is still difficult for technology companies. Venture capitalists (VCs) usually come in at a slightly later stage. In any case, VCs do not fund R&D. The Technology Development Board (TDB) of the Department of Science and Technology (DST) finances commercialisation of R&D but not the R&D itself. So for an Indian product company, there is no place to go other than SPREAD. This programme, along with a few similar programmes, helped more than 100 companies catch up with the developed world in the 1990s.


...A SPREAD loan comes with conditions most would welcome. The payback starts only after commercialisation of the product. The loan is written off if the project fails. Sometimes, ICICI gets the repayments through royalties on the product. ICICI also insists on the company collaborating with an R&D institution. In the case of Strand, it was the Central Drug Research Institute in Lucknow that performed the lab experiments to validate Strand's models.

In the last decade and a half, more than a hundred companies and an equal number of institutions used the programme to develop new technology. Having tasted the value of R&D, several companies have gone for a second loan. The impact of SPREAD is now seen particularly in biotechnology, the most R&D-based industry in India now.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 17, 2005

"VCs have the best PR machine in the world"

Jeff Cornwall has a nice post pointing out that Venture Capital gets much more attention that it deserves (from entrepreneurs seeking financing, that is):

I often think that venture capitalists must have the best public relations machine in the world.

Only a tiny fraction of a percent of entrepreneurial ventures ever get or need venture capital financing, and yet the two most common phrases that come out of most aspiring entrepreneurs mouths are "business plan" and "venture capital." It is as if the venture capitalists have done such a good job of branding that their product name has become common speech for financing a business (like Kleenex for tissues and Xerox for copying).

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Why your Business Plan should just be a PowerPoint

David Cowan of Bessemer Venture Partners has some great advice on why Business Plans – at least those presented to VCs – should be in PowerPoint format. He also has some nice tips on what the slides should talk about. There is also a nice discussion happening in the comments section of the post where David critiques a BP submitted by one of the readers.
1. The cover slide should offer complete contact info, and a tagline if you've got it. One of the benefits of a powerpoint plan is that it forces you to perform the critical exercise of describing the business in very few words.

2. A mission statement is a good idea to present, unless it's rather obvious from the tagline (as in BlueNile.com: Education, Guidance, Diamonds and Fine Jewelry). Select a mission statement that is achievable, but not yet achieved....

A clear mission statement also includes a clear idea of what the startup will NOT do. Here are some nice ones...

"Prolexic will create and dominate a new network service category that defends web applications from distributed-denial-of-service attacks."

3. Introduce the team...

4. Without yet getting into your product or service, describe the nature of the problem you address. Emphasize the pain level and the inability of incumbents to satisfy the need.

5. Introduce your product, and the benefits (which should obviously address the market problem you just described).

6. Elaborate on the technology or methodology you have developed to enable your unique approach...

7. Show off early customer or distribution progress: numbers, logos, testimonials.

8. Sales strategy. Show the expected cost of customer acquisition.

9. Competitive landscape...This is also a good slide on which to show market size estimates.

10. Earnings Statement, historical and forecast...



UPDATE: Guy Kawasaki on his new blog points out the "The ten topics that a venture capitalist cares about" in the PowerPoint:

1. Problem
2. Your solution
3. Business model
4. Underlying magic/technology
5. Marketing and sales
6. Competition
7. Team
8. Projections and milestones
9. Status and timeline
10. Summary and call to action

November 12, 2005

Hiring in India; Tips from an "in the trenches" entrepreneur

Gaurav Bhatnagar has a great list of practical tips for hiring for a startup in India; especially hiring programmers.
Hring in a hot market like India is especially hard. And for startups, even more so. My experience has been quite in contradiction with common wisdom. And my experiences are probably more relevant for startups and small companies which do not have an army of recruiters and which do not need to hire by the 100s (if not 1000s).

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 07, 2005

US recruitment firm specializes in "angel employees"

With Internet-based services companies back in favor among US VC investors (a phenomenon aka "Web 2.0" or "Bubble 2.0"), can service providers and wannabee start-up executives be far behind?

Scripps Howard News Service has an article on PeopleConnect, an exectuive search firm that actually has a branded program called "Employees Without Paychecks" that focuses on placing executives and tech professionals who are willing to work at start-ups without pay until the clients' VC funding comes through.

PeopleConnect is the first search firm to market a program of recruiting employees who will work for equity. "A friend of mine calls them 'angel employees,'" (PeopleConnect CEO) Max Shapiro, said, comparing them to angel investors, who fund early-stage companies.

... Shapiro markets the Employees Without Paychecks program to early-stage companies that, like Commendo Software, are just a few months away from seeking venture funding. He selects client companies carefully to avoid placing candidates at ventures that have no chance of success.

Candidates are initially treated as independent contractors and paid with stock options, with an understanding that they will become salaried employees when the company gets VC funding.

PeopleConnect charges a contingency fee of 25 percent of the candidate's first-year earnings. It takes a small portion of that fee in a combination of cash and stock options right after the candidate starts. But most of the fee is due when the candidate goes on salary. If the client company never obtains the resources to hire the person, PeopleConnect doesn't get paid.

"In a way, we're investing in the companies as well and hoping they get funding," Shapiro said.


UPDATE: Jeff Cornwall cautions entrepreneurs on the potential dangers of recruiting "angel employees"

While this is a great way to save cash and lower the breakeven point, it does have the potential to make things complicated. All of these managers are now shareholders and have legal rights. The more partners in the deal, the more complex things can become. I would only recommend this strategy for businesses with a clear and relatively quick exit plan. I would not recommend this for entrepreneurs who plan to build and hold their business. It is a recipe for too many headaches with so many added equity holders.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 06, 2005

Entrepreneur-turned-VC launches blog

Alok Mittal, the co-founder of JobsAhead.com (acquired by Monster.com in 2004) and now a venture capitalist with Barings India Private Equity, has launched a blog titled VentureWoods.

In one of his early posts, Mittal talks about "Band of Angels India", a group of successful entrepreneurs and executives (of which he is a member) with a passion to invest in and mentor early stage businesses.

The application process to BoA involves sending in an executive summary to any of the members (yes, investors themselves take decisions here, there are no “investment managers”) and convince them that what you have is a potentially successful business. The member than “sponsors” the proposal to the whole group. Members in the group make individual decisions on whether to invest in any particular opportunity — for example, 4 members may decide to fund a given venture. The members continue to be involved in the mentoring process.

Typical deal size at BoA is less than Rs 2 crores. We expect higher investments to be supported by other venture capital players. BoA is diversified in its industry coverage — we will invest in any industry where we have members (and hence an understanding of that space). We look at deals from across the country. Some coverage on us. You may mail in your proposals to any of the members directly.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.