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Showing posts from 2006

How to hand over keys to a professional CEO? Answer: Gradually

VC Fred Wilson has a nice post on the topic of handing over to a professional CEO.
..there's a good way to do this and a bad way. The bad way is to do a search, find someone you don't know, immediately hand over the keys to the car, and step aside.

The good way is to recruit one or more people to the company early on, spend time with them infusing them with your passion and vision, getting them familiar with the technology and culture, and gradually giving them the keys to the car.

The handoff of power should be so incremental that nobody can point to a date at which it happened.

There will always be an official date when someone takes the CEO title, but it should happen when its already a defacto title.

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.

Think Big! - By Sanjay Anandaram

I remember reading an Akbar and Birbal tale many years ago. In this story, Akbar and Birbal wager on something. Akbar tells Birbal that if he (i.e. Akbar) loses, he could give Birbal as much gold as he wanted since he was the emperor, but what would Birbal give Akbar if he lost? Birbal said that if he lost, the first person who comes to the royal durbar the day after the loss would be asked to name the highest number he could think of. And Birbal would give Akbar as many gold coins as the number mentioned. Sure enough, Akbar wins and asks Birbal to prepare himself for the following day when he’d have to pay Akbar a huge sum in gold. The next morning, a beggar is the first person to come to the royal durbar and upon being asked to name a big number, says “100”. Birbal with a knowing smile promptly hands over a bag of 100 gold coins to Akbar. He later mentions to Akbar that for someone like a beggar who has to struggle for survival, the sum of 100 gold coins was an unimaginable amount a…

Stages in the evolution of a company

Brad Feld provides a framework (created by his friend Barry Culman) to explain the evolution of a company.
Following is a quick summary of the stages according to Barry.


* Idea created
* Product or service utilized to deliver idea
* All energy on creation
* Leader is the core driver of revenue
* No process or structure
* Project or products – not a business


* Add overhead and infrastructure
* Grow revenue base
* Leader comes “in-house”
* Cash is King
* High energy
* All executives involved in all parts of the business
* Everyone feels like “I know what’s going on”

Young Adult

* Add process and structure
* Profitability dips
* Must determine “who we are” / what do I want to be when I grow up
* Leader is an evangelist
* Separation of duties
* External funding
* Loose budget
* People issues being to appear


* Answer to board / investors
* Tight budget controls
* Consistent processes
* Leader deals…

Brad Feld on demos

VC Brad Feld has a couple of posts on demo-ing here and here. (Read the interesting comments on his post as well.)
I learned - early in my first company – that the first 15 minutes of a meeting will make it or break it. I learned how to do a great demo – even if it was simply my sales pitch on a white board or flip chart. This meeting reminded me how important it is for a young company (and a MatureCo) to be able to nail their demo and do it quickly.

...I much prefer “top down” demos – these are ones that approach the demo from a user / use case perspective. Show me what the software does and why I care, not how it does it. So, rather than start at the top left menu choice and go through each feature (usually starting with “creating a new account” which I never have to see again in my entire life), walk me through a use case that is relevant to me and is populated with a complete and interesting data set. Occasionally, I’ll have a “how” type question, but then it’ll be in the conte…

"Sell! Sell! Sell!" by Sanjay Anandaram

Indipreneur column (No. 6) by Sanjay Anandaram in the Financial Express:
Sell! Sell! Sell!

In the competitive nature of the world we now live in, there's no running away from the sales function. And the chief salesman in a startup is the CEO.

A recent conference brought together entrepreneurs and VCs from various places. What struck me the most was the total lack of a sales culture. Everyone was in their allotted booths or rooms and waited for people to walk in and ask questions about their product.

Imagine the opportunity: about 750-1000 people present. And as CEO of a startup, there could be myriad opportunities for selling, striking alliances, partnerships etc for your company.

Each and every such opportunity should converted into sales events. The CEO and other company executives should be busy meeting people and building relationships.

Indians in general are hesitant to talk about themselves. We are hesitant to say "I created the business" or "I designed the system&q…

Hocus-Focus?! - by Sanjay Anandaram

Indipreneur column (No. 5) by Sanjay Anandaram in the Financial Express:


Sometime ago, I sat in on a presentation by a startup venture that had implemented solution involving bluetooth technology. The CEO, in the course of the presentation, also said that his company had a group that developed application software for hotels and hospitals, undertakes hardware design, had a Java-Web services group, apart from claiming expertise in mobile solutions. The company had all of 40 people and revenues of about Rs 15 crores and had been around for a few years.

Then, another company presentation I sat in on: this 100 employee company developed educational CD products, web-sites, and built software applications. They had some customers in the US and Europe. Revenues: Rs 50 million. Their immediate plans? to establish a presence in Japan, UAE, and Germany, some through joint ventures!

A third company I met answered me thus when asked who their customers were: ISPs, ASPs, Corporates, Sys…

Canaan Partners launched "Entrepreneurial Challenge"

Canaan Partners has launched "Entrepreneurial Challenge", a value-added Business Plan contest, in partnership with TiE.

"The objective is to identify entrepreneurs who have made a start and can now scale fast with a little bit of help," says Alok Mittal of Canaan. "It has been my experience that most business plan events end on the day the competition ends. By bringing the right partners in place, we will attempt to provide mentorship and capital support to businesses, and try and make the event finals a starting point rather than a culmination."

Click Here for more information.

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

The 18 mistakes that kill start-ups - by Paul Graham

Paul Graham has an article on common mistakes that are often fatal to start-ups.

Guess what's No. 1 on the list?: Having a Single Founder (Ouch!)

What's wrong with having one founder? To start with, it's a vote of no confidence. It probably means the founder couldn't talk any of his friends into starting the company with him. That's pretty alarming, because his friends are the ones who know him best.

But even if the founder's friends were all wrong and the company is a good bet, he's still at a disadvantage. Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.

The last one might be the most important. The low points in a startup are so low that few could bear them alone. When you have multiple founders, esprit de corps binds them together in a way that seems to violate conservation laws. Each thinks "I…

The Right CEO? - by Sanjay Anandaram

Extract from the Indipreneur column (No. 4) by Sanjay Anandaram in the Financial Express:
Most entrepreneurs (especially wannabees) believe that they should naturally be the CEO of their venture because “hey, its my idea and my company!” Really? are you indeed the right CEO to steer your entrepreneurial dreams to success?

...You have to decide, and early on at that, who ought to be the CEO. Usually, good friends get together and do a startup. The chemistry is great, there is shared vision and commitment and there is no real decision making process or hierarchy. This works well initially but there needs to be someone who is more equal than the others. This is not as easy as it sounds as equity holdings in the company are a direct function of responsibility. So, another set of questions to ask yourself and of the (potential) team members: Are you willing to be replaced by more professional management if need be to help the business grow? Will you move aside if proven to be less than able…

Is Entrepreneurship for You? - by Sanjay Anandaram

Here is the draft of the third installment of Sanjay's Indipreneur column for the Financial Express.

Is Entrepreneurship for You?

by Sanjay Anandaram

September 18th, 2006

Lets face it: all the talk about entrepreneurship and of being in charge of one’s own destiny can be heady stuff. There’s the hype, glamour, cool-factor, and even sex-appeal associated with announcing “I’m an entrepreneur and on my own” when everyone else around you is dishing out their corporate cards. But is a startup for everyone? Here are some pointers to help you decide if a startup is for you. Or, if you are better off wherever you currently are.

First, you don’t decide to “become an entrepreneur”, it happens; It’s not a job; It’s not a switch you can switch on and say, “I think I’ll become an entrepreneur; I have reached financial security”. The passion and desire to accomplish a goal are the key drivers. Lets look at some of the traits.

Passion: This is the key requirement. You must feel the burning need to be…

"Who Wants to be an Entrepreneur?" - by Sanjay Anandaram

Extract from the Indipreneur column that appeared in the Financial Express dated September 8, 2006:
With India in the throes of historic changes, there are opportunities all around for the entrepreneur willing to take the chances. With so much money waiting in the wings to be deployed into Indian entrepreneurs, the financial risk too is minimal.

In addition, the current and projected job market offers a safety net to those did-not-succeed-the-1st-time entrepreneurs who want to temporarily park their ambitions; Socio-cultural barriers to entrepreneurship too are definitely fading away as role models abound in various domains and entrepreneurship becomes the chosen path for many. The only remaining risk therefore is the one in the mind—of fear, uncertainty, and doubt (FUD).

Entrepreneurs know that the FUD factor in their minds can be addressed through knowledge, teamwork, and a can-do attitude. As the tired cliché goes, in today’s India, the biggest risk is in not taking one.
Click Here to…

"The Indiapreneur" column by Sanjay Anandaram

Sanjay Anandaram, one of the earliest entrepreneur-turned-VCs in India, writes a regular column for The Financial Express. I will be linking Sanjay's columns on the FE web site (whenever I can find the links) here. Else, with the author's permission, I will post the entire draft.

- Arun

Here is the first installment of the column (First published August 25th, 2006 The Financial Express).

The Indiapreneur by Sanjay Anandaram

As India’s enters its 60th year as an independent nation, it faces perhaps one of its most interesting challenges. What should the vision and destiny of a 60 year old country be when half its population is less than 35 - the world’s largest population of young people? What should a country offer its young people as a role model in the year when, arguably, its most celebrated entrepreneur – not businessman! - chose to retire this year?

For the first time, India is emerging as a world scale market as well as a world class supplier to the world in a variety of …

Meet top Venture Capital investors at Mobile VAS Connect - Bangalore; Dec 12, 2006

The Mobile VAS sector has emerged as one of the favorite sectors among venture capitalists. However, there are several significant challenges facing the sector - including in the basic business models bring adopted, skewed relationships with operators, etc.

In this context, Venture Intelligence Mobile VAS Connect, scheduled for December 12 in Bangalore, presents an ideal platform for leading Venture Capital investors and top executives from Mobile VAS companies to network, discuss and share best practices.

Confirmed panelists include top executives from Sequoia Capital India, mportal, Nazara Technologies, Helion Ventures, Paymate, ACL Wireless, Phoneytunes, etc.

Who Should Attend?
• Venture Capital funds looking to invest in IT and Mobile Services companies
• IT and Mobile VAS companies planning to raise VC financing

For more information, click here

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies wo…

"Founding Member" versus Founder

Angel investor Ram Shriram is invariably referred to in the media as "Founding member of Google's Board". A search for "Founding Member Google" throws up even more strange ones like "A founding member of Google's UI team", "founding member of Google's product team", etc.

While I have great respect for Ram Shriram (he was among the few investors who stuck to the consumer internet thesis when everyone was trying to distance themselves from "dotbombs") - I dislike this "founding member" business.

Either you are a founder of a start-up or not. Please don't dilute the word with these attempts at proxies.

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.

Looking to raise Venture Capital for your product?

Looking to raise Venture Capital for developing / marketing your technology product? Then, apply to demo your product at

Mobile VAS Connect
December 12, 2006

Apply to demo your product to an exclusive audience - consisting of leading Venture Capitalists, Investment Bankers and experienced entrepreneurs - as part of Mobile VAS Connect.

For more information, Click Here

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

Do you really need an investment banker?

Fabruce Grinda strongly recommends that an entrepreneur - even if he/she is a "former investment banker or someone with significant M&A experience" - to use a banker when selling a business. (I think this applies when raising Private Equity/Venture Capital as well.)
(Avoiding conflicts with the buyer) is the single most important reason to use bankers. Negotiating a sale of a company is one point in time at which your interests are not aligned with those of the buyer. It is very easy for the negotiation to turn acrimonious.

The sale of the company is not the end game, but only one step in its development. You will have to work with the buyer for the foreseeable future and must thus maintain a good relationship with him.

Whether negotiating the price or the details of the stock purchase agreement (SPA - representation and warranties, etc.), I always let my lawyer and bankers take the lead in the discussions. This way I can blame everything on them – they are greedy and diff…

The importance of vesting schedule in start-up equity

Not sure how "vesting" applies in the Indian context, but Andrew Fife's recommendations - based on the experience of having to close down his start-up - makes a lots of sense to me.
Equity is used to attract capital and is a major part of employee compensation packages. Thus, it is very important that startups are as efficient with their equity distribution as they are with their capital. Stocked owned by anyone who isn’t contributing to the companies success represents dead weight, which means there is less in the pot to attract new investors and team members.

No matter how close of friends, how much you trust each other or how good your intentions are money comes between people and everyone over estimates their own contributions. Furthermore, founders become highly emotional about their companies. Thus, the process of negotiating taking back stock from founders is not rational and inherently very difficult. However, vesting schedules reduce the difficult negotiation to s…

"Don't hire a VP of Sales too early"

Ed Sim has a post on how and why hiring a VP of Sales too early can cost a stat-up dearly:
1. VPs of Sales need to make their comp. Typical salaries range from $150-200k plus performance equaling a total package of $300 to $350k. Most VPs of Sales will try to get you to guarantee the first year or at least the first couple quarters of compensation to offset the risk of working at such an early company.
2. All VPs need people to manage which means your VP of Sales will want to hire a bunch of reps to grow the business. The experieced enterprise direct sales reps will cost you $80-100k base plus performance of up to $150-175k total comp. Once again many of the best reps will want to get some guaranteed draw for at least a quarter or two to get started.

What ends up being a situation where you expect to bring on a performance-oriented sales team becomes one which many of your new hires get guaranteed comp for a couple quarters. The burn rate added to your company almost doubles …

Start-ups need to avoid top heavy teams

VC Ed Sim has a post advising start-ups not to have a too top heavy team too early on:
When I fund an early stage company, I would typically rather have an entrepreneur that has product vision, a development team to execute around that, and the openness to build a team around him as the company grows. It can be death to have a top-heavy organization from Day 1 because startups change and change frequently during the early days. Don't lock yourself in with big salaries, big options, and big egos until you really know what market you are going after, the skills and experience you will need to win that market, and the product is ready for prime-time.

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.

Entrepreneurial zeitgeist in India

For a snapshot of the entrepreneurial zeitgeist in India, you might be interested in checking out the following blog posts (especially the comments section):


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.

Band of Angels web site launched

Band of Angels, the New Delhi-based angel investment group, has launched a pleasant looking web site. The site includes a listing of the names (and in some cases, profiles) of current band members, what the group looks for in start-ups and potential new band members. Yes, contact information is availble as well.

Interestingly, the group is structured as a company, BoA Consultancy Services Pvt. Ltd.

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.

Camping: Hyatt :: Startup: Big Company

Tony Davis has a great blog post comparing life at an established “large” company and being part of a small startup.

The best analogy that I can find is that being in an established company is like staying at the Hyatt while a startup is comparable to going camping....I am talking about backpacking in the wilderness with just your tent, food, utensils and a collection of some of your closest friends. And remember, you are camping not because you want to, but because you don’t have any real money to spend, otherwise you would be staying at the Hyatt!

...The universe of employable people who have been through a true startup experience is extremely small. I often meet individuals who insist that they understand startups because in their previous company, they operated a separate division or that that they were part of a small business unit or that they joined a company when there were only 40 employees. After a short period of time “camping”, they realize that they were in fact just part …

The most important quality in a startup founder: determination

Paul Graham has yet another great article for entrepreneurs; this time, titled "The Hardest Lessons for Startups to Learn".

In point no. 5, he argues I the most important quality in a startup founder is determination. Not intelligence -- determination.
You can lose quite a lot in the brains department and it won't kill you. But lose even a little bit in the commitment department, and that will kill you very rapidly.

Running a startup is like walking on your hands: it's possible, but it requires extraordinary effort. If an ordinary employee were asked to do the things a startup founder has to, he'd be very indignant. Imagine if you were hired at some big company, and in addition to writing software ten times faster than you'd ever had to before, they expected you to answer support calls, administer the servers, design the web site, cold-call customers, find the company office space, and go out and get everyone lunch.

...If an acquirer thinks you're going to st…

How to get a get a better multiple on your exit?

Jeff Cornwall quoting The Christman Group LLC (a firm that specializes in exit planning for entrepreneurs) has a list of items which a buyer woult look at when determining what multiple of your EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) to pay for your company.

Number 9: Depth of Management and of the Sales TeamIf an owner wears all of the hats, including generating most of the sales, the price will go down. A strong and experienced management team to operate the business is key value driver.

Number 8: Customer BaseIf a company has limited customer concentration with no single customer representing more that 5-10% of revenues the price goes up. If the customer base is made up of “blue chip” companies, the price goes up too.

Number 7: A Good Story to TellTelling a company's story is critical in helping the buyer recognize the full value of a business. An extensive confidential offering memorandum that describes the business operation, the marketing and sal…

How many founders and angels is too much?

Will Price provides a VC's perspective:

On Founders:
A typical Series A sees the following equity ownership distribution: VC syndicate 50%, option pool 20%, founders 30%. Each subsequent financing will see founders diluted by roughly 20% per financing, such that after three rounds the founder shares represent 30%*.8^2, or 19.2% of the company. The per founder math is very simple - founder shares/# of founders. It almost seems redundant to state that too many founders can greatly impact the downstream economics of the founders, however, I have seen very smart, experienced founding teams launch with 5-6 founders and come to realize later that the per founder ownership in the entity creates real incentive problems. The VCs will rarely take less than 40-50% of a Series A and the pool is almost always 20%. Therefore it is important to think through the distribution of the remaining shares to ensure that each member of the team is truly required to get the company off the ground. Teams of…