December 04, 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.

November 20, 2006

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 and was the highest number he could think of. Knowing that the beggar was always the first person everyday in the royal durbar, Birbal was confident of his ability to pay.

This story came back to me recently when some of us were at a national business plan competition organized by a premier management school. Most of the business plans were very innovative and had been prepared with a great deal of thought. However one recurring theme emerged as we sat in on presentation after presentation. And that was the incredible ability of these bright smart people to think small! How small? Well, how about wanting to be a Rs 100 million (approx. $2.25m) company in 5 years? This from a team of management students from a top school who one would have imagined would have higher and bigger ambitions.

I don't know if it is part of our DNA or eco-system or both but the innate capability to "think small" appears to be pervasive. And the resultant outcome is that we do things "small". We've encouraged people through the years to think and behave small like the beggar in the story thanks to the largely self-imposed resource constraints. A look at our industrial policy over the years, especially the reserved list for the small scale sector, is enough to illustrate the point. By operating in a resource starved environment, we have learnt to make do with less. The worst thing that has happened to us is that we have learnt to dream very small dreams, sometimes have no dream, goal or ambition even. We are paralyzed with inaction and self-doubt when there are resources to be deployed. We employ constraints based reasoning, i.e. we impose constraints before we decide the goals and our ambitions. We also assume that the constraints are somehow unchangeable and try and fit our ambitions and desires within them.

Fortunately, the last decade or so of economic reforms has brought in global brands, global processes, global awareness and global scales to some of our thinking. Capital is no longer a severely scarce resource at least not to the smart team of entrepreneurs. So why do we continue to think small? Why cannot a team of entrepreneurs think of the globe as the market, think of the globe as a sourcing platform, think of becoming a $1 billion company? So if capital is no longer a scarce resource, what is holding us back from thinking big?

The scarcity is in our imagination and will power that we continue to think small. The ability to think big on global scales is what makes a world class entrepreneur. Look at the examples around us – entrepreneurs who could and did think big were the ones who created Reliance, Bharti, Pantaloon, Infosys, and many others not just in India but around the world. These entrepreneurs have focused on their goals and ambitions and worked diligently to remove the constraints that could hold prevent them from achieving their big dreams. Why should our dreams be constrained?

So what does all this mean for an entrepreneur today?

Focus on large market opportunities. Focus on fast growing market opportunities. Focus on dominating that market opportunity. Ask: what does it take to dominate the market opportunity? Capital availability is the easy part. The hard part is building out the product/service, hiring globally scalable talent, and penetrating global markets. Capital will make this happen in large part. And the ability to think big (obviously backed by a clear focus and execution plan) will make the capital happen!

Remember to reach for the stars if you want to reach for the tree-tops. Those who are happy trying to reach the tree-tops are unlikely to get their feet off the ground.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

November 10, 2006

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.

Birth

* 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

Teenager

* 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

Adult

* Answer to board / investors
* Tight budget controls
* Consistent processes
* Leader deals with external forces
* Business is in a steady state
* Emphasis on managing people

Senior Citizen

* Death or Rebirth


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.

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 context of a use case, rather than a technical feature.

I will sure pass this advice on to the companies who would selected to demo at the Venture Intelligence DEMO sessions.

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 04, 2006

"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" or "I took revenues from INR 10m to INR 100m in 2 years".

In a corporate setting, this shows up in laconic answers to questions about capabilities and achievements. This shows up in nondescript product literature. This shows up in plain-vanilla product demonstrations. This shows up in the inability to create and close deals. While the prevailing logic used to be: "If the product and company are good and reliable, customers will come" or something to that effect. It sounds uncannily similar to the earlier production-side argument "build it and they will come". It was not considered 'nice' to be talking about yourself or your company. Others had to do it. Unfortunately, given the competitive nature of the world we now live in, there's no running away from the sales function. Else, 'others' will start talking about 'other' companies, not yours!

CEOs have to sell the vision of the company to the other founders or key management to get them to sign away a few years of their working lives towards making this vision a reality. They have to sell the vision to savvy investors and get them to believe in the possibilities the company has to offer. They have to sell the company's vision to their employees. They have to sell the company's capabilities (no more sales of visions and possibilities!), its products, services, processes to prospective customers and partners. And now imagine things go sour - as they usually will. The sales function gets into overdrive: keeping employee motivation high, managing angry customers and partners, managing upset investors in the boardroom. It is important to keep in mind a few realities:

- Sales is NOT about smooth talking, wearing designer clothes and carrying a cell-phone. Sales is about understanding the product and service, understanding what the company stands for, and COMMUNICATING it clearly, forcefully, and simply.

- Sales is about building relationships with various constituents. This implies getting to know other people and their motivations. This means leveraging relationships in a mutually beneficial manner.

- Sales is not the art of the hard sell. But it means being persuasive. It means being persistent and relentless. It means having a driving desire to make the other person acknowledge the superiority of your product/service by paying for it. It means having the ability to spot an inch-wide opening to sell a mile-wide product.

- It does NOT mean being dishonest.

It is essential to be articulate, to have good presentation skills, to have good inter-personal skills. These skills have to be practised and learned. After all, if you are unable to communicate your capabilities, how can you expect the other person to know of them? What is the incentive for the other person to spend time to get to know of your company, its products and services when there are any number of competitors?

Winston Churchill once said this about a fellow parliamentarian: "He's a very modest man. With much to be modest about!" Well, next time you are modest about yourself, your company, its products and services, think of this saying.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

November 02, 2006

Hocus-Focus?! - by Sanjay Anandaram

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

Hocus-Focus?!

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, System Integrators, IT Service providers, Wireless service providers, device vendors, platform vendors, and of course end users! I left wondering whether we had left out any category at all! Yet another company responded "Anyone who has a web-site" to the query "who is your customer?"

One of the big complaints about Indian entrepreneurial ventures is regarding their lack of focus. It is perhaps a legacy of the Indian environment that traditional Indian companies are widely diversified into power, telecom, software, consumer products, medical equipment et al. The reason for this phenomenon has been analysed by academics such as Prof Krishna Palepu of HBS.

But in the India of today and tomorrow where, increasingly, the market decides the fate of ventures rather than government largesse or the ability to “manage the environment”, it is all but impossible to be leader in a segment without focus. Especially true for young companies. Lets look at the need for focus from that perspective.

For a young company seeking to dominate and win a market space it is critical to have ALL available resources of the company behind a set of clear goals and objectives. These goals and objectives have to be time-bound and driven by achievable milestones. However, the tendency is to chase all kinds of opportunities in the hope that revenues will come in and payrolls will be met. It is extremely tempting to chase all opportunities, but by doing so the company will be diverting valuable resources in a highly sub-optimal manner. To the outside world, it would appear that the venture has no clear idea of who its customers are, that it is unsure of the market dynamics, and what strategies and tactics to follow.

In an era where customers and competitors are of global quality it is critical to have a clear understanding of the market and customers being served by your venture. Spend a lot of time meeting customers, partners, understanding competition, and the channels in the market to understand the dynamics. This in turn will lead to an understanding of the opportunities that can be profitably exploited by your company, given the operating constraints of your venture. Train yourself to get answers from the market to questions such as: Why will you buy my product or service? Why not? What will make you continue buying from me? What will not?

It is only through this iterative process that you will discover the “right” business model and the “right” value proposition. Now, you need to deploy all resources in making that business model deliver the value proposition to customers. And revenues and profits to you. It takes great discipline, great understanding of the opportunity, and appreciation of the startup situation to do it. And so naturally not everyone can do it.

In the late 80s, I remember seeing a by-line in an ad of a well known Silicon Valley company, Sun Microsystems: All the wood behind the arrow. Or, all the organizational resources towards an objective. Or simply, Focus.

What do you think?

_____________________________________________________________
Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.
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October 28, 2006

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.

October 21, 2006

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 can't let my friends down." This is one of the most powerful forces in human nature, and it's missing when there's just one founder.


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.

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? Are you open to hiring your own replacements? After all, your commitment must be to creating a successful business and you should be willing to do the right thing for the business. What is good for you need not be good for the company while what’s good for the company will always be good for you!

Click Here to read the full article.

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.

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 a successful entrepreneur deep in your bones and believe in yourself, the team and the opportunity. You must be willing to be consumed by the business especially in the formative years. Passion will help cope with the excitement and glamour of a startup as distinct from the reality. Why should people leave their jobs and join you? Remember, passion can be infectious!

Resource constraints: Are you willing to give up a cushy corporate lifestyle and the accompanying trappings and luxuries? Are you willing to deal with situations where your new business card no longer gets you appointments in a hurry? Are you willing to manage with limited resources, handle the immense pressures on your time and yet “give it all you have” performances? Are you willing to have your quality of life negatively affected? Are you physically and mentally healthy to handle the stress and long hours? What are you willing to give up to achieve your dreams?

Self-confidence: Do you have the self-confidence to realistically believe in your capabilities and harness the opportunity in the market? Can you communicate this self-confidence to your team mates? To your customers? Do you have the self-confidence to convince hard-nosed investors that they’re looking at the opportunity of a life time? Can you deal with rejection?

Humility: Are you humble enough to learn from others? Even if they are much younger? Are you willing to listen to others? Are you humble enough to go knocking on doors asking for help and advice? Are you willing to suspend your ego and contribute to the building of the company? Or do you think, “Taking out the garbage is not my job; I’m the CEO? Or, I was the CEO of this big company?”

Team Player: Are you individualistic or are you a team player? Do you share or hoard information? Do you help others on your team with their jobs? Is there trust between team members? Is there a single minded focus and belief on the objectives and goals in the team or are you there for your personal agenda? Can you delegate with confidence?

Knowledge: Do you have the required functional and business knowledge and expertise? Are you capable of spending time with customers and others to learn? Are you aware of the market, business and technology dynamics and trends? Can you command the respect of the board, investors, and others with your knowledge and awareness?

Time Sensitivity: Are you sensitive to the most valuable resource, namely time? Can you make quick decisions with less than perfect and inadequate information? Are you willing to change all 4 wheels of a moving car?

Communication: Are you an effective verbal and oral communicator? Can you communicate with your team, motivate and charge them? Can you communicate with the board and investors effectively? Can you convince customers, partners, and others of the value proposition of your company?


So, do you have it in you? What do you think?
____________________________________________________________
Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.
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"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 read the full article.

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.

October 20, 2006

"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 goods and services. Reams have been written about the great possibilities ahead. Sound bites by hyperventilating anchors fill the air waves. Various reports and analyst comments are bandied about as proof of our impending arrival on the world stage. While, these are all still in the realm of potential and possibilities, there is an unmistakable all round sense of being able to compete with the world’s best especially among the educated young people.

For the first time, an entire generation of young people cutting across class lines is acutely aware of the opportunity ahead of them. They also recognize the inscription on the other side of the coin: RISK. And it’s not a four letter word anymore. While earlier generations were defensive and inward looking, this generation is aggressive, outward looking and not given to the self-doubts of the past. This is the “why not?” generation. This generation has the potential to lead India to heights that are greater than anything we have achieved till date.

For the first time, innovation has entered the lexicon of Indian companies and management. It has become almost fashionable to talk about innovative practices in companies. But, in an era when intellectual property creation holds the key to success in many fields of economic activity, we need to be sensitive to the need for innovation. However, real successful innovation requires an entrepreneurial mindset. And an entrepreneur is one who assumes risk and the management of it to drive a business.

And it is no surprise therefore that for the first time, we’re seeing educated first generation Indian entrepreneurs emerge on the scene to take advantage of the golden opportunity and parlay their vaunted technical and managerial skills into world-class businesses. The IT entrepreneurs showed that entrepreneurship can help India ethically create new businesses, many new jobs, and create wealth in society. Telecom has, similarly, demonstrated world class entrepreneurship. Other sectors of the economy too are responding to these changing winds. Industry associations, academia, and investors are responding to the possibilities and needs of entrepreneurship. International funds of various hues have arrived to commit over $2 billion of sophisticated capital to entrepreneurs.

But a lot, lot more needs to happen if entrepreneurship is to become broad-based and to generate wealth across the board. Wealth creation takes place through entrepreneurship, not through babudom. The 2nd independence (from license raj and gut wrenching bureaucracy) of India that occurred in 1991 allowed some intrepid entrepreneurs to create wealth and jobs. But where will the next jobs come from when 70 million more people will join the ranks of the workforce in the next 5 years if not from entrepreneurial activity?

As India stands at the cusp of incredible opportunity, we must realise that this ethical wealth creation process across sectors of the economy needs whole hearted encouragement. Unleashing the energies of the young generation into productive economic activities is an imperative. Countries like the US, UK, China, Israel, Taiwan, Korea and Japan have demonstrated what entrepreneurship has done to their countries.

However, we must first learn to celebrate entrepreneurship and entrepreneurs. Role models and successes need to be highlighted. But, while doing this, we must also learn to celebrate failures. Setbacks are inevitable in the course of creating successful enterprises and navigating these successfully is the hall mark of great entrepreneurs. Creating such a celebratory mindset and a culture is imperative to fostering entrepreneurship.

This column is devoted to entrepreneurs, entrepreneurship, and in general to an entrepreneurial approach to problem solving. It is dedicated to the Indian entrepreneur – The Indipreneur.
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Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.
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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 worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 19, 2006

"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.

October 18, 2006

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


DEMO
@
Mobile VAS Connect
December 12, 2006
Bangalore

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.

October 12, 2006

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 difficult while I am the reasonable guy willing to make compromises.


Speaking from the context of a US-based VC, Brad Feld thinks entrepreneurs should use an agent if they raising late-stage capital, but go direct if they are raising funds for a start-up.
Many early stage VCs - especially those that are in saturated geographies and see a lot of deal flow – don’t pay much attention to deals that are promoted by an “investment agent.” I know a number of folks who simply “hit delete” on an email (the virtual equivalent to tossing the physical PPM – the document most agents insist on putting together – in the trash.) In the early stages, the entrepreneur is by far the best fundraiser for his company and there is a knee jerk negative reaction by many VCs against early stage deals that “require” an agent. At the early stage, an entrepreneur is much better served by finding an advisor (or set of advisors) or angel investor that has good VC connections and fundraising experience who can get actively involved in the company as advisor, board member, consultant, or even chairman.

Later stage companies and larger capital raises are a different story. The universe of later stage investors is very dynamic – consisting of corporate (strategic) investors, high net worth individuals, private equity firms, and hedge funds – in addition to later stage VC firms. Many firms enter and exit the market regularly for a variety of reasons (e.g. a number of hedge funds have recently started doing what traditionally look like late stage / mezzanine VC deals). An agent who is active at raising later stage capital will typically have some relationships with folks currently in the market, can run the drill of identifying the primary suspects for the entrepreneur, and can help manage what is typically a more complicated and less structured financing process (e.g. there often isn’t a clear lead investor in a later stage deal.)


Update: IDG Venture's Jeff Bussgang has more on this topic here

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.

August 17, 2006

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 simply and mechanically exercising the companies pre-agreed right to repurchase stock at the price it was issued. I foolishly let myself fall into the “it won’t happen to me” trap but no startup gets it right on the first try and theses hiccups often lead to changes in the team. Believing that any startup won’t have to deal with stock vesting issues is totally unrealistic.

Typical startup vesting schedules last 36-48 months and include a 12 month cliff. The cliff represents the period of time which the person must work for the company in order to leave with any ownership and the vesting schedule represents what percentage of stock the company can buy back at the time of departure. For example on a 48 month vesting schedule with a 12 month cliff, if an employee is offered 1000 shares but leaves in the first 12 months they don’t keep any equity. However, if they leave after 26 months they get to keep 26/48 of the equity promised or 542 or the 1000 shares. Key team members leaving will always be difficult but using a vesting schedule can make one acrimonious aspect of their departure much easier.

The second key lesson is that boards are most effective when they have 3 or 5 voting members and include at least one objective outsider to break any deadlocks. Early-stage startups are probably better suited with 3 directors than 5 so that the entrepreneur(s) can focus on building their company without getting bogged down managing their boards. My experience suggests that 3 is a good number even for bootstrapped companies that haven’t yet raised capital. Upon raising capital the investor will likely want a board seat so one of the board members needs to be ready to resign.

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.

August 12, 2006

"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 overnight with these heavyweight sales guys with no leads to go after and no mature product to sell. In addition, over time the sales team will get frustrated if the product is not ready for primetime and they will be out looking for a new job in a couple of quarters making all of this effort a very expensive experiment. Hiring a VP of Sales is not a commitment to hire one guy, it is a commitment to bring on a team, one that will not be cheap. Before you make this commitment, make sure you are ready.

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.

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.

July 23, 2006

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):

http://sramanamitra.com/blog/311

and

http://www.venturewoods.org/index.php/2006/07/20/40-turns-50-in-4/


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.

July 05, 2006

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.

June 15, 2006

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 of a group who lived at the Hyatt.


...In a startup, you are competing with many other smart people, like yourself. All of you are in a race to get to market first, get the best publicity and be noticed by the major players. You cannot assume that you are smarter than anyone else or that you have the luxury of time. You are starting off from scratch, you have no credibility, you don’t work for the big company anymore, people don’t know who you are and you have to establish your name and gain credibility. It’s like meeting someone on the camping trail and saying that although you do live in a tent, a very nice tent, you used to always stay at the Hyatt. Sure.

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.

May 13, 2006

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 stick around no matter what, they'll be more likely to buy you, because if they don't and you stick around, you'll probably grow, your price will go up, and they'll be left wishing they'd bought you earlier. Ditto for investors. What really motivates investors, even big VCs, is not the hope of good returns, but the fear of missing out. So if you make it clear you're going to succeed no matter what, and the only reason you need them is to make it happen a little faster, you're much more likely to get money.

You can't fake this. The only way to convince everyone that you're ready to fight to the death is actually to be ready to.

You have to be the right kind of determined, though. I carefully chose the word determined rather than stubborn, because stubbornness is a disastrous quality in a startup. You have to be determined, but flexible, like a running back. A successful running back doesn't just put his head down and try to run through people. He improvises: if someone appears in front of him, he runs around them; if someone tries to grab him, he spins out of their grip; he'll even run in the wrong direction briefly if that will help. The one thing he'll never do is stand still.


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.

January 02, 2006

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 sales programs, its organizational structure, its facilities and equipment, its financial performance, and provides a financial analysis including a believable 5 year financial forecast....

Number 1: Having Multiple Buyers
When there are multiple buyers bidding on a business, the price of the business will exceed the price paid for a business that is sold without competitive bids.


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.

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 2-3 founders seem to be the norm and cap table issues, questions about equity (wrt fairness), often arise if the team gets much bigger.


On Angels:

All things being equal, the number of common shareholders is inversely proportional to a VC firm's interest in funding a company. The brutal reality of company formation is that often one must take capital from as many angels as necessary. While a small number of qualified angels can add needed runway and perspective, too many angels creates shareholder issues that may impact downstream financings, acquisitions, and legal liability. In raising angel money, try to limit the number of investors required to hit the financing target. When shareholder consents are required - financings, acquisitions, etc - the logistics of rapidly getting approvals can be problematic. I have seen some buyers require full shareholder consents, even if not legally necessary, in order to limit downstream problems relating to minority shareholder lawsuits.



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.