Goodbye (regular) Venture Capital, Hello Massive!

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I have spent almost two decades in Startups / Investments and believe strongly that venture capital is probably the best option as a career. And no it is not the glamour or the usual challenges and interaction with new teams, new ideas day in day out and being in changing landscape every day/month/quarter but the real fun is in the ability to impact the world in a meaningful way.

Despite all the criticism of VC world – about loss-making business models, utopian ideas and the inability of many funds to outperform many indices or even return capital, the fact remains that venture capital industry is one of the finest product of the dark ugly big capitalism. In no other models, interest is aligned so beautifully where motivated founders slog day and night while dreaming of changing the world by bits and pieces and many time succeed as well.

Hence apart from those massive returns, the biggest contribution of venture capital has been its ability to change the world, create hope in society and on top set an example of fairness and equal opportunity where one crazy passionate entrepreneur can change the world and create wealth without resorting to all dirty underbelly tricks of capitalism. Hence I am not only proud of this career but am rather a staunch worshipper at the altar of this VC world which continues to dream big and aim big.

However as I pound the street raising my next fund with a good track record of success and failure, I have much time caught myself wondering about the big goals which drive me and the question which I ask all founders as what keeps me awake in the night. The fact of matter is that the biggest problem which haunt me are no longer next big idea in e-commerce, deep learning, possibilities in B2B space or consumption  but rather the large and real problems of declining forest cover, sad state of water / sanitation, environment, polluted & choked rivers / ocean and our ever declining bad air which we are breathing in and out.

Having set up an NGO (SAVEN) to protect environment at age of 18 in 1990s, I probably feel more strongly about it but despite all my hope, energy and commitment, fact of the matter is I am not doing anything real about it and much worse is that all of us who can do something, are busy and excited about bitcoin prices, next food delivery company or doctor discovery app while (secretly) hoping somebody else to appear and save us from the coming catastrophe.

The existing scenario of supercharged investors, euphoric entrepreneurs, and the orgasmic environment was best captured by Adam Smith in supermoney.
“We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter fall upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid no-one wants to leave while there is still time, so that everyone keeps asking, “What time is it? What time is it?” But none of the clocks have any hands.”– From Supermoney by Adam Smith.
Today one doesn’t need to be a climate scientist to figure out that environment is in deep peril. Oceans are silent, choked by plastic. Air is nothing but smog. Poverty is very well alive and kicking and pesticides have infiltrated every food system. However, the response from all of us is more on a confused state where people look at leaders and leaders look at politicians and who only look at short-term voters.

The fact is that we need to solve this problem our selves as it is too important a problem to leave to others and hope for others to solve. Hence at this juncture of my life when I have the luxury to choose, and the choice is available so my thought is as to why I am not solving this and the fundamental question comes as if not now then when, if not us then who?

As humans, we have created challenges for Nature by housing, transportation, and food and now in turn chickens are coming home and we are staring at these big challenges. I believe that if we are able to drive talent, money & networks to solve complex problems, we shall be able to solve them. Google Driverless cars are such an example. To start with, we are looking at opportunities in Agriculture, Electric Vehicles & Storage, Pollution (Air, Water, Plastics), Renewable energy, Sustainable housing, Water & Sanitation and aiming to solve them by using science, technology, and venture capital thinking of scale and disruption.

Hence time has come for me to say goodbye to regular venture investing space and say hello to Massive challenges, Massive efforts and Massive opportunities.

Hello Massive,

مرحبا ضخمة,

你好大量,

こんにちは

Of Entrepreneurs, Artists and Signals from the WhatsApp Acquisition!!!

19 Billion, the price Facebook paid for WhatsApp acquisition!!! So while the whole world is still grappling with the price points, pattern seekers amongst us are trying to figure out the perfect template / the secret sauce. (Un)Fortunately, patterns are loud and clear ~ “Pure product obsession / total disregard for market shares, revenue or break-even.” Social media is already abuzz with news about the handwritten note by Brian Acton, Co-founder, to Jan Koum, CEO, about “No ads, No games, No gimmicks!” that has already acquired cult status in the community. The other company that displayed such a mad obsession about ‘Product’ was Apple, which achieved spectacular success as well even with such a limited range of products.

So the big question is – if the wheels are turning and from MBA madness of value creation for stakeholder, are we now going back to the product? Or let me put it this way – Are we now going from number crunching science to the purity of art? James Joyce once remarked that The Artist, like the God of creation, remains within or behind or beyond or above his handiwork, invisible, refined out of existence, indifferent, paring his fingernails.“ Somehow Jan Koum, Brian Acton, Steve Jobs, etc., seem more like artists than anything else and that poses a real challenge to all of us, the template chasers; how to design a template to create a masterpiece of art?

For entrepreneurs, the choice seems pretty simple and logical, that is, to be an artist, as that is what the template says, but things might not be so straight after all.

In a way, artists have always thrived when there is a patron; be it a king or some support system, which allows them to pursue art without worrying about day-to-day cash flows. Interestingly, in modern times, Venture Capitalists have taken up the role of erstwhile kings, where VCs now help entrepreneurs to perfect a product without worrying about revenue or cash flows. But in a ‘no king scenario’ or in absence of ‘VC ecosystem’, one shall rather be a trader than an artist; but then as Joyce points out, a true artist shall be indifferent to the winning itself.

So overall, the signal is loud and clear – that in times of excesses where the patron is either a king or a VC, the artist is going to win, and win big, when capital is not a constraint. While in ordinary times, it is the trader who is going to win, and win big.

Hence, let us raise a toast to these times of excesses, the VCs, and Yes – Oh those mad artists!!!

Why has India Failed to Produce Tech Giants like Apple, Google, Facebook, Twitter, etc.?

This was a question asked at Quora about the failure of India in producing tech giants.

While there have been many answers with the focus on obvious villains like the Indian education system, lack of vibrant technology market, risk-averse VCs, and Blah! Blah! Blah! I think the root cause is much deeper and fundamental.

First, I think the obvious villains are too obvious like in any crime thriller and do not point to real symptom/villain, and second, I am not so negative on Indian education system as the popular wisdom would like us to believe – that Indian education is that bad as far as basic issues are concerned. Given the success rate of entrepreneurs and their ability to create mega large companies in a complete resource scare situation, one can’t just conclude and say that Indian education system has been a failure. I don’t know if the American education system works, given the academic performance of American children in Maths, Science, and Humanities these days!!

Basically, lack of great product companies like Apple / Google / Facebook in India points to a much deeper and fundamental problem and relates more to culture and society than the mere education system.

The bigger issue is that we as a nation/society have never valued craftsmen/artisans, or in a nutshell – product makers. As a country, we have respected/valued traders/money-owners or managers more than anything else, and have continued this tradition of following generalists than craftsmen (No wonder generic degrees like BA / MBA have been more popular in India forever).

The aspiration to be a project manager rather than being a hardcore coder is just not limited to the software profession only but is fundamentally prevalent in all walks of society. Where we as a nation always celebrate the king/minister or bureaucrat but rarely the architect or craftsmen – be it Sambhalpuri / Banarasi weavers, or brass craftsmen, or a passionate creator, or even the architect of The Tajmahal!!! It is Shah Jahan‘s Tajmahal and not Ustad Ahmad Lahori’s Tajmahal.

Hence, in India, everybody is aspiring to be a supervisor or manager or project manager, rather than being a great machinist, a great brick-layer, or a great coder, because as a society the respect goes to the person who doesn’t do things by his hands, but to the guy who supervises, and majority of the time, practically knows nothing. Unlike the Western world where the business was driven by craftsmen themselves – be it Samuel Colt or Louis Vuitton or Ford Motors, In India, business was always driven by a money-owner with little understanding/respect or liking for the craft. All that mattered was money and profit margin, and hence, India achieved huge success in the service industry as all you needed here was to hire a battalion of people and drive them without going deeper in the craft.

The other minor issue stems from the fact that as a society, we do not celebrate or accept failure. Given the resource scarcity, it’s not appreciated that a person can be callous enough to try many options and waste resources rather than focus on making good of whatever he has got. Hence, just 15-20 years ago, changing job was almost unheard of.

And these two factors have created a situation where there is very less focus on craftsmanship and more on trading, with limited risk-taking appetite and intent to destabilize the status quo, and that reflects in the lack of great product companies in India. However, last 10-15 years have caused a significant shift in behavior patterns and clear-cut changes are visible.

So for a country where the VC industry is less than 10 years old, mega products giants will come, and probably with changing times, this will change as well.

(This question was asked at Quora where it received some 44 responses. The above post in my answer to that question.)

(Source: quora.com)

Startup Pitch: An Insider’s Guide on What Do VCs Want?

As a VC, we suffer death by PPT (on a cue from Alexei Kapterev) almost every day. Every month, we see 100s of PPTs and attend many events where again one is drowned by pitches and more pitches… all vying for a time which is equally captured by e-mails / social chatter and other noises.

However, the majority of those (almost 99%) become dead on arrival or rather lose the plot in next 60 seconds. A lot of them are great business ideas or have better teams but all is lost in enthusiasm/eagerness to impress or in storytelling. Given the constant bombardment of pitches, a lot of startups don’t get a second chance to pitch again and lose a great momentum as a result.

This presentation is just an attempt to guide entrepreneurs to weed out unnecessary details and focus on the core belief of the startup. You might be having the next best idea, but if you are not able to put things forward succinctly, chances are that you might miss the bus, and we as investors might end up doing Type I / Type II error, as the case may be.

Remember – your first pitch is not about getting a cheque but is all about getting a second meeting, so work on the pitch to get attention / second meeting rather than drowning in details and losing the plot. Hope this pitch gets your attention or at least tries to achieve what I am preaching (or maybe I also lost the plot!!! ;))

Startup Pitch: An Insider’s Guide on What do VCs Want?

So You Want USD 5 Mn Series A Valuation for Your Startup: Some Key Metrics?

Venture Capital: What metrics does a VC look for in a consumer internet startup, e.g., a social networking site to fund a typical Series A valuation ($4m – $5m)?
I would like to know about the metrics such as:

A) How much revenue?
B) How many users?
C) What is the rate of growth?
D) How viral?

Also, please mention if there are any other metrics that VCs look for.

This question was posted on Quora with a request for an answer. This is a question which keeps on appearing at regular intervals in meetings / informal sessions/conferences or in secret whispers where people try to unlock the secret code of VCs on valuation related to a company.

Every entrepreneur wishes to know about those handles / lever-points, which will catapult their startup to get some particular valuation at Angel / Seed or Series A.

So what are the metrics which make us quite dizzy early in the morning and shows us dollar signs all around?

For any company (startup/growth/pre-IPO/listed-stock), any investment round is not the end but part of a journey where whatever enters at one point exists at another, and hence, let me rephrase this question and ask, “What metrics will get a startup USD 50 Mn valuation after 4/5 years?

USD 1 Mn revenue or 5 Mn?

EBITDA multiples 8 / 12 / 40 / 60?

Will you benchmark with Amazon (USD 54 Billion sales / USD 107 Bn EV) or Overstock (USD 1 Bn sales / USD 303 Mn EV) or Facebook / XING / LinkedIn or Groupon or LivingSocial?

Frankly, there is no clear answer as it all depends on the path the team takes it on since one can see from above-mentioned names that valuations differ greatly despite visible success in same vertical.

Web business is winners’ game and it’s 1 or 0 where winners take all, so factor that, and also-ran or 2nd / 3rd companies are valued at a fraction of what winners make.

On a broad basis, valuation is a function of earning and growth. Hence, earning and growth remains the fundamental case as far as financial metrics related to valuation works and all investment opportunities with financial objectives since the key parameters are bound to be valued on the basis of earning and growth only. Hence, there is no reason why a startup as it matures won’t be measured against these two metrics.

However, for Series A, valuation is more a function of many other factors, and in many cases, is also not very dependent on the startup itself and has more to do with market dynamics, investor internal road-maps / goals as well as peer group actions.

Hence, rather than worrying about Series A 5 Mn valuation, think of what it will take to make it a 50 Mn or 100 Mn or 1 Bn company (whatever the numbers are), since Series A valuation is a small stop-over and is not going to change or impact you for few % basis points here and there.

If you get a real bad valuation in Series A and do exceedingly well, Series B will take away all pains of Series A, and if you get very good valuation in Series A and don’t do well, there won’t even be a Series B, and you would end up having good paper stocks which can’t be used even as paper-roll!!!