Startups are all the rage today. Around the world and, especially in India; what with schemes like Startup India and Standup India — this trend is quickly becoming a norm.
Let’s take off the rose-tinted glasses for a minute. Finding funding for your startup is one of the biggest hurdles you will ever face. You will need an arsenal of resources from people to technology to infrastructure.
Government initiatives hold their own but many still land up with their begging-bowls at the investors’ doorsteps. And in the desperate bid to stay afloat, young startups can lose sight of the big picture. You need to keep your eyes open for Mr. Right and ensure you don’t get lost in deep pockets.
From my personal experience of going through hoops for our startup; we have found many things wanting in this whole match-making process. It all starts with an introductory email or by a LinkedIn message. As the second step, the analysts or associates conduct the preliminary interviews and screen candidates.
We believe this is the crucial step for the investor and, even more so, for the entrepreneur. Why? Because here: as an entrepreneur, this is your opportunity to scout for Mr. Right or Ms. Right.
These analysts and associates hail from renowned institutions and having done two-year stints in some consulting firm or the other feel they have much to be proud of. And indeed they do. We do not say they lack acumen but they definitely lack core technical knowledge (software engineering, product development, domain expertise, mathematical modeling, machine learning etc.) Moreover, they follow a standard questionnaire template that they have been made to learn by rote. Some instances of creative engagement do occur from time to time but they are scant few and isolated, if at all. Add to this an inflated sense of self-worth and the over-confidence that comes with youth, and we find most yuppies having to make their ground-breaking and, mostly, niche offerings sound ‘cool’. After a while, one sees the pattern. Analysts and associates indirectly reflect the core philosophy of the investing firms. Please note that every VC has its own philosophy. The idea is to find harmony and synergy.
Here are some of the pointers/questions that you should observe/ask the investor.
- Not just about the money: We once quizzed an associate, of a billion-dollar VC firm, “How will you help us besides raising some funds?” A genuine query that allowed me to gauge their philosophy. “We can only write big checks. Don’t expect much else” was the trite response. We didn’t pursue that collaboration much further. We see an investor and entrepreneur as two parts of a whole, a boat if you will. To get anywhere we have to paddle as one unit. We will paddle hard and well but do expect some guidance, in terms of navigation, from the investor’s end, as well.
- Are you experienced?: We always get this straight out of the way. My startup works in healthcare and deals with electronic health records and epidemiology. We are into mathematical modeling and predictive analytics. Simple query, “Have you worked with healthcare startup before? Or is any of your startups are working with machine learning?” And a frequent response is, “We mostly work in e-commerce and social media…” There is no point in working with inexperienced investors.
- Chasing growth: “What kind of growth do you expect?” We asked of an analyst once. And the predictable response, “Of course, we want to get 3x, 5x, 10x returns.” Hmmm…and I couldn’t resist a follow-up, “Do you have any timeline in mind?” His prompt and articulate response, “As soon as possible…say 2–3 years”. This is where it became clear that the analyst really did not understand the challenges of healthcare, in developing countries. Traction and growth are important but one should also realize the domain and area of application. Building a healthcare startup is very different from building a social media or an e-commerce startup, especially for a developing country like India.
- Leverage the network: An investor has to be able to get you in touch with the right people — consumers, clients, and subject-matter experts. Money won’t do you much good if you have nothing to do with it. Often more important than the funds, is the network of the investors.
- Help in talent acquisition: “Would you help us in talent acquisition?” We once asked a Principal of an Indian VC firm. He replied “Here I will be very blunt with you. We will not help with that. It is the entrepreneur’s and the startup’s task to do so”. We did agree to some extent since scouting for talent and conducting interviews, IS time-consuming. But for first-time entrepreneurs especially; this can be very demanding. And investors should protect their investment by helping you attract the right crowd. People make or break the company. Simple truth.
- High-impact innovation: Look to find angels and VCs who are into solving high-impact problems. I would personally love to meet an angel or a VC who would consider building a product capable of transforming thousands of lives, rather than building a startup with million or billion dollars in evaluation.
- One-size-fits-only-one: We refuse to mechanically adopt or copy an approach that worked elsewhere in another demographic, in any part of the world. Most Indian startups succumb to this illness of what seems to be the ‘tried-and-tested’ approach. Caution: Don’t work with VCs who encourage copy-and-paste models.
- Basic etiquette and civility: Does one really have to point out that punctuality is important? Being late for a scheduled call by close to an hour, is a tragic waste of time. Calling from places with bad reception, or glitchy and frozen faces on Skype are really not the kind of statement that a high-flying investor needs to make.
This is my takeaway from our experience of finding the right match for your enterprise.
To be honest, we often get excited with angels and VCs approaching us and especially when there are big names involved. Often we get disappointed with their philosophy. Perhaps we are immature or we do not comprehend the right picture! We am still not sure why? Is there a major difference between the VC firms based in Silicon Valley, and their Indian counterparts? Methinks there is. If so, then is it differences in experience or professional attitude, enthusiasm maybe?
In general, most of the principals and the partners have significant experience in the startup space or have been serial entrepreneurs. Then why do they ignore all these important factors — in terms of engagement with startups! We leave these questions open for the audience.
To conclude, we would urge every entrepreneur to have the confidence and the courage to question, discuss, and then examine the investor on the above mentioned criteria. It takes lot of guts to find your Mr. Right or Ms. Right. Summarily rendered by the legend of Silicon Valley, Mr. Vinod Khosla, “95 percent of VCs add zero value…70–80 percent add negative value to a startup in their advising.”