Should you go for high quality or high quantity of users before your seed round?

I get this question fairly frequently from folks applying to the accelerator. Usually this comes from a team of 2-3 developers who have built an app and are looking to either a) raise a seed round or b) apply to an accelerator.

The question is a very difficult one to answer and requires a lot of context and specific knowledge about the problem the company is trying to solve.

Lets take an example. You have built a consumer mobile application, and have had the app out for about 1-3 months, and have “organically” grown your user base, with word-of-mouth or referrals. The question is what are “investors” looking for in terms of traction? Lots of users – meaning thousands of downloads and many active users? Or engagement – meaning a high rate of your “atomic unit” usage?

Or in other words should you spend your effort, trying to get more users or to get your current users to use the product more?

A similar example is one around many free users for a SaaS service vs. few paying users but relatively high usage.

The easiest answer is both. The best products and startups get many users and lots of usage.

The more nuanced answer is that it is dependent on what is tougher. Investors (Accelerators in this case, I assume, are investors as well), look for one very tough problem that has been solved by you as a metric for your future success.

That means, if they believe it will be harder for you to scale up the number of users (based on your app) then they would want empirical data to prove that you have cracked that problem. If, however, they believe that your solution has a harder “retention” rate, like a Twitter – (where signup is easy, but getting users to understand and use the product is harder), then they’d expect you to have solved that problem.

Either ways, they are looking for you to have a good answer and some initial experiments on how you will solve the other part of the problem you have not been able to crack.

So, leaves us with the question – What should you do about it? Lets say you have runway for about 3-6 months before you have to raise a round of funding. What should you prioritize between now and than time when you run out of funds?

How do you determine which problem is tougher? Getting lots of users or getting more usage?

This answer depends on your (eventual) monetization technique.

At steady state, you will make money from having lots of users doing the “atomic unit” action more often.

For the initial stage, though, investors (and you) should be looking for the easiest route to monetization and how you can scale that route faster.

So, if you will make more money from lots of users (e.g. social network) then that is tougher. If however, you will make more money by getting few users to use it more (e.g. in-app purchases), then that is tougher.

#Seattle and #Bangalore: An early comparison of #startup cities

I spent a good few weeks in Seattle meeting entrepreneurs, investors (VC’s and a few angels) and visiting local accelerators.

While, still early, I formed some opinions based on my interactions and impressions. I initially thought I’d make a very comprehensive post on the pros and cons of both cities, their entrepreneurial talent, their support for startups and their investor biases. I felt though, that I had not given myself enough time to understand the Seattle area, so I will look at the two startup hubs more objectively in this post.

My impression though right now is that Bangalore is WAY ahead in all metrics and by a wide margin.

I am not comparing the Indian ecosystem to the NorthWest, just Seattle to Bangalore.

There are 7 categories of data points I want to highlight.

1. Events, meetups, support groups and inclusiveness of entrepreneurs. Support for entrepreneurial success stories with startup media will also feature in this category.
2. Support for early stage (seed) funding with angel investors and accelerators
3. Ability for entrepreneurs to attract talent to their ventures – both availability of talent and their willingness to join early stage ventures, access to good local universities who can keep providing great talent for startups
4. Growth support with Venture capital
5. Availability of mentors - entrepreneurs who have been there, done that and later stage company CEO’s who can guide new entrepreneurs
6. Early adopters – small businesses, consumers and larger businesses who are willing to try and then pay for new products
7. The X-factor - things that attract smart folks to be here – quality of life, infrastructure, food options, night life, commute, weather, etc.

1. Events & Meetups. It is no secret that I attend many events. Most on the weekends – Hackathons, meetups, technical review sessions, show and tells. Anything that’s remotely entrepreneurial attracts my attention. From Design Day (hosted at the Accelerator) to Construkt and from NASSCOM Product conclave to The Fifth Elephant. I love meeting entrepreneurs and learning about technology of all forms.

In this area, Bangalore is way ahead by a mile, primarily because of the grassroots efforts by some . I am very impressed with Kiran Jonnalagadda and the Has Geek, Shubhendu and VentureSity, Prashant and the folks at Startup Saturday and the multiple daily events for startup entrepreneurs.

The Seattle ecosystem has its share of events, most are technical as well, with visiting folks from the Bay area and other locations meeting every week and many adhoc meetups for entrepreneurs both on the east side of Lake Washington and the West side (Seattle city).

Bangalore though, has over 54 hackathons each year and the Seattle area has fewer than 30. Seattle has Startup Weekend though, which does a great job locally. Bangalore just has way too many entities helping organize Hackathons.

Startup press in Bangalore used to be dominated by online publications like YourStory and Pluggd.In, but I see the Economic Times, Times of India, Business Standard, Live Mint and Financial Express increasingly doing at least 2-3 stories daily on startups.

Seattle has Geek Wire and a few local publications, but the number aside, (which would be less than 1/2 the total blogs and press in Bangalore), the ecosystem at the earliest stages is just small.

Since Seattle has a population of about 3.5 Million people, compared to 8.5 Million in Bangalore, it is expected to be much smaller. If you look at the technical talent, Seattle has around 500,000 folks in the tech area, compared to close to 1 – 1.5 Million in Bangalore.

2. Early stage funding. Talk to any entrepreneur in Seattle (I met with over 30 in 2 events) and the familiar concern you hear is – there are too few risk-takers, few early stage investors willing to fund pre-revenue companies and a dearth of high net worth investors in tech.

That’s the same story you hear in Bangalore as well, but there’s a huge difference. I am sure the entrepreneurs in Bangalore dont realize how good they have it here, until they look at other ecosystems (the familiar comparison is to Silicon Valley).

It is very surprising to hear that Seattle has few risk takers, since over 50,000 millionaires are in the Seattle area – ex-employees of Microsoft, Amazon, Isilon, F5 networks, Expedia, Starbucks, and others. The only challenge is that most of them are fairly conservative and have stayed away from investments in early stage startups.

Bangalore has about 10,000 $ millionaires in contrast from Infosys, Wipro, etc., but many more from old school businesses. They tend to be largely conservative as well.

If you look at the angel groups, Indian Angel Network and Bangalore Angels, although folks that move slowly and demand a lot of entrepreneurs, both in terms of milestones and % of the company, they do get deals done, and dont charge entrepreneurs to pitch their ideas.

In contrast of the 11 angel groups in Seattle, 8 of them seek payments between $200 to $800 to pitch, with no guarantees of funding.

The interesting thing is that having been in a few funding presentations at Bangalore, I get a sense that folks are interested in funding companies, but in Seattle I got a sense (from the 1 meeting that I attended, so take it with a grain of salt), that there was lots of skepticism.

The accelerator scene is pretty comparable. We have the Microsoft Accelerator, Kyron and the Target accelerators in Bangalore, and the Bootstrap center (J P Nagar) as well helps entrepreneurs. I went to 2 accelerators of the 3 in Seattle – TechStars Seattle, 9 Mile Labs and Eastside Accelerator.

I would still (I am biased) rate the type and maturity of entrepreneurs in Bangalore that come to the accelerator as higher than those in Seattle. I should do a more detailed fact based, data driven comparison on this later.

Finally the co-working space in Seattle run by We Work is awesome. I loved the space and its location is excellent. It is fairly central in the city and has easy access to investors, media and other potential partners as well.

Comparably The NASSCOM Warehouse with its one location is smaller and less fancy, but it has currently more startups than WeWork in Seattle. I know that the NASSCOM 10K program is looking to expand with another accelerator, and that will place Bangalore further ahead again.

3. Type and accessibility to talent. The talent pool in both places is fairly good, but both have their own challenges. Similar to Bangalore, most folks prefer to work for Amazon or Microsoft and any number of larger companies in Seattle and value their work-life balance. Of the 17 entrepreneurs I spoke with, most of them claimed that getting talent from places outside Seattle was impossible, but I know most Bangalore entrepreneurs can easily attract great talent from Delhi, Mumbai and other cities in India.

In terms of educational institutions, the largest University in the Seattle area (UW – or Univ of Washington, uDub) is a hotbed of some great research in the areas of IoT, big data and other nano technologies. Bangalore does have IISc, IIM Bangalore and many (over 50) local great engineering colleges, but entrepreneurs still have a hard time recruiting talent for startups.

4. Venture Capital Scene: I had a chance to meet folks from Voyager Capital, Madrona and Silicon Valley Bank. Ingnition is another well known local venture capital firm in Seattle. The investors were smart, very plugged in and very keen to get Seattle up and running among top startup capitals in the world.

Local to Bangalore, I rate Sequoia, Accel, Kalaari and Helion higher than their Seattle counterparts. I know there are more VC’s in Bangalore including Nexus, SeedFund and Inventus, but they have a  larger presence in other cities where most of their partners are.

The investor community in Bangalore is a lot more accessible, and frequently is spotted at events, looking to meet and learn from entrepreneurs. Seattle entrepreneurs love their VC’s as well, but they have smaller teams for sure, so meeting them is rare and most likely in panels at local events.

5. Availability of Mentors: There are between 10-25 names of entrepreneurs and founders whose names kept popping up at my meetings in Seattle and the number of “well known” mentors and startup founders were the usual suspects after my 5th meeting. Local favorites include ICanHazCheeseBurger, SeoMOZ, Apptio and others. The mentors (as expected) are very widely sought after and have very little time as well. They are mostly the role models for entrepreneurs in Seattle and so they are held in reasonable reverence.

In Bangalore as well, you will get the same 25-30 names, including folks a Flipkart, InMobi, and other successful entrepreneurs, but the depth here of the ecosystem and the diversity of activity is larger is my sense. There is large abuse of the advisory relationship and there are many “fake” mentors, but there are enough awesome folks like Ravi Gururaj, Sharad Sharma, Sanjay Anandram and others who are willing and able to help.

6. Early Adopters. I did not have enough time to observe the consumer part of the early adopters, but I think both ecosystems need a lot of work in this area. While most Seattle folks have a smartphone and they probably adopt new technology sooner than Bangalore folks, I think the very early adopters in both communities are limited and far-and-few between.

7. X Factor elements: This is a tough one. Lets peel the layers a little. I am sure I will miss a few categories, but lets try anyway.

1. Climate: Bangalore wins by a wide margin. Except for 3 months of the year, it is sunny, cool and wonderful. Except for 3 months of the year Seattle is raining all the time.

2. Food, Nightlife and Entertainment: Cant say. I dont know actually. I am not a big Nightlife kind of person, so I could not say. Suffice to say that local attractions in Seattle are a LOT better than Bangalore. With its many parks, hiking trails, lakes, etc. it is an outdoor person’s paradise. Bangalore has limited options for world cuisine compared to Seattle for sure. There are better attractions in the city of Seattle as well, with a great football club, a good basketball club and a decent soccer team. Bangalore has Royal Challengers and that’s pretty much it.

3. Infrastructure: Commutes are shorter in Seattle, Options for public transport are better and quality of life for most people is better than Bangalore. But the biggest challenge is Seattle is competing with Silicon Valley and New York / Boston and Bangalore competes with Delhi and Mumbai. Seattle cannot compete as well, but Bangalore is a much better attraction for folks who are not from this region.

So, there you have it. Comparing the two cities, I can confidently say the startup scene in Bangalore is at least 2-3 years ahead of Seattle.

Look at it another way: I believe Bangalore is about 10 years behind Silicon Valley (at the minimum) and Seattle is about 12-13 years behind, so practically speaking, we should not be comparing the two cities at all, because they are both way behind the leader by a wide margin.

I just wanted to do it because I got many questions from entrepreneurs from both locations wanting to know which city is further ahead.

I love hacks that solve the problem hackers have #linkedIn #Inhackday

Over the weekend I had a chance to visit the LinkedIn office and judge their Hackathon. They had about 400+ people register to hack and they finally selected about 200. Of these, 20 teams were formed and a set of 9 hacks were chosen to present to the final jury.

As expected many of the hacks followed the “I want to connect with someone, but I don’t like business cards” problem. That’s such a known problem and there are so many people that are aware of it that I see a variation of a solution to the problem in almost every hackathon I attend. At this hackathon, there were 3 of the 9 companies that presented a solution they felt would solve that problem. One was pretty interesting given that they used Google Glass, but nonetheless it was a trendy take to solve  the same problem.

I am always impressed by and energized to see hacks that developers build to solve their own developer problems.

One such problem was Xkeys (a Chrome plugin). This product uses the accessibility keys and features on websites to help you map keyboard shortcuts to surf the web with as little usage of the mouse as possible. Very neat problem. I love using keyboard shortcuts all the time and it helps me be more productive.

Another such problem was solved by a solo developer who built a solution to convert HTML tables into spreadsheets on the fly at any webpage. This allows you to cut and paste a column of the table instead of copying the entire table into Excel and manipulating it. Again, a real problem and a really interesting solution.

The winner was a solution that uses face recognition to solve the “sleepy” car driver problem. Mount your smartphone on your car dash and if have a pebble watch (or any other device), it will detect when your eyelids are drooping and send alarms to your watch or make a loud noise to wake you up. It will also alert you to the closest coffee shop so you can grab a caffeine jolt.

There were other hacks as well that provided a real time table reservation update to your favorite restaurant – one that needs to be updated by the restaurant owner, which I felt was going to be a pain.

Another hack was an app which uses GPS to allow you to track all your friends, when you are all trying to meet together. Imagine if 4 of your friends were all trying to go to a movie and instead of SMSing or Whatsapping each other about your location every 3 minutes, you could download this app and it would map your location and the 3 other friend’s locations as well.

Overall I saw some really high quality apps and as is the current trend, the LinkedIn offices were really swanky. The winners got MacBook Air’s and the runners up iPad Air’s and the 3rd place winners got iPad mini’s.

Farhad Manjoo misses the point on Apple and contradicts himself

There’s a piece on Apple at the New York times today.

Farhad says Apple has done very well “financially” under Tim Cook. That’s the measure of any CEO’s success. So Tim Cook according to him should be praised not criticized.

Here’s the thing:

Under Steve Ballmer, Microsoft revenues doubled and profits tripled. He was still criticized as “not a good CEO”. I disagree on that BTW.

The stock market notwithstanding, Ballmer did a great job given what he was supposed to do.

If you read Farhad’s piece on Steve Ballmer a few years ago on Slate, he was a bad CEO, because he moved from music players to XBOX to other things. He also said later, that Steve Sinofsky leaving meant the wrong Steve leaving.

So much for consistency.

So which is it Farhad? Why should Steve B be maligned for boosting profits and revenues, while Tim C be praised for the same?

<This was the Twitter conversation the two of us had on the topic>. Great to see him engage to tell his side of the story.

Farhad Manjoo

Farhad Manjoo

Plantar Fasciitis: I learned something new a week ago

I have a new condition in my foot called Plantar Faciitis.

It comes from poor running habits and my insistence on wearing chappals with poor sole support apparently.

For males, plantar fasciitis becomes more common before and during their 30s and decreases afterward. Engaging in heavy physical activities such as marathons, football or basketball are considered major causes.

So I have two options – either go with a arch supported shoe or buy socks with padding support to wear them with my sandals.

Painful.

If you think it is hard to be an entrepreneur, you should try bootstrapping

I met with 2 entrepreneurs from the Microsoft Accelerator last week for lunch. Both are among the nicest people I know.

The first entrepreneur used to have a really easy job at a large technology company. He had a 9-5 assignment and as comfortable a life as you can imagine. Great pay, good work-life balance, and a family that was very happy and content. A year ago he decided to leave and start his own company. He asked his spouse and a close friend to join him as well. They are among the best developers, architects and engineers I have worked with given how diligent, thoughtful and industrious they are.

The first 4 months were spent trying to better identify the problem they were solving, which is one of those that’s really easy to explain, but hard to pinpoint. Meaning, the problem when articulated, was one of those which has everyone go “Yeah, that is a problem”, but when you dig deeper after 30 min, there were many workarounds that people had already figured out.

They struggled and pivoted, changed course, modified their release plan and kept brainstorming, talking to each other, seeking advice from many people and finally released an absolute dud of a alpha version. I used it and I am not sure what it did.

They changed course again. Over the next 6 months, they hunkered down, painfully pivoted and modified their goal posts again. Released a beta version, which most people went “huh?”.

I personally know that even if they did not succeed, they were so good that they’d get a job at any large tech company in a matter of a month. They were that good.

I was happy that they persisted though and secretly hoping they release a product that everyone of their critics would go “Oh wow. Like wow. Really”.

They left the accelerator a few months ago. The last 3 months had been the most painful he said. He had so many fights with his wife, his father, his co founders, family and many sleepless nights, that he was extremely tired and at the point of giving up.

The team stuck through the lows and kept trying to find a way to solve the problem they felt was rather important to solve.

When he met me last week there was a man I met who had been to hell and lived to tell the tale.

They had just raised $800K in funding (money in the bank, yay!) and had commitments for another $200K.

Then he mentioned how he endured the lows and the number of days he cried and wept himself to sleep over the last 2 months,

I could relate. Those are exactly the set of emotions I have been through many times in my life.

The first 6-12 months of your bootstrapped startup are hard. If you think something is hard, take that and multiply it over 100 times, and imagine doing an alpine, freestyle, obstacle course avoiding maneuver on a double black diamond. It is that hard.

The worst part of the journey is the emotional roller coaster.

The downs, the further downs, the abyss and the chasms. There is no up. A “down” actually seems like an up.

The second entrepreneur’s story is more poignant.

I met him 8 months ago when he was introduced via a mutual friend. He was a very experienced trade professional with over 20+ years of successfully running his own company, but not in the technology space.

Here was a man, who had made good money, built great relationships and had some excellent success as a services professional.

He and his American co founder then decided the future was in building a product. The only problem was they were not developers or technical people. They had to hire a team of technology experts to build their product.

They were bootstrapped as well. He and his wife, put their life savings into the product. His co founder moved from the US to his homeland to reduce costs and they started building their product. His co founder continued to talk to potential American customers remotely and keep them excited about the opportunity.

They did get a “verbal commitment” from angel investors in Hyderabad, who backed off at the last minute. They had been bootstrapping for over 21 months.

The most amazing part was their customers were so excited to use the product, some of them gave an advance (small amounts of money but real hard cash) for their product.

Since they were not technical experts, they made many product mistakes. They underestimated the amount of time it would take, they put a really bad user interface together which most people could not figure out and they also hired wrong.

The most poignant part of the story was when he told me that his wife and he had to move apartments 3 times (that’s 3 moves) in the last year just so they could keep reducing their monthly burn rate at home.

Imagine moving kids, your wife, uprooting your family so many times so you can follow your passion.

He caught up with me to tell me about their seed round. They just closed $500K with a commitment for another $1 Million from investors outside India.

To them and all the other entrepreneurs who have endured these and many worse things, there’s nothing more I can say. I am just in awe.

When you could easily “get a simple job” and “enjoy life”, you chose to take the road less traveled and the harder path.

There’s another part of the story I want to highlight.

These stories are ones that ended on a happy note – well they both got funded.

For every two of these entrepreneurs, there are 100′s I know whose story did not end up with funding.

It ended with a company that closed, or a marriage that fell apart and a kid that had to go to a tier 2 college, because they had spent a lot of their life’s savings in their startup.

To them as well, I say “you tried, and did not succeed, but you did not fail”.

Those who “failed” are the ones who did not try at all.

The ones who failed are the ones in a safe job, 9-5 assignments who keep telling me “they want to start a company some day”.

I think we should have entrepreneurs that succeeded and those that did not succeed.

I liken it to giving the gold for the successful ones and silver to the unsuccessful ones.

The ones watching on the sidelines and commenting are the ones that “failed”.

So long and thanks for all the fish, but not really

We moved to India 6 years ago from the valley. I started BuzzGain and then wanted to start another company, but ended up at Microsoft instead.

Now we are moving back to the US in July or August. We are heading to Seattle.

I will still come to India every couple of months and the team here will continue to report to me, but I will live in Seattle.

Microsoft Ventures in India has 2 leaders – Ravi Narayan and Rajinish Menon. Ravi focuses on the accelerator and Rajinish on the community and engagement with the ecosystem.

I have thoroughly enjoyed my time in India and have made many friends and a few enemies as well. I have made more than my share of mistakes. So for all those mistakes and the people I have messed up, apologies.

To all the wonderful folks in the various cities that have hosted me and been such a source of support when things were going horribly wrong, thank you very much.

Most of all, thank you very much for being good friends and supporting me with your emails, tweets, blog comments and messages.