Tag Archives: technology

Building great outcomes in #payments only at #NPC2013 – Braintree acquired for $800 Million

Not every day do you get news of an $800 Million acquisition in technology especially for a 6 year-old company, but Braintree just got acquired by PayPal for that ginormous amount.

What’s that got to do with NASSCOM product conclave you ask?

Well if you want to know how the payments landscape is changing dramatically with the advent of Square, Recurring payments startups, NFC, Bitcoin and the innovation in India, there’s only ONE place to be this winter. (So register for #NPC2013 already)

The payments track at NASSCOM product conclave features some of the smartest minds who can help you make sense of this large, growing and dramatically changing space.

Payments is a very interesting space because there are inherent barriers for external companies thanks to regulation. This is a space that’s closely watched by RBI, the banks and politicians themselves.

There have been multiple versions and attempts at solving the payments problem in India. We are bringing together the top experts in the payments space – the innovators, the investors, the disrupters and the incumbents to give you a birds-eye view followed by a kickass opportunity view as well.

If you are looking to innovate in this space, these key movers and shakers are the people you want to network with and they are going to be in Bangalore on Oct 29th and 30th at the Taj Vivanta.

This session is not all talk either.

We have terrific demos from JusPay, CitrusPay, ZaakPay,Ezetap, Oxigen, Khosla Labs and many more.

The top customers and enablers of payments, many of who turned payments into a differentiation – Ashish of BookMyShow, Mekin Maheshwariof Flipkart/PayZippy, Subba from Cleartrip, Loney Antony from Prizm Payments,Sunil Kulkarni of Oxigen and others – will share their approaches and strategies to tackle this problem as well.

Additionally with Aadhaar becoming a big part of the national payments infrastructure, hear directly from the UIDteam on how the platform is creating disruptive opportunities.

This track is being curated by the two top entrepreneurs in the space – Sanjay Swamy (investor at Angel Prime and ex CEO of mChek) and Puneet Agarwal (ex-Google – mobile NFC and payments).

If there’s anyone you need to know in this space, it is highly likely they will be here.

Come join us – because if you can’t collect the money, your business is just a hobby!

The reason why #startups fail in India is different from why they fail in #silicon valley

I read the interview with Steve Hogan yesterday about the reason for failed startups. Take a look at the #1 reason why startups fail according to him.

Hogan says, is that they’re sole founders without a partner. “That is the single biggest indicator of why they got in trouble,” he says, adding that it’s especially common for sole first-time founders to fail.

Sole founders.

#2 was lack of customer validation and #3 was “company ran out of time” – or money.

From our India data, I can tell you that among technology startups, solo founders make up less than 35% of the companies. We track now in our database about 15,000+ entities.

If you look at the reported closure rate, they are not significantly different from entities with multiple founders.

In fact in my own personal experience with 33 startups that I have closely observed in the last 12 months at the accelerator, the #1 reason for startups to close in India has been mis-alignment of founders.

Let me give you some examples that I am not sure are uniquely Indian, but occur in India a lot more than in the valley.

First was a team of founders working on a B2B marketplace.

Two founders we interviewed and accepted were related, but chose not to let us know about it. In the first 2 weeks at the accelerator, in multiple meetings they would often contradict each other’s views of their target customer’s pain point. One founder was a self-appointed “domain expert” and another was the “technical founder”.

The domain expert was an expert primarily because of the fact that she was not technical. She did not really have a background in the field, and neither was she all that experienced dealing with the potential customers. They had both stumbled into the problem while they were working in their previous jobs that were not related to their startup. After the first few weeks of multiple disagreements on the direction of the product, they chose to “keep their relationship intact” than to work on their startup.

Second is a team of strong technical founders.

Both these founders were among the smartest hackers I have met in India. Pound for pound they would be among the best developer teams you have ever worked with. They had worked with each other for over 5 years at a large MNC and came highly recommended. Their pedigree was excellent as well.

The problem they were addressing was real and fairly technical, and you were compelled to go with the team just given their background and the problem they were solving. The trouble was their answer to every customer problem was build more code. They were loathe to talk to real customers and after multiple fits and starts decided to split a few months ago. They still remain friends, but chose not to work on their startup.

Third was a strong team of founders, who had worked together for a year at another project.

They were also folks with excellent backgrounds, great Ivy league college degrees and were solving a real problem that many consumers had in India.

After a year of working together, building what I considered a good team of 5-10 folks and an alpha, then beta product, they chose to go separate ways. In discussions with both founders after the split, each blamed the other for not “delivering”. One person was the designated CTO and the other was CEO and chief sales guy. They did close a round of funding, but the product went through multiple fits and starts. The problem they were solving was real and even I was an early user of the product.

In all three cases, I found that having the co-founder was the big part of the problem.

Lack of communication, inability to stick through tough times and different visions for the company / product were the biggest causes for failure.

I’d like to understand from you what about our culture, our maturity as a startup republic and our progress with technology makes these problems more prominent in India.

 

What 4 Indian investors with $2 billion under management are looking to fund now

This post will be a random stream of thoughts, rather than a well constructed thoughtful essay. Apologies.

4 technology venture investors were at the accelerator today to listen to 7 corporate development and M&A teams on what they were looking for in an acquisition. The 4 investors together have over $2 Billion invested in India in the technology companies alone.

Exits are critically important to their (and hence entrepreneur’s) success. Exits with good premiums are even more important to them, but I am getting ahead of myself.

There are many reasons why a company acquires another company, but the 2 most important we talked about were a) Access to markets – in our case, India and b) Access to Intellectual capital.

Local acquisitions (Indian companies buying Indian startups) are fairly rare since many of the larger technology companies in India (services companies) dont believe they need IP based offerings and have the access to the market already.

Thanks to the FDI issues, eCommerce companies, which would have been a acquisition target for many companies are not longer on the shopping list of many acquirers.

So if you are looking to get investment from these venture investors, you will have to really follow the money trail, which starts at where companies are getting bought (since IPO’s are fairly rare).

For many of the larger technology companies, access to Indian markets is not a huge issue, (there are exceptions, IFlex and Oracle being one) and a few others might still happen, but the large source of exits will still be companies who need Intellectual property and those that need access to markets.

While many Indian entrepreneurs still hate the word “exit” and believe it is an unnatural act, they still do need to provide returns for their investors.

So to raise money now, you better have a clear idea about how you can plug a “white space” that exists among the larger companies from an Intellectual Property standpoint.

Some areas that we discussed were a) Payments b) Indic language technology c) On boarding SMB on the Internet d) cloud infrastructure and e) Software defined networking (SDN).

The step function of #changes that are happening in the #Indian #startup scene

Most everyone believes that startup growth happens in step functions. You work for ages on something and it seems like there is little progress, but as an entrepreneur you are plugging away at it and suddenly one day, the growth is dramatic. Then it plateaus for a while and grows again. That’s the same for startup ecosystems is my opinion (not researched).

Step Function Growth

Step Function Growth

I am starting to see the next step function of growth in the Indian technology startup scene. There are a lot of people (entrepreneurs, investors, etc.) contributing to this growth and its hard to point to why it happened except in hindsight.

First, what metrics should we track so we can really know if there’s a step function or no progress?

Here are a few that we track at the Accelerator.

1. # of startups: How many startups are getting formed, where are they getting started, etc.

2. # of funded startups: Time taken to fund startups, amount of investment into startups, stage the companies are in at the point of angel investment etc.

3. Pace of growth: How quickly are they signing customers, how quickly are they getting VC investment, how quickly is their revenue growing, etc.

The NASSCOM 10K startups initiative is one such forcing function contributing to the growth.

Yesterday in partnership with NextBigWhat they organized the first of several #startuproots event.

A big part of that event was the #sharktank, which had 4 companies out of 200 that applied, that were going to pitch to investors and they had to make a decision on the spot.

For those of you who are not familiar with the sharktank format, the startups get 5-10 minutes to pitch, the investors get 5-10 min to ask questions and 2-5 min to make an offer. The entrepreneurs can then take some time to make their decision and then make a counter offer.

All offers are binding, save for legal and financial due diligence. Which means if and investor gets cold feet later, they cannot back out.

Yesterday, 4 companies presented. I had heard about 2 of those companies before (but did not know they were chosen) and the other two companies were fresh and new.

There were 8 investors who were part of the sharktank, but only 6 were serious. The other 2 seemed more there to critique and provide theoretical knowledge about startups.

Pankaj Jain from 500 startups, Ravi Gururaj from HBS, Ranjan Anandan from Google, Anirudh Suri from India Internet Fund and RK Shah from HBS were on the investors side.

Tookitaki (ad-tech space), Moojic (retail music hardware), Credii (Mid-market IT decision support) and Lumos (solar panels for backpacks to charge your phone), were the presenting companies.

All four got funded at the end of the event. I personally thought 2 of them would definitely get funded, but all 4 getting offers was truly a step function change.

I was personally pleased that Lumos got funded. They are doing something new and innovative that most Indian entrepreneurs wont do – Working on a non-software, difficult to scale hardware business, because of their passion.

I have to call out a special mention to RK Shah. RK is not a technology entrepreneur, (he runs a textile unit) neither is he a professional institutional investor. He wrote 2 checks himself yesterday. We need more RK Shah’s in India.

Finally big kudos to Jaivir, Brijesh and the rest of the NASSCOM 10K startup team. In less than 1 week, they got 850 signups for the event, and 500+ people attending.

Why forced mergers in the eCommerce space is a good thing

Right now there are many distraught entrepreneurs and industry watchers who are either a) saying “I told you so” or b) saying “this is bad for startups”, when they read the latest “forced merger” between several eCommerce companies. While many felt it started with Flipkart and Letsbuy, the most recent BabyOye and Hoopos has more commentary on the negative side.

While we in India, have been witness to these mergers only in the last few years, this has been happening in the valley for eons  The new age name given to some of these funded startup exits is acqui-hire. Somehow acqui-hire in the valley is great and forced mergers in India is not.

There are and were many naysayers when there was a raft of funding in the eCommerce space a few years ago. Many folks were right about unsustainable business models, rampant discounting, unsustainable customer acquisition costs, etc. To them I say:

From Alfred Lord Tennyson’s poem In Memoriam : 27, 1850

“‘Tis better to have loved and lost
Than never to have loved at all.”

The eCommerce bubble in India has created a new set of entrepreneurs. They did it with other people’s money. No one really lost except for the LP’s who I am sure are now once bitten, twice shy about returns from Indian startups.

Honestly though, I have talked to 5 Limited partners at large organizations who are disappointed with returns from Indian Venture capital, but also realize they dont really have much of a choice but to stay invested.

There are some that claim that other deserving entrepreneurs, who were working on non eCommerce startups, were ignored during the eCommerce bubble. That’s absolutely nonsense.

In India over the last 3-5 years, if you were a good entrepreneur with a good business, great team and chasing a large market, you were able to raise money. The ones that did not get funding, either were chasing smaller markets, were going to grow slowly or were not sufficiently good teams.

Now what do I claim that mergers are good for Indian startups?

1. They help companies and their employees consolidate to create one large player in a mid-sized to big market, instead of 10 players chasing the same market and being extremely competitive.

2. They provide a means of employment for the many employees at those companies who were not the founders or the investors.

3. They give hope to the many entrepreneurs in the making that you can have a “failure” and still be considered for another opportunity in a startup.

4. It provides the investors an opportunity to consolidate their portfolio and hence double down on their winners, without spreading themselves too thin. That way the remaining portfolio companies win.

5. It frees up time from several investors having to spend time on middle-of-the-road companies, and gives them more time to spend chasing new opportunities.

6. It is easier to merge a company in India than it is to shutdown. The process to shutdown a company is also a lot more expensive.

Anything I missed on the other goodness from the eCommerce forced mergers?

Why do founders split? Performance and Execution

Both A & V met at their company cafeteria a few months before they decided to work together and start their venture. A was a front-end developer and V was a SEO and web analytics consultant. They both worked at the large company separately for 3+ years but did not have the chance to work together at all.

They were both in different teams and their paths did not cross very much. While standing in the cafeteria line, they got chatting about a weekend event and found they had several common interests and similar aspirations.

They decided to spend the next few months, talking about various ideas they had, mostly around starting a new venture in the eCommerce space. Neither had much experience in ecommerce, but they figured they would be able to add an operations person later.

4 months after their meetings they chose to build a online platform (one that held no inventory, but sold multiple products) for computer and mobile accessories of all kinds.

A, built the first version with some help from another friend who was the backend expert who offered some time in exchange for coming on board full-time if the venture got funding.

V focused his efforts on talking to suppliers and also helping A on some of the SEO work. Besides setting up their social media profiles, he also spent time taking to courier, payments and logistics partners to setup relationships.

3 months after starting they did a launch with friends and family. Response was good (relatively speaking), with 3 orders in the first day and over 5 in the next week.

I met them when V sent me their plan and asked for a meeting to discuss their seed funding requirements.

Given that I have had a poor track record with eCommerce companies and I dont like investing in them I declined the meeting.

A few months later, I met V at a startup event, when he mentioned that they both had split. He mentioned that the site kept going down and A was a good front-end engineer but not a strong developer overall, he said that they both had decided to shut down their venture.

I have not met A, but did check out his work and website. While I would not call his work legendary, it was not too shabby either.

The second biggest reason why founders split besides having differing vision is they both dont believe the other person is performing or executing as well as they are.

Rarely do they look in the mirror to see their own shortcomings.

There have been 2 other cases where I saw this similar situation. One person is either not executing at all – for various reasons or a deliverable or two is missed and friction sets in.

In one case a founder had a new born child within a month of the venture getting off the ground and had to spend a lot more time at home, which made the co-founder irritated and angry. They split and eventually closed the company.

I was surprised that they did the venture together knowing that one of them was going to have a baby.

When a pattern of execution and delivery on commitments is not set, then friction sets in very easily.

Its very hard to figure out if someone is executing well based on their “resume”. Most resumes are inflated (I am guilty as well) to “sell” and “position” the candidate in the best light. Even if they have worked at a position where its fairly easy to determine if they deliver and execute or not, it is mighty difficult to discern whether they were good because of the system built around them or because their manager extracted the best from them.

The only way to determine that is working together.

What takeaway do I have from this second reason for founder’s splitting?

I prefer to fund teams that have worked together in their new venture for more than 6 months. That’s an arbitrary number no doubt, but I dont have an alternative.

Teams which have worked together before, need to be working together again before I am sure that they know how to work with each other in a new environment without the support system they had before. There are exceptions, but they are rare.

I am hoping again that this is a demand and supply issue that resolves itself in a few years. Right not there are too many opportunities (thanks to Angel List) for good companies with high performance teams that have worked together for a while for me to even consider teams that have relatively younger working histories.

Why do investors use boilerplate emails instead of telling you the plain truth?

Most every day I get 2-3 requests to review companies for investment in the seed stage as an individual investor. Since I keep a fairly open network on both LinkedIn and Twitter, I get many folks sending me an email to review their plans. While I do read all of their emails, and send them a response, only 1 in 10 get me to open their plans.

It tends to be fairly easy to decided not to pursue based on their description of the problem or their background. Although I have put my criteria for investment on my blog, rarely do people read it.

I dont think entrepreneurs have internalized the changed landscape for funding of all types.

I do send a quick email to everyone of the people who I dont intend to invest in with a short 1-2 sentence reason. Either its because I dont like the market, the idea or dont believe it will work.

I used to be brutually honest initially (a few years ago) and have mellowed down over the last year. These days if I say I dont have time, it really is the truth. Its not because I dont like the plan or the entrepreneur or the idea. Its just because I dont have the time to evaluate the company.

The main reason I mellowed down was the feedback I heard from many entrepreneurs who had not developed a thick skin that my response was really disheartening and counter productive.

I read today, Paul Graham’s piece on VC boilerplate that Harj Taggar wrote and was amused initially, but the reality is most entrepreneurs prefer to read emails from investors that have some boiler plate stuff rather than the honest truth. I mention most, not all.

Its hard to find know which entrepreneurs prefer the straight up honest truth versus the ones that prefer to get a pat on the back with some encouragement to keep going.

Practically speaking the email from Harj, has 25 sentences too many. If all the email said was “it’s currently a little early for us to step in here.”, that would suffice. If there was more detail, i.e. the number of users, or too few customers, etc. it might help, but really it rarely does.

Why?

Primarily because you get into a shouting match about why the entrepreneur thinks you should be investing at this stage and why you are not an “angel investor” if you wait longer or that you (as an investor) are very risk averse. See comments on my post earlier on what you should have ready before you approach me to get a sense for that.

I invest in very few deals every year (most likely 2) and so do most VC’s. Like most of us we are all pressed for time. Short email responses with quick no should help, but realistically most entrepreneurs dont like that.