The pre-revenue conundrum among startups

I took 11 active seed and early stage funds (Accel, Blume Ventures,Venture East, India Innovation Fund, Ojas, Seed Fund, India Internet Fund, Nexus, Helion and IUVP/Kalaari) and 4 top angel networks (Mumbai Angels, Indian Angel Network, HBS angels and Hyderabad Angels) in India to understand their pattern of investing in pre-revenue startups.

Of the VC funds, the norm is about 10% of their portfolio over the last 2 years (typically 3-6 companies) that were funded were pre-revenue.There are exceptions such as Seed Fund (30%-40% pre-revenue, because of their incubator Seed Farm, Nexus (over 50% pre-revenue fundings) but they are truly exceptions and India Internet Fund (very few investments so their % are skewed to 40% and they incubate companies).

Pre-revenue companies getting funded by VC’s in India is the exception not the norm.

Of the angel networks, only MA and IAN funded more than 10 companies over the last 2 years. Both funded less than 3 companies each year that were pre-revenue.

Pre-revenue companies getting funded by angel networks in India is also the exception not the norm.

Then I took the 10 active seed and early stage funds in US (First Round, Khosla, KPCB, Sequoia, Accel, Benchmark, Emergence, Google Ventures, Founders fund, Union Square) and the 4 most active angel networks (Band of Angels, Investors Circle, Golden Seeds and Alliance of Angels).

Of the VC funds, the norm is about 20% of their portfolio over the last 2 years (typically 6-10 companies) that were funded were pre-revenue. Higher than their Indian counterparts but still an exception not the norm.

Pre-revenue companies getting funded by VC’s in Silicon Valley is also the exception not the norm.

Of the angel networks, Band of angels is the exception at nearly 30% pre-revenue. Others are higher than India, but at the 15-20% mark.

Pre-revenue companies getting funded by angel networks in Silicon Valley is not high, but better than India.

I had a chance to talk to at least 1 investor in a phone conversation from each company above, so these are not just website observations.

So who’s funding pre-revenue companies in India and US.

Accelerators and Seed-funds such as YC, Tech Starts, 500 startups.

So if you are pre-revenue, dont waste your time going to angel networks or VC’s. Spend time building your product.

Advertisements

12 thoughts on “The pre-revenue conundrum among startups”

  1. Mukund: of the many attributes that I’ve come to appreciate about you and your work is that of your candor and a “tell it like it is” approach to parsing guidance and direction to those who are willing to listen and act. This post further galvanizes that admiration. Thanks for sharing it! JS

  2. I think you should convert your blog to a startup media publishing. You would give yourstory, pluggdin, medianama etc a run for their money 🙂

  3. Very insightful! We (Entrepreneurs) should stop considering ourselves unlucky based on geography. Let it be Sillicon Valley or Bangalore, if you have right product and customers, VCs will find you. According to me there is no US or Indian VC anymore.

    Loved your last statment “Spend time building your product.”

    Thanks for sharing!

  4. Mukund,

    You would certainly know the scene or you would not have made the remarks and the suggestion. I want to add a perspective that could be considered as a sequel to this post.

    There is also a marked reluctance amongst Angels and VCs to invest in a business that has a revenue from a product or service. The typical grouse are that the revenue is from a single source or that it is not substantial. They forget that if the start-up had multiple customers generating substantial revenue, then their relevance is minimal.

  5. Mukund –

    India Innovation fund – 2 years – 6 investments – 5 pre-revenue or revenue below 50L at the time of investment.

    Quote
    So if you are pre-revenue, dont waste your time going to angel networks or VC’s. Spend time building your product
    Unquote

    While I agree that entrepreneurs should spend time building the product, I am sure the 5 ‘pre-revenue’ entrepreneurs who we funded would acknowledge that it was not a waste of time talking to us for funding.

    Ashwin Raguraman
    India Innovation Fund

Comments are closed.