Category Archives: Angel investing

How to get a job as a Venture capitalist

I get an email or two a week from folks wanting to be a Venture Capitalist. Usually its to ask for introductions to a VC firm or to forward their resume. Most of these folks have a technical background and some have an MBA. Since most people sending the email dont ask me how they could really get a job at a VC firm, I thought I’d outline that for them.

There are broadly 3 operating roles in a VC firm – General Partner (GP), Associate / Principal (AP) and Operating partner (OP). There are other roles such as Venture partner, but those are fairly rare. Limited Partners LP’s) are not part of a VC’s fund’s operating roles, they are investors in a VC fund.

Most VC firms have between 2-5 GP’s, and 2-5 AP’s and 1-2 OP’s. (source: PDF)

GP’s take the most risk, since they raise the fund from institutional investors so they tend to get the highest salaries and profits the firm makes from the investments. To be a GP you should have enough capability to raise funds (the most important aspect) and deploy those funds to provide a better return (which is: invest in startups and ensure they have great exit). Most GP’s (over 60%) I know have a degree from a top notch school (think Harvard MBA, Stanford MBA or in India IIT and IIM). Please see list of VC firms (below) in India. My analysis of GP’s in those firms indicates unless you have been an entrepreneur before with a successful exit OR from a IIT / IIM, with over 10+ years of experience OR you can raise money from other investors, your chances of being a GP are very low (less than 10%). Unless you can raise money to be a fund on your own, you will have to spend 10+ years being an AP and then graduate to being a GP.

AP’s are usually junior folks, and of the ~120+ AP’s in the list of firms below, more than 69, (> 50%) are from IIT, IIM, McKinsey backgrounds. So if you are a fresh grad or someone with 2-5 years of experience, and not from a top school, your chances of getting into a VC firm as an AP are not high. Its not impossible, but there are only 400+ firms in India and so a max of about 1500 AP positions, which means a best case of about 700 (<50%) positions. The good news is over the last 5-10 years the % of IIT, IIM grads as AP’s has dropped from over 80% to less than 60%.

Operating partners are usually CFO’s or Legal advisors, so your technology background wont qualify you for a role there. More likely a legal degree or a CPA / CA certification is required.

So how do you get a job as a VC if you are not from a top school or you dont have ability to raise money?

1. Be an entrepreneur first: Most VC’s who are not from top schools end up being one because they made money for the VC firm that invested in them. If you are an entrepreneur and you raise money from a VC firm, and then have a successful exit, the chances of you becoming a VC improve dramatically. Surprisingly, even if you dont have a successful exit, your chances of getting into a VC firm improve many fold. If you had a successful exit however, you can possibly raise your own fund, and write your own ticket.

2. Help rich investors make money: As I point out before a key part of being a VC is the ability to raise money. Most folks who I get emails from are like me (15 years ago). I did not have the network to raise funds at that time and neither did I have a lot of money myself to start a VC fund. Raising money from other rich people involves them trusting and knowing you (they are friends, family, etc.) OR you having made money for them before. I suspect like me, most of the folks emailing me dont have very rich uncles and aunts, so the best strategy is to help rich folks get richer. This might include introducing them to startups which need investment and then exit to make your investors a profit, or making money for them via the stock market and generating enough returns to both satisfy them and to make a tidy sum for yourself.

3. Work yourself into that role: VC’s dont recruit by going to campus interviews or by posting on job boards. If they do, be vary, and run away. Most good VC’s I know only hire from their network or trust a executive search firm to help them get the right AP candidates. Get to know and help executive search (Kornferry or Stanton Chase) recruiters get other candidates (for other roles) and keep your name on their radar. They might come to you when a VC job comes up.

The other approach is to network with VC’s so they will let you know when their firm has an opening for an AP. To be on their radar, help them source and talk to great entrepreneurs and send them good quality companies to invest in. Alternately if you have an uncle or aunt at a VC firm, you can get that AP role fairly easily.

Of course the easiest way to be a VC is to bankroll the fund with your own money, if you have that much money, then this post is largely useless for you.

List of VC firms (sorted by no particular order), where I have a connection, so if you want an intro, I can help you.

DFJ http://www.dfj.com/cgi-bin/cgi-networkportfolio/search.cgi
IUVP http://www.iuvp.com/portfolio.htm
Bessemer Venture Partners http://www.bvp.com/Portfolio/Default.aspx
Saif Partners http://www.saifpartners.com/portfolio
Cannan Partners http://www.canaan.com/home/companies/india/
Venture East http://www.ventureast.net/Portfolio.html
India Innovation Fund http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=53252
Nexus Venture Partners http://www.nexusvp.com/companies.asp
Inventus Capital http://www.inventuscap.com/portfolio.html
Helion http://www.helionvc.com/portfolio.htm
Footprint Ventures http://www.footprintventures.com/portfolio.htm
IDG ventures http://www.idgvcindia.com/global_portfolio.htm
Ojas Ventures http://www.ojasventures.com/portfolio.html
Naukri InfoEdge http://www.infoedge.in/ir-financial-fys.asp
Accel http://accel.com/company/sector.php?sector_view=122100
Nirvana Ventures http://www.nirvanaventureadvisors.com/
Everstone Capital http://www.everstonecapital.com/
Epiphany Ventures http://epiphanyventures.in/team.asp
Seed Fund http://seedfund.in/investees/
Silicon Valley Bank http://www.svb.com/india/
India Internet Fund http://www.indiainternetfund.com
New Silk Route http://nsrpartners.com/portfolio/sector
Sequoia http://www.sequoiacap.com/india/early
Lightspeed Partners http://www.lightspeedvp.com/Portfolio/Default.aspx?i=1&t=0
Greylock http://www.greylock.com/portfolio/portfolio/
Benchmark http://www.benchmark.com/companies/
KPCB http://www.kpcb.com/portfolio/portfolio.php?communication
General Atlantic http://www.generalatlantic.com/en/companies/region/4
Ascent Capital http://www.ascentcapital.in/
Reliance Venture Asset Management http://www.relianceventure.com/portfolio.html
Intel Capital http://www.intel.com/about/companyinfo/capital/portfolio/index.htm?country=india
IFCI VC Funds http://www.ifciventure.com/Success%20Stories
Matrix Partners India http://www.matrixpartners.in/portfolio.php?category_id=8
Kitven http://www.kitven.com/port.htm
Rajasthan Venture Fund http://www.rvcf.org/portfolio.html
Norwest Venture Partners http://www.nvp.com/NVP%20India.aspx
Clearstone Venture Partners http://www.clearstone.in/content/html/portfolio-location.htm
ePlanet Capital http://www.eplanetventures.com/team
Artiman Ventures http://www.artimanventures.com/team.html
Indavest http://www.indavest.com/portfolio.html
Sherpalo http://www.sherpalo.com/portfolio/index.php
Catamaran Ventures http://www.catamaranventures.com/
Battery Ventures http://www.battery.com/portfolio/international.html
Qualcomm http://www.qualcommventures.com/team
Blume Ventures http://blumeventures.com/
Mayfield Fund http://www.mayfield.com/
Andreessen Horowitz http://a16z.com/
First Round Capital http://www.firstround.com/
Union Square ventures http://www.usv.com/
Khosla Ventures http://www.khoslaventures.com/khosla/default.html

Unpluggd: a Quick take on Uber Labs

I was the first speaker on the Unpluggd series a few years ago. I have very fond memories of the event, which was held at Honeywell offices. A little over 50-80 people joined us at a fairly small lunch room converted into a hall.

I attended the latest Unplugged on Saturday at MLR convention center. The first thing that came to mind when I walked up the steps to the auditorium was “You’ve come a long way baby“.

First off, kudos to Ashish, Kunal and Pratyush and the many others who worked tirelessly behind the scenes to get this to happen.

There were between 500 and 600 people at the event and it was buzzing. The first event had 2 sponsors, and Honeywell sponsored the location. This event had standing (or sitting in the aisles) room only even for the last talk in the day and top notch speakers and sponsors.

I was very impressed with both the quality of the 10 companies that presented (disclosure: Vinita, my wife presented her company GitGrow at the event) and the quality of the speakers.

One company in particular, UberLabs talked about their product gazeMetrix. One word – awesome.

No other words.

I have been to 5 demo days in India and over 11 in the US. This product in any of those demo days would have been among the top 3. The quality of the idea and its execution was crisp.

The entrepreneur in me says – just fund this entrepreneur. The investor in me says – get ready for a tough slog for the next few years. The product is good, but the challenge is going to be distribution. B2B companies targeting India alone struggle even with the best products. Targeting US (the primary market) for this out of India is always a challenge. What they will end up doing I suspect is to go Westward (like InterviewStreet, Orange scape and others).

That’s no necessarily a bad thing, but I just wish we had more early adopters both in the consumer and business side to help companies like Uber Labs thrive in India without having to leave India.

Notes from the BCG Global Wealth report 2011

The BCG report on Global wealth came out a few days ago. This report (along with another from KPMG) usually gives you an early indicator of what’s to come in the HNI and is an early indicator to the angel investor market. Some highlights:

1. # of millionaire households (worldwide) is 12.5 million (increased 12.5%). The million is invest-able income not including home.

2. Top 5 countries with millionaires – US, Japan, China, UK and Germany.

a) US 5.2 Million households

b) Japan 1.5 M

c) China 1.1 M

d) UK 570K

e) Germany 400K

India is #11 at 190K households (seems low, since the number of businesses doing more than INR 10,000,000 in annual revenue in India itself is  about 150K). Add politicians (local & state), film and sports personalities and you might easily get a 250K – 350K number.

The Ultra High Net Worth households (over $100 Million in invested assets) is about 12,000 worldwide, with the US leading at 2600+ households.

Of these the number of investors willing to fund risky technology startups is a very small 500-1000 number. Its obvious that most HNI in the non-technology space invest mostly in real estate and offshore investment vehicles. The real fun starts when the number of technology investors goes up to about 5000 (10 times the current number).

The “two speed” state of Indian market adoption

I have been watching / following 7 startups (3 in eCommerce, 2 in SaaS and 2 in consumer Internet) that target the Indian market over the last 14-18 months. All the entrepreneurs approached me with an intent to get seed funding so I had a chance to go over their traction, progress and future projections.

I have formulated a theory of market adoption of products / high technology products in India which I have tested with these and other companies and also with several venture investors.

For background please read “Diffusion of innovations” by Everett Rogers and Crossing the chasm by Geoffrey Moore. Don’t worry, I have only linked to their Wikipedia page, so it wont cost you anything.

Diffusion of innovations

At the top of the consumption (and monthly income) pyramid in India are what economists and marketing people call the SEC A and B class who have enough disposable income to spend on innovative new products. For the purposes of this blog post I am going to use 10 Mill (SEC A) + 20 Million (SEC B) households as the target.

The Innovators (less than 1 % of the population or 12 Million individuals) in India (entrepreneurs mostly) who conceive and develop these products for the Indian market and the early adopters (less than 5% of population or approx 60 Million individuals) together make up the entire “early adopter” category. Unfortunately less than 30% of them have both the interest, and the desire to be early adopters of technology.

Indian markets do not follow traditional diffusion characteristics when first innovators buy, then early adopters, then the early majority, and then the late majority and finally the laggards.

My theory on how diffusion of innovations works in the Indian context is as follows.

In India there are only 2 market adopters – those that are early and those that are not.

Abhijeet calls it the “low hanging fruit” and then everyone else.

So lets look at the implications of this observation / theory.

So what does that mean for entrepreneurs?

You will see a “headfake” of adoption and then a taper off.

E.g. The B2B SaaS company will quickly (within 3-6 months) get 10+ customers and over 30 in the pipeline, only to find the next 50 and the next 100 or the next 1000 are either non-existent or will come in 3-6 years.

E.g. The eCommerce company will see 1 -3 Million “registered” users and 1000’s of transactions within 12 months and find that the next 1000, 5000 and 10,000 transactions take 4-5 times as long.

E.g. You will see an initial 20,000 users for your mobile application for social TV extremely quick (within 3-6 months) and the next 50,000 or 100,000 take you the next 3-6 years.

I have seen these numbers play out again and again to know there are exceptions but those are rare.

These numbers are also dramatically different than those of companies targeting US or other markets.

When should you (as the entrepreneur) raise money?

You should raise it at the peak of inflated expectations. I.e. After you have some traction, which the investors think will be long lasting, steady and rapid. You will get the best valuation for the company at that time. Once your investor has some “skin in the game”, they are in to get their money back and then some, so they will do all it takes to make you successful.

 

Trough of disillusionment

What does this mean for investors?

The best time to invest is either very early (starting to build a company, idea and team stage) OR at the trough of disillusionment stage.

If they are early, you will get the bump from the initial adoption, so the value of the company increases many fold before the next round (which you should help the company raise at the peak of inflated expectations.

If you are post the trough, then you benefit from a growth stage.

What makes you go over the trough to the slope of enlightenment?

In my experience:

TIME

Nothing else.

You may think I am being facetious, but I am serious.

This may be a cultural thing, but in India, over time if you have the ability, patience and willingness to survive, you will reach the plateau of productivity.

Anecdotal evidence over several sales transactions also suggests to me that once people in India see you around for 2-3 years, they think “Okay, this company / person is for real. We should give her / the product a shot”.

Big thanks to Abhijeet and Shekhar for helping me with their data points to reinforce my theory.

The default option for entrepreneurs should be to not raise money

There’s a very interesting piece by Felix Salmon on Wired that has some very interesting nuggets and takeaways for entrepreneurs. I am highlighting the most important parts, but the entire article is worth a read.

This goes back to my original thesis that the entrepreneurs should bootstrap as much as possible because only 16% of companies in the Inc. 500 list from 1997 – 2007 actually raised VC money (read the Wired piece). Rest were self funded. Out side of technology that number is lower.

Going public might be good for a company’s investors and employees, but it is usually bad for the company itself. It forces CEOs to focus on short-term stock fluctuations at the expense of long-term growth. It wrests control from the founders and gives it to thousands of faceless shareholders.

To put it another way, the VC model is based on creating wealth for investors, not on building successful businesses.

(2011) Last year 429 VC-backed companies were acquired, while 52 went public

In 2009 Paul Kedrosky, a Kauffman Foundation senior fellow and venture capitalist, looked at the Inc. 500 list of the fastest-growing companies in the US for every year between 1997 and 2007—a period that includes the VC boom of 1999-2000. He found about 900 companies in all, of which only 16 percent had VC backing.

 

5 traits of a great angel investor

Over a startup event Bangalore a few weeks ago, I had the chance to talk to over 50 budding entrepreneurs about the seed funding scenario in India. It is well known that there is a lot more demand for investments at the seed stage than there is supply. The number of angel investors in India is estimated around 500 (informal estimate) and the number of active investors is less than 50. The number of new technology companies alone in India (software & services) total over 500 every year. I have personally talked to several high net-worth individuals (HNI) about looking at investing in new entrepreneurs and believe it will be only a matter of time (2-4 years) before investing at the seed stage becomes more prevalent.

The top 3 reasons for not investing, I hear from most HNI is the lack of exits, better or equal returns at lower risk with other asset classes or their desire to “invest in their own business than someone else’s”.

What will increase the number of angel investors in India is simple – more people making big money (I can easily see another 15-20 employees of Flipkart, Snapdeal and InMobi becoming angel investors in 2-3 years) and specifically more entrepreneurs themselves having exists.

So if you are a HNI and are looking to help young entrepreneurs become successful, what else would make you an ideal angel investor that entrepreneurs seek out for money?

  1. Relevant experience and knowledge of the space that entrepreneurs are looking to build companies in. This is the biggest value add you can provide, more than the money. If you have built a company in the same space, the value that you bring to the table is a lot more than any “dumb” money. In fact one could argue that your experiences are nearly worth twice the money you put into the startup.
  2. Network and connections. Great angel investors don’t just write a check and disappear. Once you put your money in, there’s a responsibility to commit to the success of the company. The bevy of lawyers, accountants, bankers, marketers and other connections you have made in your career are worth their weight in gold. That’s an amazingly attractive incentive for any entrepreneur to rather take money from you than other investors.
  3. Willingness to learn as much as you are willing to teach. Being an angel investor is more a lesson in learning than in teaching. I am pleasantly surprised with the insights I hear on hiring techniques, investor / board management and online marketing from young startup founders.
  4. Ability to provide time and empathy during the tough times. Every startup goes through a sine-curve of emotions. In fact if you have been an entrepreneur you know the experience well. Besides requiring a flash report on sales, hiring plan, product strategy and other company related metrics, the angel investor has to be available to his entrepreneurs. This does not mean having to spend 10 hours a week on the startup, but being available for that call or having a cup of coffee with the entrepreneur when you have a moment helps go a long way.
  5. Long range thinking. Angel investing is certainly not for the faint of heart. Market timing rarely works so most good investors I know invest the same amount every year for 5-10 years before they are able to spot patterns and obtain exits. The thrills of helping young entrepreneurs succeed though, more than makes up for the short term uncertainty.