Category Archives: Funding

Crowdsourcing our application process; Feedback needed

One of the things I am very disappointed with is that I know so little about so many markets and their opportunities.

As a selection team (we have 4 internal Microsoft and 6 external members – VC’s, angel investors and experts) we know more, but still our experiences are fairly limited compared to the entrepreneurs who apply.

We have so many applicants that are much more qualified than us, that it seems like we are under qualified to make these decisions on which companies to help and which ones to fund.

I have an idea for the next batch but I’d like some feedback.

Is it better to take a “wisdom of crowds” approach as well?

Should we take say 2-3 “slots” and provide the list of companies with an overview and plan and a selected list of say 100 people vote (with justification) on which ideas and companies should be funded?

Do you think it will work?

I dont want to give all the slots up for vote since there are some companies that are of strategic value to us.

One thing that it helps is avoid many more “Why did anyone fund this company” kinds of questions.

Please let me know your feedback.

Announcing the angel investor office hours in Bangalore (soon in Mumbai and Delhi as well)

How to hack your seed round in India, got 63 emails, comments and twitter messages asking me to take the post to its next logical step.

The 3 biggest issues entrepreneurs raised were:

1. They dont have the email addresses of these angel investors. Even if they did send them an email, responses were slow or went into a “black hole”.

2. The angel networks in particular have a fairly arduous process to filter, select and decide on new companies.

3. Many angel investors were not proactive in telling them what areas (sectors) they were interested in funding, so entrepreneurs could tailor their pitch to be more specific and target the right person.

I am extremely pleased to announce that in Bangalore (soon in Mumbai and Delhi as well), we will have a few of the top angel investors from IAN (working on Mumbai Angels and others as well, stay tuned) who are committing to office hours each week to meet entrepreneurs and provide them quick feedback on their funding options.

From January 2013, five of the most prolific IAN investors, Venkat Raju, Manav Garg, Nagaraj Prakasam, Sharad Sharma and Sundi Natrajan will hold monthly office hours in 2 locations – the Microsoft office at Lavelle Road and Eka Software offices in Outer Ring Road.

Update: Anil Joshi of Mumbai Angels has also agreed to host office hours in both Bangalore and Mumbai once a month.

Each session will be for 30 minutes per entrepreneur and a max of 4 entrepreneurs will be given time on a first-come-first-serve basis every month. Only one session per entrepreneur per year will be allowed.

Second, after each investment led by these investors they will write a quick note to tell us more about why they decided to invest. This will tell us more about what their thesis was, the trends they were betting on and other relevant details.

Finally each of these investors will share their investment thesis for 2013 and the sectors or areas they have expertise in or are passionate about. For example, Sharad’s an expert in Internet and advertising, whereas Sundi is passionate about education.

I am very excited that they are committing to these office hours. As entrepreneurs we will get a chance to interact with them and get their initial feedback so we can fine tune our plans and strategies to maximize our funding chances.

I do have one request: We’d like a volunteer to help program manage this effort. You should be willing to commit about 1-2 hours per week. If you are interested, please send an email to: mukund at thrisha dot com.

If you are a seed investor and you’d love to join this program, do send me an email as well.

P.S. A few folks have been asking me about other cities, such as Chennai, Hyderabad, Pune, etc. I wont be able to commit to these investors coming to those cities, but will try and get a few more local investors from those cities to hold office hours.

Getting funded by US investors vs. Indian investors – a perspective

This is another post to force the debate. I have heard many Indian entrepreneurs say that they would rather be funded by a US investor than and Indian investor. In fact most would prefer specific Silicon Valley investors.

There are many pros and cons to both Indian and Silicon Valley investors.

Lets do the valley first.


1. Investors move quickly. They make no decisions fast and yes decisions faster. Some companies (Cucumber town for instance) have been known to take a few days or upto a month to raise a seed round of $300K.

2. Investors are willing to invest in breakthrough ideas, instead of me-toos. In fact they have deep liking for disruptive ideas.

3. Willing to lead a round, and help you syndicate other investors.


1. There’s tremendous deal flow. Competition to get funded by a valley investor is huge. Lots of companies that have 3 to 10 times the traction as their Indian counterparts for the same stage of company.

2. Valley investors dont like funding anything outside the valley. In fact an investor told me “I dont like to drive to the other side of the bridge (I am sure he mean Dumbarton bridge, given how close it is to Menlo Park) to fund a company”.

3. You have to move to the US (Maybe this is a pro for most Indian founders). The biggest hassle is immigration. H1B visas (working permits) are much harder now than 5 years ago.

Now lets look at India.


1. Competition is a lot less. There are far fewer product companies in India than US. Some might even say there’s too much money in India chasing too few deals. Entrepreneur’s dont necessarily agree with that, though.

2. There are many funds raised just to invest in Indian product companies. They are willing to provide the same amount of money, as their US counterparts from as low as a few hundred thousand dollars to many millions.

3. Traction requirements are a lot less. A lot less in India. For a sapling round (assuming you raised a first seed from an accelerator or from friends and family) many companies are getting funded with far fewer customers or users than in the US.


1. Indian investors (angel and seed) move very slowly. Slower than molasses in fat. We have a company with a 2 month old signed term sheet, that’s waiting for the money, and expects it will take 6-8 more weeks.

2. Their terms are lot more onerous and they require a higher percentage of the company during the seed round.

3. They rarely add any value after putting money into the company at the seed round, usually only asking for “3 year financial projections” when the product is in beta.

If I were an entrepreneur and I have the ability to go to the US and have some (small or otherwise) network in the valley I’d go and raise money there in a heart-beat. If my customers are primarily in the US, then I’d also consider moving there.

If I have never set foot in the US and want to stay in India or have my market here (for any number of reasons), then I’d be better off raising money in India.

What do you guys think? Did I miss any obvious pros and cons?

What is Venture Rate of Return?

Entrepreneurs usually ask me why VC’s take so much of their company when they are only providing money and the entrepreneurs themselves are doing all the work.

Its very simple actually. VC’s and other professional investors raise money from other people (usually funds and high net worth individuals) who are expecting a return on their investment.

Right now in India, fixed deposit rates hover around 10%. That means each year you are getting 10% return on your money as a “safe investor”. Real estate investing over the last 20 years has returned in India (not all but many) close to 15%. Granted both these are fairly “not very liquid” investment classes.

Venture investing though is less liquid. Until the companies “exit” they dont return any money to the investors.

So if you as an investor are willing to take a risk, you expect a higher rate of return. Some other asset classes return higher than real estate, but they would be more risky.

The term Venture rate of return is the % of money the investment will yield annually over a period of time in a venture fund. Used to be that period of time was 7 years, now it is close to 10 years.

Lets say for sake of discussion the rate of return you expect as an investor in a fund is 25%. It seems reasonable given the risk.

That means, the VC has to return 25% each year on money raised.

Lets say that the VC raises a $10 million fund. In year one that fund has to be “worth” $12.5 Million, $15.65 Million in year two and so on until in Year 7 when it has to be worth $47 Million and in Year 10 it has to be worth (and return) $93 Million.

So the $10 Million raised has to return 9.3 times its value over 10 years.

VC’s have operating costs as well so they take 2% of the fund every year as a management fee for say 4 years. That means they have $9.2 Million to invest and $93 Million to return over 10 years.

Ten Times the Money raised.

Now this money should not be in paper alone. It has to be funds returned to the investor. Which brings us to the “exit”.

If startups dont “exit” – go public or get bought, then the funds dont get their money back and everyone is unhappy.

Unhappy since VC’s wont make the return they have to for their investors and the investors in turn will stop putting money in VC funds, which means fewer startups will get funded.

What does this have to do with % ownership for VC’s? They have to own a significant % of your company so when the company exists, they can provide that return to their investors.

If you are a VC and you are investing the $10 Million in 10 companies (its not as simple as put $1 Million in each company BTW), you need to have at least 2-3 companies “exit” because 7-9 will close and die. Startups have a very slim chance of success. Success in this case is providing an exit.

Success, however for an entrepreneur is a growing, thriving business. That’s the dichotomy and a discussion for a later post.

Here is a spreadsheet for a review.

Fund Raised  $  10,000,000
Management Fees 2%
Year 1 Mgmt fee  $        200,000
Year 2 Mgmt fee  $        200,000
Year 3 Mgmt fee  $        200,000
year 4 Mgmt fee  $        200,000
Total Management fee  $        800,000
Total available to invest  $    9,200,000
Expected Annual return 25%
Fund Value Fund Return
Year 1  $  12,500,000
Year 2  $  15,625,000
Year 3  $  19,531,250
Year 4  $  24,414,063
Year 5  $  30,517,578 3.05
Year 6  $  38,146,973 3.81
Year 7  $  47,683,716 4.77
Year 8  $  59,604,645 5.96
Year 9  $  74,505,806 7.45
Year 10  $  93,132,257 9.31

How to hack your seed round in India? Winter 2012 Edition (Bonus: List of Indian angel investors)

This post is for first time entrepreneurs who are looking to understand the maze of Indian seed funding options. If you have raised a seed round already and are looking to raise your series A, then please read the 5 step post on raising series A.

If you want to raise a sapling round (after the seed round, but before the series A) then this list is still your best bet.

If you wish to get into an accelerator instead of raising a seed round, there are several options available for you, including the Microsoft Accelerator, but you will still have to raise a seed / early round after going through the accelerator.

Here are some assumptions I make:

1. You have a product that is in either prototype stage or you have an early version.

If you are at the idea stage, then please raise money from friends and family. If you are looking to build a services company, then get customers to give you some money in advance.

2. You have bootstrapped your company and you have <5 people in the company.

3. You are looking to raise < 1 CR or $200K.

4. You are based in India and your market is either India or US.

5. You have some customers either using or trying your product.

The first step to hacking your seed round is identifying your investors and making a list. From my experience I have made a list for you below.

Download the Indian Seed and Angel Investor List.

The second step is to get introductions to these folks and talk about your company.

The third step is to follow through, follow up and follow on. Nothing kills a fund raise more than giving up because the process is hard or long. Raising money is not easy so its not for everyone.

There are 5 options ( or categories) for raising seed round in India.

1. Individual influential angels. There are only about 5 who matter in my experience. Rest are largely followers. Although there are over 250+ individual angel investors in India who are independent (not registered with Angel networks), most of them rely on a lead investor and will typically follow than lead. Vishal Gondal, Sunil Kalra, Krishnan Ganesh, Pallav Nadhani, Vijay Shekhar Sharma, Harish Bahl and Abhishek Rungta are  some of the prime movers.There are others who matter such as Alok Mittal and Rahul Khanna of Canaan partner (but more as individual angel investors) but they dont do more than 1-2 deals every year at most.

2. Angel network champions. There are 15 angel networks in India, but the 4 that matter are Indian Angel Network, Mumbai Angels, Hyderbad Angels and Harvard Business School Angels. Keep a lookout for Innovation angels and Chennai angels, but they dont do many deals yet.

For IAN, to hack the system you have to get a lead. There are 3 leads who do possibly 75%+ of all deals – Sharad Sharma of Bangalore, Rajan Anandan of Delhi and Rehan Yar Khan of Mumbai. There are others in each location who lead some deals like Manav of Eka Software and Naga (both are from Bangalore), but if you want to get funded by IAN, these guys have to champion your deal, else things just dont happen.

For Mumbai angels, Sasha Michandani and Anil Joshi matter. Deepak Shahadpuri might also be able to move things. Rest will follow. Get one of these two folks to champion your deal.

For Hyderabad angels, Srini Koppolu matters. Shashi Reddy also does. Rest will follow.

For HBS, Raj Chinai and Ravi Gururaj should be tapped to lead. Given that Steve Lurie’s moved back to SF, dont expect him to champion deals.

For Innovation angels, Shekhar Kirani, Palani Rajan and Rajesh Rai matter.

3. Seed stage institutional investors. There are 7 that matter. Nexus VP, Blume Ventures, 5 ideas, Angel Prime, 500 startups, India Internet Fund and Seed fund.

For Nexus, get help from Sandeep Singhal or Suvir Sujan (Mumbai) and Sameer Varma (Bangalore).

For Blume, Karthik Reddy, Adit and Sanjay are key, but Karthik’s everywhere so you are likely to run into him.

For 5 ideas, Pearl Uppal and Guarav Kachru matter.

For Angel Prime, Sanjay, Bala Parthasarthy and Shripathi will make deals, but you have to be in Bangalore.

For 500 startups, Pankaj Jain is in India, based in Delhi.

For India Internet Fund, Anirudh Suri matters.

Seed Fund is an interesting option, who I have been told, (not seen first hand) does seed deals as their name implies, but yet to really hear it from entrepreneurs. Bharti Jacob matters here.

4. US based individual angel investors. If you dont know the US angel investor personally because you have either worked with them before or they know you in any other personal capacity then dont bother. The distance alone makes most them unwilling to invest. This network you should tap only if you know the individual well. Angel List might be a good start.

5. IT services company CEO’s: (of companies doing > 10 CR or $2.5M in revenue). I am seeing more of this category starting (early signs) to pop up.This person has been a 1st generation IT entrepreneur who has built a services company and has been running it for the last 5-10 years. They have the money, expertise, time and energy to mentor and fund new startup founders. I have only seen 2-3 of these folks, but Arvind Jha is an example. If you find more of these please let me know.

Lessons from tennis – The one rookie mistake every entrepreneur looking for funding makes

Admiring the shot instead of preparing for the return

Early this year I got a new tennis coach, since the one that was helping us left for Hyderabad. It was a big change for the entire family as we all got new coaches and the adjustments were tough. Most new coaches try to understand your game for a few weeks before they point out changes you need to make, but the new coach focused on only one aspect of my game.

Although the rest of my game is pretty average, I have a mean forehand cross court. I knew that it was good. So I’d never give up the chance to show how good it was. Play to my strengths has always been my motto. That still does not result in winning points, though. It just resulted in many people admiring my shot.

After about 15 minutes of playing with me, my coach stopped, asked me to come mid-court and said

The biggest reason you are losing more points, is because you are busy admiring your forehand cross court shot, instead of preparing for the return.

It took me a while to understand that. Having been told always I was good at that particular shot, I was expecting him to help me improve it. Instead, while he said it was good, he pointed out that I was too enamored by it to prepare for the return from opponent. That’s where I lost my points.

I see this also in many entrepreneurs who ask me to review their pitch deck before they seek funding from VC’s. Their pitch deck is awesome, super tight, glitzy and slick.

Their operating plan is an afterthought.

It’s almost as if they don’t expect the investor to take things forward, so they are unprepared.

Similar to my forehand cross court shot.

I expect most shots to be winners, so I am not prepared for the return, instead I am admiring the shot I just made. Trouble is over 50% of the shots were being returned.

Same with investors

In golf there’s an old saying.

Drive for show and putt for dough. (quote)

I am going to modify that for funding.

Pitch for show and plan for dough.

If you want to get funded, focus on getting your sales, marketing, hiring and financial plan in order, because that’s what investors value. Its showing them how you are going to use the money to create value for the company and a return on their investment.

Of course, without a good pitch deck you won’t get to the next step, but since most entrepreneurs do a fairly good job of focusing on the pitch deck, I’d recommend you spend enough time on the operating plan as well.

What’s getting funded by Indian seed investors? Winter 2012 edition

I am going to write some quick posts each quarter (let me know in the comments if it needs to be more frequent) on the patterns I am noticing on companies / ideas getting funded in the seed stage. These are particular to India, and are based on a) interactions with entrepreneurs b) discussions with investors (angels, angel networks and seed stage investors) and c) database of investments from all types of companies.

How can you use it? My first reaction is ignore it.

Businesses are built not with financing alone, but with passionate entrepreneurs and eager customers.

Then why am I writing it you ask?

This might help you position your company differently with investors if you are seeking funding. The same company focused on a B2B market vs. B2C market comes out looking dramatically different even though the core “idea” might be the same. If you are a company that’s in the “not getting funded right now” list, take heart, sometimes it may be good to swim against the tide.

So here’s what getting funded or moved along in the funding stages with investors.

1. SaaS companies focused on marketing & targeting the US market. The mega trend is Marketing automation is going to be a large market.

2. Payments & payment enablers that help reduce costs for eCommerce companies in India. The mega trend is reducing costs for over 60+ eCommerce companies that have been funded over the last 3 years.

3. Software companies that build apps to help consumers take control of their health. The mega trend is the slow ageing population the world over and especially the unhealthy lifestyles creeping into India as well.

So whats taking longer to get funding or getting passed quickly?

1. eCommerce companies for physical delivery of products or niche eCommerce companies. Most (or all) are running into strong headwinds in trying to raise their Series B.

2. Consumer Internet companies focused on the India market with limited downloads or traction.

3. All kinds of education software companies – there’s a general pause I hear from investors since they are trying to figure out where in the value chain of education will there be money made.

P.S. I would love to name companies as examples for each, but I get so much hate mail from company founders I have funded myself on why they dont want the “unwanted” attention to their companies or their fund raising efforts.

Why it is a LOT easier to raise seed money for your startup in India than silicon valley right now

If you are an Indian entrepreneur who is looking to raise seed funding for your startup do it now. There’s been no better time to raise money for technology product startups than this year and possibly part of next year.

I understand the issues entrepreneurs face with Indian investors in the seed & early stage. They take too much time to make a decision, they ask for too much of your company and wont fund anything pre-revenue.

There are 3 major trends that are making it easier to raise capital now than any other time.

1. The number of accelerators has grown tremendously over the last year. There are 30+ privately funded (6+ in Bangalore alone), for profit entities, who are all keen to add bigger batch sizes to their portfolio.

2. Many Venture capitalists, stung by criticism that they are not taking enough risk and are not early adopters are eager to engage with startups earlier in their evolution, and are tweaking their investment thesis to add a few more pre-revenue and pre-product stage companies to their mix.

3. Angel networks, seeing over 15+ VC’s raising over $100+ million funds to focus on India, are signing up new angel investors in droves, and expanding their footprint. 2 years ago only 3 large angel networks existed in India. Today there are 15, and each of them has over 25 angel investors and some have over 150.

Seed stage of the Indian startup ecosystem has never had so many things working for it in confluence.

The demand side of the equation is fairly consistent. Our database indicates that after the eCommerce boom of 2010 and 2011, this year has seen a modest fall in new product startups being formed, from over 700 to little over 600, which means fewer companies chasing more investment options.

Now, lets look at the valley.

1. There has been a boom in new product startups, and the competition is fierce. The number of new startups has increased from over 1700 per year in the valley alone to over 3000. As I mentioned in an earlier post, VC’s are seeing nearly 150+ companies in the SaaS market, each of whom are doing more than $1 Million in revenue. There are 2 times as many companies fighting in the valley for the same quantum of funds.

2. Venture investors, seeing the boom in the seed stage and seeing also far fewer exits are adopting a wait and see approach to series A.

3. The VC freeze on series A in the valley has led to many sapling round investments from seed and micro VC’s and super angels, who are increasingly picking and choosing the companies they put seed money in for an extension round or “sapling round”.

If you are an entrepreneur, raise your seed round NOW. Things will get more “sane” by June next year and there will be many who start to take a more cautious approach to seed stage investments.

The equation on series B in India, is not as rosy though.

Funding for eCommerce companies, many of whom raised series A at HUGE valuations last year has pretty much dried up. Most companies are doing inside series B rounds (from their existing investors) and 3 of the  CEO’s I spoke with claimed down-rounds (where valuation of this round is lower than the previous round).

The rise of the “sapling round” in technology startups

I was in the valley last week meeting with over 23 investors (primarily seed and series A stage). From Andreessen-Horowitz and Accel to Sigma ventures and True ventures, we had a chance to talk to partners who are looking at over 2000+ deals every year to invest in less than 10 (in the case of older funds) to over 50 (in the case of a16z).

While there’s lots of talk in the valley about the series A crunch and its impact on startups, I wanted to bring to attention a new (to me at least) trend that is consistent among all valley technology startups.

It is the rise of the “sapling round” of funding.

The sapling round is when a company raises between $250K to $2.5 Million, syndicated among  5-15 investors, and is largely (over 75% in the valley) a convertible round.

It is a round that is raised between the seed and the series A round.

The reason why this round is becoming more prevalent is a combination of the rise of startup incubators and accelerators and the constant “raising of the bar” among series A venture investors.

Typically the incubator puts in the first “seed” round of about $25K and provides access to another (in some cases) a $75K through its partners. In case the startup does not go through an incubator, they raise a seed round from angel list or friends and family to the tune of about $250K or less.

Then the startup goes through a 3-4 month program and before or at their demo day looks to raise another $250K to $1.5 Million in a convertible note.


1. Series A investors have raised their bar for what constitutes their round. All of the investors I spoke with would put $2M to $5M in the series A.

Sean of Emergence Capital, whose firm focuses only on SaaS companies, said he has seen in the last 11 months little over 150+ companies in SaaS with over $1 Million in revenue and they have only funded 2. Another early stage consumer Internet VC mentioned they looked at over 50+ companies with between 2.5 Million to 10 Million active users (not yet making revenue) and invested in none yet. One of the larger firms that does Cloud infrastructure investments and Big data only has seen over 20+ companies with a complete management team, over 20+ paying customers and great market traction to invest in 1.

2. Companies are realizing that “traction” alone is insufficient (in most cases) to get money from the series A investor. While product + traction will still get you a seed round, the later stage investors are looking for revenue and growth in revenue as the primary metric. There are exceptions, but they are rare.

3. Startups are realizing that its taking 12-18+ months to get to that series A, so they are raising more convertible rounds and bridge rounds until they hit those series A milestones. Even in the valley getting to $1+ Million in revenue in less than 18 months for a product startup is rare.

What does this mean for startup entrepreneurs?

1. Most entrepreneurs are in “forever raising” mode until their series A. One even called it “passively always raising” or PAR for the course. They are looking to gain one investor at a time, in chunks of $25K or looking for micro VC or super angels to put in $100K+

2. The teams are lean for longer. According to Ali at Azure Capital, most of them were at 5-10 employees shacking out of a co-working space even at $1Million in revenue.

3. There’s a big push towards breaking even with the sapling round funding, so there’s a constant battle in the entrepreneur’s mind between growth and profitability. One is considered a “safer option”, while another (growth) is what the sapling investors and series A are looking for.

What trends do I see going forward in 2013?

1. The rise of the “priced” sapling round. While most seed round are priced (6%-10% for $25K from the accelerator), and series A rounds are priced as well, the sapling investors are stuck in the middle with a convertible note. That’s definitely going to change next year as they also try to maximize their earnings.

This has major implications on startup funding. If the sapling round does get priced, then it is officially, series A. Which means the current series A investors will become series B. This is consistent with the theme that its taking less money to get to start a company and even less money to get to $1 Million in revenue, than before, so seed rounds and series A rounds will be smaller than they were 3-5 years ago.

2. Early stage VC’s will continue to raise the bar higher, forcing most startups to go for the safer option (breaking even faster, profitability) in 2013, which will lead to the “lifestyle” business discussion popping up, all over again.

3. Many convertibles will convert, without a series A, as sapling investors will try hard to look for buyers of their portfolio company among mid-sized companies in their attempt to get an exit.

P.S. The term “sapling round” was coined by one of the founders in the accelerator, Bhaskar who was at our lunch discussion yesterday when we were reviewing the implications of this trend on our startups.