Tag Archives: India

Some observations on the PM Narendra Modi’s visit to Silicon Valley

I had a chance to be in San Jose and be a part of the Prime Minister’s event in San Jose. Friends from India, at NASSCOM including Sangeeta Gupta, R Chandrashekar and Ravi Gururaj, who I worked with for the product conclave for many years, gave me an opportunity to be the Master of Ceremonies for the Startup Konnect program.

It was only on Friday, this week when I flew into San Jose, that I even know that I was the MC for the PM’s event. The magnitude of the occasion did not sink in until much later, when I had a chance to get briefed by the Secret Service, the PM’s Special Protection Group (SPG), the PMO (Prime Minister’s office), the Counsel General’s office from Washington DC and the overseas Security team at DC.

Most of my MC stuff has been impromptu, relaxed and not scripted. This was the biggest change for me more than anything else.

The event was a 2 day affair with lunch on the first day with donors, on day one and a bunch of photo opportunities, followed by a “Digital India” Dinner with top technology CEO’s and finally the Startup Konnect event on day 2.

Mumo Meets Namo. Asks about t Shirts
Mumo Meets Namo. Asks about t Shirts

The part that stressed me the most was the scripting. I had to rehearse 7-12 times (which apparently was less than what the PMO’s office usually demands of the speakers) which was nerve wracking for the rest of the folks, more than for me.

I have been used to my off-the-cuff remarks, some funny comments or engaging the audience with questions and polls. Not so this time.

Every word was scripted, reviewed and conceived, by a minimum of 5 people.

Every step was rehearsed. Stand-ins (people who played the part of the PM, or security) were asked to rehearse with me as well. There was triple-checking, checking five times and more, just to ensure that nothing was left to “chance”.

There were 3 observations I had of the overall event, which I wanted to share for those who were not there.

  1. First, there were about 30 billionaires I met during the 2 day event, who were A-listers in their own right. Turns out they were on the B-list for these 2 days. The PM draws top billing from a wide array. I would consider myself pretty snooty, and someone that would look down on those who would get starry eyed at Bollywood celebrities. I fell into that same trap on day 1. I took close to 50 selfies with folks such as Reid Hoffman of LinkedIn, Travis Kalanick of Uber, Vinod Khosla, Sunder Pichai, and Satya Nadella. The B-listers were the billionaires.
  2. The security was intense at the same time and felt porous as well. People who “played by the rules” and went through the security were treated like cattle being branded before being put in a pen. There were those who did not play by the rules and seemed to be able to drop the “I am XYZ from the PM’s office, so I need to sit here”. Surprisingly many of them were able to get away with it. Average wait times in the queue were 20-30 minutes, but the security on day 2 was intense (it was a much smaller setting, so there was more security). Tempers were frail and it interesting to see how people dealt with it in their own ways. There were 5 “sets” of security teams who swept through the room, and each time we thought the Prime Minister was arriving.
  3. The PM himself is very articulate, charming and personable. Which is probably the reason why so many people like him, and believe he is the right leader for India. His speeches were very well written and I met his speech writers, who offered me some tips on my own “speech”. The PM was always turned on, aware of the on-goings and was very well briefed on Uber vs. Lyft, the startup culture of the Silicon Valley (we exchanged a joke about my and my t-shirts and his attire as well).

I was so humbled by the opportunity though. There are way more qualified people both in India and in the valley than I am, but the NASSCOM team just offered me the opportunity, which was amazing and enlightening at the same time.

This will be the last I talk about this though since many of my friends are already tired of the 2 day photo stream with constant selfies that I took and shared on Facebook.

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Does raising institutional money at the seed stage help or hurt?

In 2009-2010, during the peak of the eCommerce bubble in India, there were very few seed stage options for raising funds for startups. You could either get money from angel investor or look to raise money from large VC’s, hoping they would put money at the seed stage so they can be part of the later round.

During that period, larger firms in India, such as Sequoia Capital and few others did many (over 15-20) deals in a year. The typical check sizes were about $500K in India (about 2 CR that that time).

The main reason why entrepreneurs were looking to raise money from institutional investors,  besides needing the cash and finding not many other options was the belief that “if they were in early, they would be an automatic in the next round”.

Of the over 40 deals  that were done by institutional investors in 2008-2010 in the early stage (largely in eCommerce), only 4 are still around. Of the companies that took money from institutional investments in their seed round, only 5 secured investment from the VC in their post seed round.

This weekend I had a chance to read the ET survey on Why startups are raising seed stage capital from VC firms.

The average % of the company that entrepreneurs gave up is about 15% and the amount they raised from VC investors at the seed stage is about $500K.

There are many good reasons to raise money from traditional Venture investors, but assuming they will definitely invest in the later round, is quite possibly wrong based on previous history.

If you are looking to raise money and you have an interested later-stage VC investor willing to put money in your company, by all means you should take it.

Assuming they will invest later is a big leap of faith.

There are, like most things in the startup world pros and cons to this approach.

The pros include the “name brand” value of the VC firm on your cap table early on, the ability to tap into the expertise of the VC investors and also access to their network and connections.

The downsides are the signalling effect if they refuse to invest in the follow on round, the likelihood of them investing in other competing startups in the same space in later round (since they understand the market) and finally the smaller pool of investors available for you (since many VC’s wont invest if a lead VC investor passes on the follow on) in the next round.

While I dont think there are many options in India for entrepreneurs, the best bet I would still recommend is to get the right investors at the right stage of your company. At the early stage, angel and seed stage firms make sense, and later on using their help to get VC’s is a good approach.

Credit: Paul Martino, Bullpen Capital
Credit: Paul Martino, Bullpen Capital

Paul Martino of Bullpen capital puts this week in the chart above.

Given that seed is now a perpetual and continuous process until your series A, I would recommend you raise constantly and raise often.

Dealflow management is now harder than fundraising for #microVC in India

In 2008 (before Angel List) there were roughly 1000 technology startups in India starting each year. of these about 50+ got funded by VC each year according to Thomson Reuters.

The percentage of services (consulting, IT enabled services, BPO, outsourcing) companies was about 29% – those that started and 33% of those that got funded.

The number of eCommerce companies was about 3% of the total.

Services and eCommerce Companies India
Services and eCommerce Companies India

Fast forward to 2014 and those number of companies starting at 22% of the total for services and 5% of the total for eCommerce.

The structural changes of the services companies have changed as well. We have gone from 8% of the companies in IT Services to 5% from 2008 to 2014.

Service Category Startup in India
Service Category Startup in India

While Thomson Reuters does not break out the data, anecdotal evidence suggest that there are a lot more digital marketing & design outsourcing companies now than before.

The number of eCommerce companies has been steadily increasing as a % of companies started, but has increased significantly as a % of funded companies and a % of total funding.

The only other category, which has grown (for which I dont have a breakout again) is software as a service (SaaS).

Over the last 7 years, the number of Micro Venture Capital firms has also grown. We have gone from none in 2008 to 5 in 2014, and I think we will end up at about 10 Micro Venture Capital firms (those that have less than $25 Million in capital to invest) in 2015. These include Angel Prime, Oris, India Innovation Fund, Blume Ventures, and others.

I have talked to about 5-10 angel investors and industry veterans who are all looking to start their own Micro VC, seed fund and combination accelerator or incubator in India over the last 3-4 months.

In 2008, the average amount of time it took to raise a fund (regardless of size) was about 9 – 12 months. That number is lower for Micro VC funds, obviously, but we have no way to know how long it would have taken.

In 2011 of the 3 funds that raised, the average was about 7 months.

This year, I am hearing funds that are < $25 Million close their raise in less than 4 months.

That means the time taken to raise their fund has dropped. It is easier for fund managers to raise their capital, they can do it in shorter periods of time and they can raise more than they initially desired.

The challenge for the fund managers seems to be no longer raising capital, but efficiently deploying it.

The gold standard for VC investing has been proprietary deal flow (startups that come to the investor for funding exclusively and go to no other investors). That’s becoming harder for all VC’s now.

If the number of companies starting up has grown significantly (as from the graph above) and the % of non services companies have grown as well, then there is a real democratization of founding startups.

So the problem has now moved to sourcing, building a brand for your Micro VC firm and convincing entrepreneurs that you are the “smartest” capital available.

The best entrepreneurs have multiple sources of funding, and they have many investors of different type chasing them.

The challenge for Micro Venture firms with no brand visibility or “magnet” founders is that their deal flow is largely limited.

From our own data, I can confidently tell you the “best” deals are usually referrals, but 3 in every 5 companies we get into our program are non referralsSpeaking to Accel and Helion last week, I confirmed that 25% of their funded opportunities were cold (unsolicited).

So while the Micro VC fund manager may have a decent network, their biggest challenge is going to be that they will not be able to attract at least a quarter of deals which come because of having a good brand in the startup ecosystem.

The problem for a lot of the Micro VC’s is going to be that they have poor quality deal flow or deal flow that’s not proprietary.

While they will still go to many events, and review Angel List startups, I suspect they will have a tougher time getting good quality companies to apply.

The bottom line is that now it is as hard for the investors to get good companies as it is for the entrepreneurs to get good investors.

Which is why I love this quote

“Every morning in Africa, a gazelle wakes up, it knows it must outrun the fastest lion or it will be killed. Every morning in Africa, a lion wakes up. It knows it must run faster than the slowest gazelle, or it will starve. It doesn’t matter whether you’re the lion or a gazelle-when the sun comes up, you’d better be running.”

― Christopher McDougall, Born to Run: A Hidden Tribe, Superathletes, and the Greatest Race the World Has Never Seen

The rise of the new angel investors in Bangalore, thanks to #successful #startups

At the Lets Ignite event last week in Bangalore, I had an opportunity to meet a few entrepreneurs who have all recently raised between $90K to $250K (50L to 1.5 CR) in India over the last year.

The biggest change from 2+ years ago when I wrote about how to hack your seed round in India, is that the number of angel investors in India, has risen from about 300 to over 1000. Over 30% of these are active in any given year (meaning that they have made at least 1 investment in the calendar year in a startup).

Where did all these investors come from? According to the new investors who I spoke with:

1. Many are the first few employees at large successful startups such as InMobi, Flipkart, Myntra, Manthan etc. At least 3 startups I know of were exclusively funded by current Flipkart employees alone. They formed a syndicate of 10L each to put over 50L in one company alone. I have heard of InMobi employees taking to angel investing (small amounts of < INR 10L) as well.

2. Thanks to the 2 pages of daily startup coverage in the Economic times which has gone from 2 full time employees covering startups to over 13, many businessmen and women from other industries (retail in particular) have started to ask to get in on the action. Many of these folks come from older industries and are keen to diversify, invest and make some money as well. This was something I predicted 3 years ago as well – non technology investors are a key part of the tech angel investment community.

3. Finally a few (much smaller in number than the 2 other categories) of the early employees at Infosys and Wipro, etc. have finally started to get engaged with the technology startup ecosystem in India, creating opportunities for entrepreneurs to raise small early checks.

Of these 3 categories, I am most excited about the first category. This pool is the “smart money” which can offer help (though not necessarily desired advice) and connections to the entrepreneurs in India.

Which makes the advice a lot of investors give students these days, graduating from the top colleges in India more sense – Join an early stage startup, get some wins, then go on to create your own startup.

This advice helps you make a little money (hopefully), and build some relevant connections into the startup – which if successful only helps your raise your seed round.

I think the opportunities this creates for Indian entrepreneurs is awesome. Many of these investors are “off the radar” and tend to only invest in early stage entrepreneurs they know and trust. They also create a forcing function for investors who used to take their time to invest and string entrepreneurs along to move quicker.

2014 is the year when India became #3 worldwide in tech #startup funding

I am finally going through all the reports from PwC MoneyTree, E&Y reports and Venturesource data to determine how the tech startup ecosystem did in terms of funding and growth of VC investments. Here is a snapshot from 2013, the report is available for download.

Worldwide Venture Capital Investments 2013
Worldwide Venture Capital Investments 2013

If you look at 2013, US dominated with ~3500 funded startups by VC’s and that represented ~70% of all tech startups funded. There were a total of 5700 companies that got funded by VC’s alone, worldwide.

In 2014, the number (have to get permission to post since it is behind a paid wall) of VC funded startups rose to ~6500. Depending on which number you seek some say it is 7200.

The US was number 1 with 65% of startups, Europe (primarily UK, Germany and France) #2 with 1500, China #3 with 451 and India #4 with 312.

If you treat UK, Germany and France as separate countries (which they really are and I am not sure why E&Y and PwC group them together as Europe for the purposes of the report), then none of them made it to the top 5.

Looking at countries alone: 1) US, 2) China, 3) India, 4) Canada, 5) Israel, then UK, Germany and finally France.

In terms of invested dollars as well, the numbers are the same:

1. US $38 B – $45 B

2. China $4.5 B – $5.2 B

3. India $2.4B – $2.9B

4. Canada $1.7 B – $1.8 B

5. Israel $1.65B – $1.75B

There is still a lot of #opportunity in #India for accelerators & early investors #startups

Yesterday, 12 shortlisted companies from a very large list of applicants, presented to our Jury panel of entrepreneurs & investors for Batch 5 at the Microsoft Ventures Accelerator. This time we exceeded the total # of applicants by a significant number given how mature the program is and how well we have gained acceptance in the Indian startup ecosystem.

Of the 12 companies, 4 were very early stage, (think 2 founders and a dog, back of a napkin), 4-5 of them were at product / prototype and the remainder were at revenue.

Except 3, all the others were still bootstrapped. Meaning they had no funding or support from any accelerator, investor or corporate fund. The funded companies, had just (fairly recently, less than 3 months ago) raised money.

If we were to expand the pool to the final “top 50”, we saw fewer than 15% of companies were supported in some way by an institution meant to support them.

I keep hearing from the press, other entrepreneurs and investors that India is “saturated” with accelerators, investors and angels and we are in an “accelerator bubble”.

That cannot be farther away from the truth.

While not every company that pitched yesterday necessarily will yield a large outcome for institutional investors and 2 or 3 are not even angel investment ready, the remaining 50%-60% are. And, the ecosystem is not yet supporting them.

Some of these companies will go on to become fairly large. Will any of them become “Unicorns” – I cant say for sure. There will be a few (2-3) winners though.

The next time someone says we have too many accelerators or angel investors, you should point them to the fact that there are over 1200 product companies looking for funding in India, which have over $10K in revenue. Over 50 of them are doing more than $500K in revenue and still happily bootstrapped either because no one knows them or the founders dont want to accept money the investors gave them with the terms they offered.

We are still in the land of opportunity.

The surprising stats on funding in India #500Strong shows up high

CB Insights has a blog post on funding in India. Here are the 3 most surprising facts that I gathered from the post.

1. Education and training was the #1 funded industry by category. Business intelligence was in the middle of the pack. I am very surprised. I would have put them in reverse. In fact if you consider travel, apparel, etc. as eCommerce, then it would be the #1.

2. Bangalore companies have 39% of the share of funding, while Delhi has 23%. If you combine Gurgaon and Delhi, then they would be at 29%.I would have put NCR much lower. In fact Mumbai is #3 at 16%, which is even more surprising. I would have put Bangalore at 45%, NCR at 20% and Mumbai at 7%.

Bangalore city technology funding

3. 500 startups is the #1 investor by # of deals. Nexus is #5. In my mind that should have been reverse. In about 1 year, Pankaj and Dave have gone from being on the outside, to #1. #500Strong is beating everyone else by a wide margin.