The Portfolio Chronicles (part 4A)

“Why is it so darn difficult to get the damn VC’s attention?”

PART A – Setting context for founders

We remind a lot of folks that India survived with no venture capital industry for decades. It was friends, family, community funding and debt. Was that healthy? In one sense, yes – though it was designed for a tiny, less-than-ambitious regulated economy, business models without cashflow from Day 1 were considered anathema. If there was no cashflow from Day 1, the excuse better have been that the capital was buying fixed assets that don’t depreciate in a hurry – plant and machinery, real estate etc.

Side note: If that scenario were to persist, at least we wouldn’t have VC’s tweeting obvious and silly stuff, as they have suddenly been over the last 3 months e.g. cashflows are king etc (as if no one knew this all along!…sounds like a retweet of something written in the 80’s / early 90s) Funny!

As I was writing this section, I saw a quote from the RBI governor –this should be applied to even startups in our country, and even today (see pic below). Enough laziness persists in the average startup – where failure is suddenly fashionable, since it seems to fit the western model.

I think lots of founders just don’t try hard enough at times – and that’s not acceptable ONCE you’ve taken someone else’s money – its as absurd as getting into an IIT and saying its cool to fail or that since you were smart enough, you should get A grades without trying hard enough at the end of each year. External capital is not one’s birthright.

If founders have tried hard, I’m usually the first to console, counsel and commend founders for their courage even at the point of failure of the firm – the founder has yet learnt and succeeded as have we, the idea may have failed for any one of a dozen other reasons.

Cut to the 21st century: The eventual shift to the knowledge and innovation economy, aided by market forces, compounded with an urgency to solve problems at scale, and the ambitions of the entrepreneurs in this Indian century; all warrant a Venture Capital ecosystem that can support this one medicine for many ailments of India – a new breed of tech- or IP-led entrepreneurship.

It’s a tough truth but the success of a startup at early-stage is simply a probability, not a certainty and it’s a very low probability at that. Every founder comes in through the door swearing that he or she is building the next big business. The founders have to have that conviction but it’s not necessary that anyone else in the room should (though most times the journey does start with just one person, with the ability to write a cheque). And the conviction is not on the specific idea or business model presented in the early days of a startup, but the team’s capability and obsession around solving a problem at a fundamental level + the collective belief of the team and investors on a massive addressable market size and how to redefine the boundaries of the market (the classic examples of Disney not being in the movie/cartoons industry but the entertainment industry and Uber/Ola not being in the cab aggregation business but the transportation business)

Note: Phenomenal article on Disney in the year-end Economist edition here 

So, what does the VC Opportunity evaluation framework and what does it mean for founders?

The Andreesen blog of 2007 served as a baseline for our own construct on how to evaluate a startup. http://web.archive.org/web/20070701074943/http://blog.pmarca.com/2007/06/the-pmarca-gu-2.html

Blog 4a

However, it felt a little incomplete in the Indian context and from a pre-Series A perspective. So, we tweaked it – we think team and market size (which now is built into our Conviction circle) are equally important, as is the last circle, which we changed to “probability of getting funded in the Indian market” (Please see our variant in Part 4B)

The validation of an idea and its market size mostly come from our own research, but validation of founding team can come from many sources. When founding teams knock on funding doors, they would do everyone a favor to see if they fit poorly or well into this framework. This would result in a lot of introspection on whether it’s worth your time pitching to angels, smaller seed funds, corporate VCs or larger institutional VCs. Each of these players has a different appetite and different framework re: chq sizes, exit outcomes etc. and as a founder on a purported decade long journey, it will do you good to know the nature of all venture financiers (nope – traditional merchant bankers and investment bankers are not very good at this, save a handful – we’ve also noticed that a big chunk of this load is managed by your early investors, in terms of advice, networks, connections to the next set of investors)

Frameworks are just that – a way to articulate a thought process. Every investor and founder will have a variant. We’re just offering ours as one option for founders to apply. And so that they know the parameters on which to grab our attention.

Even if one were clear that the market opportunity and team are in place, how does one get the attention of an early stage VC? Some tips in part 4B

 

 

 

 

 

 

 

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