The Portfolio Chronicles (part 4B)

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

PART B – some tips for founders

Assuming that you’ve internalized some parts of the framework in part 4A below, and now that you want to maximize your chances of getting an investor’s attention, here are some tips to think through before “pitching”:

Blog 4a - 2
THIS USUALLY DOESN’T CUT IT

 

The Blume adaptation of @pmarca’s framework from 2007 (refer part 4A for that diag. and reference to his 2007 post)

Blog 4b

The “referral paradigm”

If you’re not referred in to someone’s pipeline, your chances of a first meeting, and a second and eventual selection probably fall by a startling %. I would hazard a guess and say by a factor of 5 or 10, basis our early selection in Fund II and looking back at Fund I successes / failures.

What does being referred indicate to us? Here are some of the cues we get…

  • Are the founders well-connected in the startup world?
  • Are they respected by someone, who we, in turn, respect?
  • Can they be trusted to stay the course – on discipline, integrity, transparency?
  • And ironically, as someone wisely said, getting referred by the wrong person may do you more harm than being referred at all in the first place.

On the other hand, how is a cold pitch ever effective? More than 80% of the reachouts our team gets on LinkedIn don’t even have a short intro on why they are attempting to connect! That’s like offering a visiting card, asking for mine and not exchanging a word! And this cuts across age groups! Quite absurd!

Are founders aware of the “rules of engagement”? (one of my pet peeves about the Indian ecosystem – could write an entire book on how all members of the startup ecosystem could / should work with each other – my notion of “rules of engagement”)

Why are the referrer and more such people becoming more relevant? If the founders have discovered how to navigate the startup ecosystem and have found a way to gather around them a set of folks who can act like a proxy for a great ‘custom private quora’ for the company and themselves, it’s a great ingredient for probability of success. We would like to see the beginnings of this in a great founding team. Hustle up all forms of support before you start hustling for institutional capital. More believers = more good karma aka the Force…and as you’re toiling away, the Force Awakens!

At Blume, we pride ourselves in helping expand this network – through co-investors we bring, our investor base, our service partners and the strength of the Blume platform as a whole. However, we’ve realized that it takes an innate skill to leverage and learn from this network even if offered on a platter. It’s tough to gauge which founder has this innate ability, but we are getting better. We mostly make a boatload of intros much before we get to a cheque decision – there is so much to learn from how the founders take advantage of these intros.

Team Building, marriages and culture

What do you mean you couldn’t find co-founders or tech team members to join you?! We get that there will be a leader, a visionary who often takes the role of what eventually unfolds as a CEO or the Chief Everything Officer in a startup.

Leadership is great but dictatorships and one-man armies are usually not (despite me being a fan of the Benevolent Dictator principle – I think that principle kicks in into managing issues and making decisions, doesn’t diminish the need to build great teams).

Teams have become so darn important – the reasons being

  1. the complexity of the world in general,
  2. venture building in specific (meaning a possible new tech/product and/or new business model / revenue model), and
  3. scaling (both size and speed) to be very particular.

This ‘large venture’ build-out paradigm is almost designed to happen ONLY with incredibly great teams.

Witness the Superheroes: Have you seen how we’ve gone from solo efforts by the Batman, Superman era to team efforts in the Avengers, Fantastic Four, X-men over the past few decades :-). It takes a lot more to solve problems at 21st century scale.

One can’t sell a vision to his or her investors / customers if one can’t sell it to a great set of co-founders and the next level of leadership in the team. If greatness is written in your fate, passion is a core ingredient and that madness has to percolate into many minds simultaneously. The world is not changed by ambitions of monetary success as the primary motivation, which is how Indian entrepreneurship was viewed for many a decade. Money is always a side effect. Eventually, a consistent sense of purpose is what builds a great long-term sustainable culture in the company and the ecosystem around. Don’t ever be fooled – greatness is almost never achieved in startups without planning for a 10+ year run and the solidity of culture will underpin the outcome of that journey and the pursuit of greatness.

Is this a marriage that will last? What does the pre-nup say? Who gets what if there’s a founding team divorce? Founders act naïve at times as if to suggest that these are absurd questions from investors. We’ve played divorce counselors far more often than we want to. And it’s a messy affair. So, the questions around who does what today in the founding team, what will they likely do tomorrow and how each person’s strengths are reflected on the cap table are important ones, you need to have these difficult uncomfortable conversations before an investor asks the same questions. Of late, the answers to these Q’s are making us pass on many teams.

EVEN in India, Everyone wants a Unicorn! If you fail they want at least a Blu Swan (“1000cr outcome (~$160 million)”)

Is your plan suitable for VC funding?

Is your skill to build a product? or a multi-$100 million company? If its in the 10’s of millions, there is no VC interest btw.

The answer to these questions is likely to change with the structure of VC money in that geography. The mistake most founders make is to read fancy western blogs and expect the mechanics to work in India. The US is a very evolved 5-6 decades old venture market which has delivered a few $50-100+ billion market cap companies that were kickstarted with venture capital. These then set the pace of acquisition over the decades. Older tech giants had to catch up and buy innovation or die. All these lead to a venture market that encourages all experiments, a lot more innovation and, suddenly, a variety of outcomes are possible – acquihires, M&A, IPOs, and by the hundreds.

Fred Wilson (of Union Square Ventures) recently said that even NYC and Silicon Valley are not comparable because the Valley is about 4 venture cycles ahead. And that’s within the same country! The reason for this explanation in this segment is that if you’re not building a 1000cr (~$160 mill) business (in value terms, not revenue thankfully) in your head, don’t knock on a VC’s door in India. That’s the valuation that everyone hopes at the minimum – in the last two years, because of even fatter funds, this threshold has gone to $200-250 million! This is extremely challenging to build in India. Don’t let funny valuation math that a handful of companies have got deceive you. These are Private Equity plays/bets creeping into Venture Capital territory.

To summarize, I’m not personally as captivated by the journey from 1000cr (my Blu Swans) to infinity and beyond. Instead, as a founder, show me how an idea journeys from the heads of the founders to a Blu Swan. It’s a glorious flight if one can build true enterprise value of that size, solving a real problem and building a new generation of great leaders in the team along the way. Once you’re there, at Escape Velocity, there are many options on how to hit the Cruise Control button. There are dozens of folks who will pitch in to help you – CxO’s, billion dollar funds, fancy bankers, corporates and strategic partners, and hundreds of employees etc. Different set of problems, different set of co-pilots for the rocketship! It’s a good place to be, but its best that you started thinking about how you would get to escape velocity on Day One.

 

[Parts 1, 2, 3, and 4A of this series][Added: Concluding part of the foreword: Part 5]

 

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