The art of how much to raise

In the past several weeks, I have been astonished at the size of seed rounds that founders expect to raise in their first round. My jaw hits the table when a founder blindsides me with requests to raise seed rounds of $1 million to as high as $3-4 million!*

These are the start-ups that have

  • Opened their doors for business within the previous 12-18 months.
  • Have an ARR of less than two crore rupees ($300k).

Surprised at the massive requirement of capital, we go through their financial model. Within a few minutes of looking through the model, the spreadsheet would give out a chilling fact:

The founders first decided the amount they were raising; then, they decided how to utilise the amount that is raised!

It may seem like smart scheme when pitched to novice investors, but it is a foolhardy attempt to do that to an investor with experience.

For instance, to show full utilization of the amount the founders pad certain numbers. So, a close inspection of the fund utilization plan exposes the founder’s true intentions, i.e. that they wanted a reverse calculated an ego-boosting valuation for themselves. To achieve that goal they were willing to misrepresent facts. How does a founder come back from that image?

The good news is that – there is a better way.

My advice for founders that are creating their fundraising plans is to start with a well thought out answer to a famous Peter Thiel question

What is the one thing you know to be correct but very few agree with you?

In simple words, what do you need to prove to your team, your advisors, investors, etc. to elevate their belief in your idea? Whatever you need to do to gain their confidence that is the goal of your fundraising efforts.

For example, if everyone in your inner circle does not think that your company cannot sell x number of your whacky widgets in a specified period – then that is precisely the thing you must prove! Your goal must be specific, measurable, attainable, and realistic, and time-bound so that you aren’t on a wild goose chase.

Second, estimate the time and the resources (servers, people, space, travel, etc) required to achieve your goal. Pay close attention that your estimations do not have un-utilized or under-utilized resources. In fact, I advocate allocating 20% fewer resources than your start-up needs. It forces your team to innovate, after all – scarcity is the mother of innovation!

Third, figure out the exact cost of your resources over the period of their requirements. This exercise is a crucial step. Because if you had correctly estimated the resources and the time they’re required, you will (now) have the EXACT amount you must raise to achieve your goal.  

Fourth, add 25% top of the number you had in the previous step. The extra amount is your buffer, i.e. it is the extra cushion you’ve kept to account for any mistakes you may have made in your calculations. The extra cushion gives you the breathing room to commit errors – an essential fail-safe for an early-stage startup.

Now you have the exact amount your start-up needs, not a paisa more and not a paisa less. Next, go out there and raise this amount!

This proper prior preparation will give you the confidence to answer questions about the “why” behind your fundraising efforts. Your confidence will impress your prospective investors as you come off as a professional founder instead of a novice founder who thought they could pull the wool over the eyes of a seasoned investor.

As an investor that has sat on the other side of the table for almost eight years, this level of preparation and maturity from a founder is rare. But, when I meet a prepared founder it invokes confidence that the founders will utilize my precious and expensive capital judiciously. In fact, I may be swayed to give a premium valuation to such well-prepared founders – exactly what the founder wanted but now he/she earns it with respect!

* – Oddly enough, the high expectations were from founders who spoke in millions of dollars instead of crores of rupees. It ignites the patriotic fervor residing in Vinod – a sight to watch!

My atrocious car buying experience is a lesson in after sales treatment for all founders!

I am re-reading How to Sell Anything to Anybody by Joe Girard (book review coming soon).
Earlier today, I finished his chapter on Winning After the Close wherein Joe talks about the importance of ensuring customer satisfaction AFTER completing a sale. He gives examples of how he goes out of his way to ensure that his customers sing his praises to their friends and family. He links the importance of satisfying his customer to the Girard’s Law of 250, i.e., each person has a direct connect to 250 people; therefore, an unhappy customer can directly influence 250 people. Consequently a salesperson or a business that disappoints two customers a week will have 26,000 negative influence every year!
Why is it important to follow what Joe Girard says? For starters, the man still holds the Guinness Book of World Records for being the most successful car salesman in history. This man was selling six cars a day (on average) while the average salesman struggled to sell one. He was out making $500,000 a year selling cars in the 1970s, i.e., eight times the per capita income in the US of A – TODAY!
So yes, when that man says something – it is worth our time and attention.
I am coming back to my point for the post today.
I just bought my first car in India. It was an important moment for my team and me. We were ecstatic on getting the car delivered on Tuesday evening. However, instead of reveling that moment and remembering it for the years to come, all we cannot forget is how the salespeople delivered the car with just enough fuel to get the vehicle to the closest petrol pump!
The saleswoman blamed the empty fuel tank on some dealership policy of ensuring that customers get a bone dry fuel tank. I could not disagree more with her firm, her firm’s strategy, and finally with the saleswoman herself. If she was so embarrassed about her firm’s stingy policy, she could have ensured a happy customer by filling up the tank herself – she would make more than the Rs. 2200 it cost me to fill the tank.
Buying a car is one of the most important purchases in one’s life. I can still remember, like yesterday, the first car I bought with the money I earned by working during the first summer semester in college – a 1996 Mercury Sable with a v6 engine. I was so proud of the car even though it was six years old at the time of purchase. The moment gives me goosebumps even today.
Then 17 years later I buy my first car in India, a Honda Civic, and it is an expensive car (for my standards), but it was delivered as though the dealership was running out of money. It left a sour taste and you won’t have to think hard whether this dealership (Arya Honda) will be recommended by me to anyone. The answer is no.
I must re-emphasize that a happy customer is the best salesperson. He/she will boast about his/her positive experiences to their closest network. On the other hand, an unhappy customer will tell anyone that would like to hear him/her of their negative experiences and feeling cheated by a car dealership. Unfortunately, these car dealerships operate under old maxims therefore continue to misread their customers. Any start-up founder that is reading this post should not.
Your customer whether they are B2C, B2B, B2B2C or B2B2B or B2B2B2C (and so on) must be happy with their purchase of your goods or services. To hide behind the veil of corporate policies is the old way of doing business, and you must ensure that your salespeople are sufficiently empowered to ensure post-sales customer satisfaction, at all costs! It is just as important that those negative experiences are corrected by changing policies and processes.
The process in which the company acquires a customer, gives them lousy experience, and allows the salespeople to blame an insane corporate policy is a sure indication of a deeper rot settled in that organisation.
A rot that every entrepreneur should guard their companies against the cost of all their corporate policies.

A Jeth Airways' Seth Like Experience

My thorny relationship with Jet Airways took a different dimension today. They truly showed me that they were the bestest airline and their policies weren’t just unique, they had been through an interstellar black hole and had in fact predated the arrival of the dinosaurs!
As a comparison to just last week I received a traffic violation notice on my Mumbai Traffic Police app and I paid that fine using the the UPI app developed & promoted by the Central government i.e. the BHIM app.
However, where does Jet stand on making payments for change penalties? They want me to make a 25 km trip to pay the penalty in cash (go figure) so that the ticket can be reissued! So God forbid if I was in the ranks of the many such lucky customers, I should add the cost of time & money in going to the ATM, pulling out cash and going to the airport to pay for the change penalty – this is just too unbelievable for me to make it up!
The magic does not end there because if I book my flight through (sorry the experience will be something beyond my wildest dreams. When I book my flight the PNR is issued immediately but to change or cancel my flight it will take just 24-48 hours. I would have waited but the flight that needed to be changed was leaving in 12 hours so I took good counsel and decided to take my original flight. By the way I would be traveling to the airport to make my change (anyway) thereby defeating the purpose of changing my flight as I am already at the airport!
So it is clear that Jet Airways experience does not want to buy into Digital India but maybe they don’t believe in a Working-Class India or Sane India or Millennial India – maybe they don’t believe they are in India (it happens to interstellar travelers)!
Now that I am grudgingly take my 9 pm flight I get a marvellous dosa hand roll (the size of half my palm) served for dinner. When I protest at undernourishment I am given a copy of my new year resolution (to lose a few inches) along with a scribbled note from the captain ordering me that it was time I started my Cherai Beach diet. For the uninitiated this is what I call customer service – thank you just thank you Jet Seth Airways!
Of course the awesome customer surprises weren’t done yet, the check-in staff at Indore airport assumed that it was time to test Life Buoy’s freshness promise so in their infinite wisdom, they proceeded to tag my luggage to Bangalore instead of Delhi. I was informed that just tagging my bags to Bangalore was a sign of kindness because as per their rules they could have tagged my bags for my next month visit to Dallas. My happiness for their kindness could not be conveyed in spoken words.
However, the reasons seemed hollow and pounding my fist on the counter I demanded that “India wanted to know” why my luggage was not being delivered to me in Delhi. Sensing the situation getting out of hand a senior official ushered me into a sound proof room.
In the dimly lit room he took me to a corner and revealed that an off-the-books program was launched by the Kejriwal government wherein 20% of all bags arriving at Delhi airport were to be misplaced but the blame was to be put on the Modi government.
The brilliant plan was to force arriving passengers to utilise their 15 mins of free Wi-Fi to buy new stuff through Snapdeal (HQ in Delhi) and then AAP can take credit of making them deliver on the promise of turning profitable.
It is also understood that there is an added incentive for AAP – they could finally offload vast inventory of chappals and shoes that senor Kejriwal has aggregated from across the length and breadth of India.
Being a pukka Marwari I refused to participate and I sat in a dharna, on the revolving conveyor belt, for 90 minutes in an indefinite fast unto death. Perplexed the airport authorities made my bag appear out of thin air and the Speaker of the Airport got me removed from the premises before I could raise slogans in victory.
I left with a newfound depth in my respect for Jet Seth Airways.

Jet Airways' JetPrivilege: A lesson in how your loyalty program can chop off your brands feet and then shoot it in the groin for good effect

I am sitting at the Starbucks in Mumbai airport muttering unmentionable obscenities at Jet Airways for making yet another change to its loyalty program which devalues my membership and its JPmiles. They have now decided to keep their top-tier members out of the airlines lounges unless they purchase a certain class of ticket! So much for being loyal to your customers.. just shove it up their behind in the name of profiteering!
I am so incensed at the continued decimation of my loyalty rewards account at Jet Airways that instead of working on my fund presentation, I am motivated to write a post panning Jet Airways and using them as my subject for a learning lesson for startups.
Honestly, I am at a loss on what Jet is doing with its loyalty program and whether they understand that loyal customers (like yours truly) are getting increasingly disillusioned with the airline and are choosing to fly other carriers. In a situation of an apples to apples comparison on ticket price Jet Airways is losing out to the low-cost carriers (LCAs) as their premium services, that should allow them some leeway in pricing power, are just mediocre services with which the airline is hoodwinking itself and not its customers. The situation in which a full service carrier like Jet Airways is unable to command a price higher than that of the LCA is a death knell for them. Effectively what it states is that the value of the frills (mediocre class premium services)  and the brand behind has zero value in the eyes of the customer. In fact on net revenue per mile of flight after the deduction of the cost of the frills, Jet Airways has a lower revenue per mile flown. 
Jet Airways started the slow journey to decimating its brand loyalty by making it difficult to redeem the JPmiles, putting an imaginary limit on how many tickets can be redeemed per flight (especially on long haul international flights). Internally they have branded these redemption tickets as non-revenue tickets, so that their computer system ensures that there are just 1-2 seats available for redemption in their business class section and a handful tickets available in the economy class section. To protect their behinds, the Jet Privilege customer service team will flat-out lie to you about the business class section being full when in fact they are selling tickets for customer willing to pay – a brand that teaches its employees to lie is a brand rubbing its own nose in the dirt.
It should be an eye-opener for Jet’s staff and customers that a listed company calls award tickets as non-revenue tickets but that is against the IAS principles as it clearly states that

An entity shall apply paragraph 13 of Ind AS 18 and account for award credits as a separately identifiable component of the sales transaction(s) in which they are granted (the ‘initial sale’). The fair value of the consideration received or receivable in respect of the initial sale shall be allocated between the award credits and the other components of the sale.

So it is very likely (and I hope likely) that Jet Airways is in fact recording the each mile that it is awarding their customers as revenue, however, the airline is just befuddling its customers by calling them non-revenue tickets. Then to use this false premise to impose artificial and ad-hoc methods to prevent its loyal customers from utilizing their miles that they have earned by patronizing, the airline should be punishable with a public flogging of the genius that came up with this idiotic idea.
If Jet Airways (and Etihad’s) think tank had an economist advising them, he/she would tell them that the perceived benefits of a strong Jet Privilege program made a customer choose Jet when they were on the fringe of choosing between Jet and another carrier. In fact there should be enough data that a strong Jet Privilege program would have enticed customers to choose Jet even if Jet was 5-10% dearer than its competition – that was the super-normal profit that a leader like Jet would have commanded.
Alas Jet continues to operate with a dinosaur dated mentality in which, brands feel that they can screw over customers because with a population of a billion plus and few airline operators a customer wouldn’t have many other options but to choose Jet. However, that scenario is changing rapidly and dynamically with Vistara, Air Asia and a number of regional players carving out a piece of the skies for themselves and Jet Airways will see rapid erosion in its market share by alienating its customers.
Jet can learn a lesson from Amazon, specifically from what Amazon learnt after the 1999 meltdown. New customers are very expensive to attract and true profit comes from attracting a previously acquired customer to visit and transact with your brand multiple times. In venture capital speak, the cost of customer acquisition (CAC) has to be exceeded by the lifetime value (LTV) of that customer – so always, and I repeat always, find way to keep your customer coming back to you for more!
Jet Airway’s share of Indian skies stands at a lowly 17% beating the universally panned Air India by a whisker and is in danger of falling below the recently bankrupt SpiceJet. Even in terms of filling up its air-planes Jet Airways has an abysmally low PLF of 77% in comparison to Indigo’s 91%. All these point to death spiral that is consuming Jet Airways.
I can offer a starting point – look at the appalling treatment of its loyal customers and you will find correlation that has seen previously a top airline in India own a paltry 17% market share of the skies and will soon see the previously bankrupt SpiceJet overtake them – the signs are ominous that Jet Airways is in an identity crisis and is going to have to do something drastic to make up for what it is losing each day – loyal customers.
When Jet  rebranded themselves as a full service airline they took on a responsibility of providing frills like meals, reward points, business class seats, etc that would make the decision to choose Jet over an Indigo and maybe even pay a slight premium to compensate for the frills – the strategy was to take the fight away from price and into services. That would have created value for the Jet Airways brand.
However Jet Airways completely messed up the execution. They continue to behave with a low-cost carrier (LCA) mindset, slowing eroding the value of the frills that they promised to give to the point that today, Jet Airways is chosen only when they compete with the low-cost carriers (LCAs) on the pricing front, even though, it is a premium service. All those frills are perceived by the customer as having zero value – how does this create value for its shareholders is beyond my level of reasoning!
To further add insult to injury  Jet’s frequent tinkering of the loyalty program is alienating those customers that chose Jet over anyone else. By devaluing the JPmiles and putting ring fences around its redemption they are making it easier to choose other carriers faster, timely and infinitely more comfortable airlines.
I used to shun offers from all other airlines because the Jet Privilege program made me feel like a VIP and I loved the lounge access, instant upgrades to business class and the last-minute no charge cancellation policies which allowed my family and me to book our flights almost exclusively with Jet Airways.The JPmiles were influencing our buying decision and allowed Jet Airways to make up for the old planes and later than on-time arrivals at my destination. However, as the value of its JPmiles and the utilization of the miles eroded, that liberal allowance we gave them started to erode as well.
First, my father stopped booking with Jet unless they were cheaper than Indigo or Spice, because he knew that the miles were not going to be utilized without haggling with the Jet Privilege staff. That precious time lost in getting the brand to give what it promised and to make its loyal customer feel like a beggar completely demolished all signs of brand loyalty with my frequently travelling father and Jet also converted a promoter of its brand into a detractor – well done indeed!
Next, he stopped all the credit card point conversions to Jet leading to further loss in revenue that Jet got from his point conversions. What is detrimental for Jet is that due to their treatment of its loyal customer he gave another airline a shot at taking his business and once that happens it is like allowing your spouse to flirt with others, you can never be sure if they will come back. If they end up falling in love with someone else, you could have also lost a precious relationship for life.
So now he loves the LCAs loving their on-time performance and the cleaner, quieter and faster aircraft deployed by them. I can safely say that this is a loyal customer that Jet has lost for life – unless they offer cheaper nominal fare than a LCA. So, a full service carrier is now perceived as an equal (or inferior) to a discount carrier  – this has to be outrageous for the bigwigs at Jet/Etihad (or is it?)!
Of late I too have flown Indigo & SpiceJet in the last couple of months. I am starting to wean myself off the Jet Privilege kool aid and the shock today will wean me off even faster!
Jet’s loss is, however, a learning opportunity for startups and companies that are running or are going to run loyalty programs. If you have influenced the purchasing decision of a customer by parading the benefits of your loyalty program then make sure you deliver on the promises that were made at the time of giving the points. The loyalty points so awarded are an unwritten contract between your brand and its customer and by delivering on your unwritten promise you create an aura of trust with the customer which is infectious and magnetic – it keeps the customer coming back for more and increases your brand value.
Even other brands that co-brand with successful loyal programmes should pay very close attention to the ease of redemption and the value of the points that were awarded at a 3rd party brand for a buy decision made at your brand. Any erosion in value of the points that were awarded has reduced the value of the discount you have provided your customer and they will take note and they wont forget – so be vigilant Citibank, American Express, etc – Jet is playing with your brand’s image as well.
So be very careful about making changes to your loyalty program and if the change does not increase value for the points or miles that were gained by your customer then err on the side of caution and do not make that change. I cannot stress this point strongly enough that when you break the unwritten contract you have demolished the aura of trust and trust once lost is almost impossible to gain.
Just take a look at the frustration that a tax payer has had when the previous government made retroactive adjustments to tax laws which nullified all the planning that was done for making business transactions. There was an unwritten contract and trust that a financial year is complete, there wont be any changes made that would hurt a person retroactively since there was no way for a person today to make right (something from the past) what is being considered wrong today (unless we discover time travel). Now just take a look at the effort the new government has had to make to ensure investors that those days are long gone – but the feelings of mistrust continues and will most likely continue since that aura of trust once broken makes all promises empty and all assurances seem to be cover-ups, all in a single swipe.
However, if you as a brand have to make any changes to your program that even makes a 5% devaluation of the reward points that were previously awarded to a customer, make it up to your customer by giving them 10% additional points to make up for the loss… give them 20% extra reward points! Then sincerely apologise for the erosion and ensure that your compensation is not enough, but it is a token of your appreciation for the patronage.
Don’t go the Jet Airways route of touting how awesome lesser rewards are for the loyal and how amazing it will be to be out there with a begging bowl to get some value of the useless JPmiles – rubbing salt in the wounds of the trust placed in your brand will make your loyal customer shun you for treating them as idiots.
I doubt the people at Jet will care for an email from a decade long loyal customer but I am certain that Jet no longer figures on the top of my list of airlines.. RIP Jet Airways.

An Open Letter to the CEO of Knowlarity from a Knowlarity Customer and Exotel Investor

Dear Ambarish Gupta,
Our company holds a very unique position between Knowlarity and Exotel. You see, we invested into Exotel when it was in its infancy, but we took up Knowlarity for our communication needs due to a better priced product. They were two different business decision(s) at the time and since we were very new to the investing game we hadn’t really given thought to investing as a customer into our investee companies.
We always wanted to move to Exotel, as the lower priced product from Knowlarity came with an even lower standard of service, especially your team’s lack of:

  • People’s Skills (we were abused by one of your staff during contract negotiations)
  • Lack of Follow-Up
  • Missing Deadlines (it took your team 3 months to change the greetings on the corporate number)

Unfortunately, when you start off you don’t think of the long term implications of having your corporate number given off to a 3rd party – they have you by the neck as that number is all over your business cards!
However, backed by the people at Sequoia, we expected that your team would at SOME point become more professional and the systems would be better suited for SME’s. We always wanted to make the switch but we didn’t have a good enough reason.. now you have given me one.
First, I got the email from Shivku on how Knowlarity was allowing (if not condoning) the use of fabrication and white lies to win over customers. That got me quite upset and made me want to send you a personal email to iron out whatever it was that was irking you two. Then, your absolute horrific reply to the serious allegations levelled against your company was the limit. Your reply was misleading, high handed and just dumb.  I’ll dissect my issues with your reply right here:

As for the recording, we fail to understand the connection with us. The only “Anurag” we have in Bangalore is notoriously bad at Hindi. We are still searching for this elusive “Anurag”.

So, I took up the simple challenge of finding this elusive Anurag by doing a search of the Anurag’s that have Knowlarity listed as their current or previous employer (I am sure you didn’t have the time to do the same as in 450 employees an Anurag can always just slip away?) and I found 6 of them! Here is the list I could find
You may be right that the ‘Anurag’ in Bangalore doesn’t have good English speaking skills as none of these guys listed their current location as Bangalore (or maybe one of them was lying?). Anyways, 3 of them – Anurag Nagar (Varanasi), Anurag Verma (Gurgaon) and another Anurag (name hidden as he isn’t in my network) list Knowlarity as their current place of work. I suggest you start from there.

We do not have any policy about responding to market intelligence but we are not surprised if some customers care about this and one salesperson (out of 450 employees) furnished this information.

So you say you do not care what 1 out of 450 people says… hmmm… Are you even listening to yourself? What gives you or anyone in your company the right to slander another company in the hope of winning business? Does your company have a team that monitors its 450 employees email communication sent or do you just let open your network and pray for them to do the right thing? This actually maybe the reason you feel your customers are being poached… if someone from the sales staff can write what he pleases, then what stops him from sending whatever he pleases?
The fact that there is an email out there conveying misleading market ‘rumour’ (NOT intelligence) from an official Knowlarity email address should have made you as the CEO and the leader of the company dig really deep into the culture that led to such an email. Not having a policy to have fair competition may not only stem outside the organisation.. it maybe rotting your own organisation too. Infact that is exactly the sign of an aging business not an “older” and what should be wiser one.
With a similar product you will have the issues of copying and being copied. That is going to happen and it can be accepted to a certain degree (read Samsung vs. Apple vs. Samsung) but lying to customer, slandering your competition and just misleading the public with “holier than thou” response just stinks. Infact it stinks so bad that we are going to stop using the Knowlarity services immediately and shift our business to Exotel. Since you don’t have a policy in your company on what is right and what is wrong.. tomorrow one of your staff may tap one of our conference calls and give the information to our competitors and you will write another ridiculous email defending his actions versus taking action against him.
We cannot continue to associate with a business like that. I really hope that you dig deep and understand the implication of defending something that is wrong… but then if you are defending someone who is guilty… what does that make you?
Good bye and good luck
Best Regards,
Anirudh A Damani