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Category Archive : Fundraising

Startup Board Meetings 101

Most founders deem that their relationship with their board will be adversarial and combative. I assume that the founders must get sleepless nights before the board meeting. Maybe it provides the founder flashbacks to the nights spent they spent rolling their beds as they tried to present their school report card to their stricter parent, usually their dad.

Why do I think that?

The creative ways I see founders avoiding calling (forget conducting) board meetings as if it were the plague. Founders drum up excuses for delaying the board meetings, much like my classmates and I did to avoid submitting our signed and acknowledged report cards. Founders get sick; then a family member gets sick, then the ICU and next the morgue. Next when the health issues run out, then the team members are blamed; the reporting systems cop the blame – the list is endless. It is comical to witness the founder’s unnecessary creativity. However, the board is not a founder’s dad, waiting to rap them and it does not need to be that way.

That start-up boards must not have an adversarial relationship with the founders. This relationship should not disintegrate into that abyss is the responsibility of the investor board member and the founder.

For starters, the board must not get into the day-to-day working of the company unless there is a crisis, and the board must over-ride the management – it is rare but required. How can a founder avoid this situation is to be honest, in the founder’s hands.

A first step to building trust in the board-founder relationship is for the founder to get into the habit of organizing, conducting and following-up on productive board meetings.

  • A board meeting must be conducted every quarter – at the very least.
  • Some start-ups may require monthly board meetings, but a long-term plan of conducting monthly board meetings is onerous – on the founder and their board.

An important distinction that many founders fail to make is that a board meeting is not an investment pitch, but neither is it the investor update. A board meeting’s purpose is to get into the meat of things that the founders are working on versus the sizzle that sold to current and prospective investors.

If you, as a founder, are confused about what to discuss at your board meeting, I believe that Mark Suster’s How to Prepare for a Board Meeting to Make Sure you Crush It is a must-read for you.

Essential points that Mark delves into are the importance of a well-thought-out agenda, a solid deck and providing enough time to your board members to prepare for the meeting.

Now, if you’re scratching your head on what goes into a board deck, then Bryan Schreier’s post on Sequoia Capital’s website, aptly titled, Preparing a Board Deck should be in your reading list. 

A start-up founder that has an adversarial or a laissez-faire relationship with its board members is losing the plot. The best situation that a founder could wish for is a well-functioning board is their sounding board and guide for the road ahead. The board gives the founder a third party and a bird’s eye perspective on their venture’s progress because founders lose their objectivity in the day to day function of their ventures.

But it is important to note that the responsibility of creating the right board relationship must begin from the founder and supported by their board members – not the other way around.

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Navigating the Indian Seed Landscape

No one can doubt that the Indian PE/VC ecosystem is going through a golden run. The amount of money flowing into the ecosystem is breaking records –records set just the previous year! If I narrow the PE/VC down to just “start-ups” then Indian start-ups have raised $11.3 billion this year – up from $10.5 billion raised last year – the good times are truly here.

This massive influx of money and strong tailwinds make it seem as though raising capital is getting easier. But, with the number of start-ups growing as fast (if not faster) than the money supply, the real picture for a start-up raising money today is – disconcertingly different. The discussion of what metrics does it take to raise a round, what the different stage VCs focus on when you raise, etc. is a polarizing topic. One that I regularly have now with founders who are raising, founders who have raised and with funders of all stages – but there isn’t a silver bullet.

Therefore, when Yuki Kawamura shared Pear VC’s report, aptly titled, Navigating the New Seed Landscape, he could not have sent it at a more opportune time. Mar Hershenson, Managing Partner of Pear VC, created this report analyzing the US VC ecosystem but there are several parallels we can draw for our ecosystem here. For example:  

  • It confirms something that seed investors have long known, i.e., the time, amount and metrics required to raise a Series A round has increased, therefore;
    • The money needed to get a venture ready for Series A has also increased
    • Series A investors want to see positive unit economics and traction before putting in growth rounds
  • Traction has a direct correlation to valuation
  • Second time and successful founders get a premium valuation
  • Where you locate your start-up does affect its initial valuation

There are several other learnings in the report, but the one slide that stuck with me is:

Just replace the names of columns (from the left) with Seed, Pre-Series A (or Angel), Series A, and Public to translate this to our ecosystem’s lingo. However, the vertical order in those columns stays the same
  • A seed investor (like me) backs the team
  • The angel investor backs the traction, and
  • The Series A investor backs the market.

The report then gets into further details as to what your start-up must emphasize when you are raising a new round. It provides a founder the VC view on where your venture must be before attempting to raise that the Seed, Angel, or Series A round. I believe that this presentation is manna for founders. I Whatsapp’d it to my founders in the morning. Now I share it with you!

Venture Idea: Putting the Custom in Customer Service

One of my favorite entrepreneurial movies is Rocket Singh Salesman of the Year. The movie has a dialogue that goes, “customer ke toh naam mein hi mer likha hai” (the word customer has mer (pronounced “marr” is the Hindi word for ‘to die’) embedded in it). This single dialogue aptly defines the treatment meted out to the billion Indian consumer customers every single day.

All one has to do is go through the Facebook page of any Indian brand and it will not be hard to find the abundant record of horrific complaints and the apathy awarded by these brands to their customers. Although I have been on a crusade against JetAirways for the ad hoc changes to its Frequent Flyer experience, I have seen very little progress in brands making an effort to improve how they treat their customers. Despite the government’s attempt to provide adequate protection to the consumer by allocating a separate consumer court to resolve consumer grievances and penalize erring brands… the problems are only continuing to mount.

I believe that the next ten years will be the golden age of Indian consumerism. With this thesis in mind, I strongly believe that there is going to be the need for a service that goes beyond allowing a customer to air their grievances but actively taking control to resolve these complaints. For a small fee, this service provider can engage with brands to resolve customer’s problems. If that route doesn’t work they should also be able to prepare the legal documentation required to take the brand to consumer court. They can even go a step further to provide the contact details for competent lawyers who can file & fight these cases. As India marches to 1,000,000,000 online via mobile – the market potential will be massive!

I have been on the wrong side of several bad consumer experiences in India and there used to be a company called myakosha.com that was solving my problem. They played the role of a service provider who resolved these issues directly with Idea, Jet, AMEX and other companies that I was facing issues with. I simply loved their service and the way they made these brands come running to me to solve their errors was an experience worth living through. However, for reasons best known to the MyAkosha team they pivoted to another business model leaving a gaping hole in the ecosystem. Now, I am personally motivated to be that agent of change for the way Indian brands treat their customers. I have a design team ready to develop the front end, know a law firm who can provide the infrastructure & know-how for this service and am willing to fund this project out of AVF.

I am seeking individuals who have a strong background in social media marketing, customer complaint management, and a strong tech background. I am also looking for a person with a strong background in data analytics to build out this venture.

Do you know someone or a team that fits this bill?

Email prospects@artha.vc with a cc to karishma@artha.vc.

25/2018

Fluff Metrics

An interesting phenomenon has been noticed in startup presentations over the past few weeks. Founders have come up with innovative ways of showing large numbers that have nothing to do with what counts as revenues to the startup.

Let me share a few examples with the explanations as provided.

  1. Gross Transactional Value: this the value of the transaction that is taking place because of the service provided by delivering the service. Therefore, a simple example would be that if a truck delivers 5 MT of steel the GTV is the value of the 5 MT of steel which has no correlation to the revenues of the trucking company since that is dependent on the route or no of kms
  2. AUM (Assets Under Management): the value of the videos that have been uploaded to sell to customers. This has no correlation to the revenues as they are made on a pay per click model. How the videos are being valued and by whom – I have honestly no idea
  3. MRP Sold: the sticker prices of the items that were sold. These were very different from actual revenues as there were coupons and discounts that were given. So, if I stick the price tag of a Mercedes on a Maruti the MRP sold would be ginormous but the actual number would be a fraction. These MRP’s are set by me so MRP sold is also in my hands. Do you feel fooled just yet?

Do founders really want to attract investors that are awed by such numbers? Of what use will those investors be who themselves don’t understand that these numbers are useless?

My sincere request to founders is to have the courage to tell me the real numbers. They may not be as awesome as the fluff metrics, but I’ll respect you for your honesty and I’ll work with you until your actual metrics look like the fluff metrics that your peers are showing me.

Just remember this immortal quote attributed to Abraham Lincoln:

359048-Abraham-Lincoln-Quote-You-can-fool-some-of-the-people-all-of-the

24/2018

KISS for your Investors

Imagine that you have been invited for a stand-up comedy show of a well-known comic. You are excited about the show, arrive well dressed with a date in arm, get your favorite drink and are sitting in the front row with bated breath. Then your comic comes on stage, everyone starts clapping (including you), the atmosphere is full of excitement and anticipation. Just as the comedian begins to speak, you realize that his act is in Russian, Spanish or Klingon i.e. whatever language is completely foreign to you and the audience. For the first 3-5 minutes, you try hard to understand what he is saying then look around to see a similar look of bewilderment on everyone’s faces. Some people leave almost immediately, and the remaining make heckling sounds, the artist looks bemused but act continues, rooms starts emptying out and finally you, who has checked out mentally a while ago, decide that it had been enough and join the beeline to the exit. How inclined are you to attend a show with that comic in the line-up the next time around?  

Unfortunately, several founders are guilty of being that incomprehensible comic. Using acronyms or words that only your peer group understand may give the smart founder several accolades at startup events but leave investors (like myself) flummoxed about what the business really does. In fact, I feel that if a founder cannot explain what they do in layman’s terms to someone who has no knowledge of the technical jargon of that industry, then the business is too complex for me to invest in. A founder may feel short-changed because as an investor, I am supposed to be “in the know” but the truth of the matter is that I am not supposed to be the knowledgeable person in the room about their industry, the founder is!  

This video from the show Silicon Valley aptly explains what I fear as an investor 

A founder that is unable to explain what their business does to me in terms that I understand, is running a business that most customers won’t understand. To educate a customer entails a long sales cycle, and I find it is best to avoid such long-tail plays. However, when a founder is able to explain a complex model in simple terms, it gives me immense confidence in the fact that prospective customers will understand it too and therefore not hesitate to adopt it. Not only that but also the founder will easily be able to train lay people on selling his/her product or service and achieve targeted sales without hiring expensive talent. For the investor to have such confidence has tremendous value.  

Here are some of the tools that founders can use to explain complex business models:  

  1. Paint a picture of what their target customer currently does to solve the problem and how their product/service will change their life  
  2. Dumb things down by using simple everyday terms that anyone can understand 
  3. Use check-backs like does that make sense? to ensure that your audience hasn’t lost you 

There are many other techniques that founders could use to present an impressive but comprehensible pitch. The best way to test a pitch is to present to the most challenging audience i.e. people that wouldn’t understand their business at all. These unfriendly audiences will force you to KISS (Keep It Simple Stupid) for the investor, which is exactly what we are looking for!

So, don’t try to challenge the intelligence of the mere mortal investor and just KISS for us!  

23/2018 

Why We Must Become that Asshole Investor (from time to time)

2018 started off with a bang for Artha India Ventures. 4 of our portfolio companies successfully raised new rounds with pre-money valuations of more than $5 million. As a team, we are very happy with the solid multiples that we received on our investments and it validates our thesis of getting in early, building solid value and increasing wealth for all shareholders. These are the times when we look forward to celebrating with our founders for a job well done and to wish them luck on the new journey that has just begun (with the incoming investor).

However, there are a couple of founders that bring forth disturbing issues at the time of signing documents that hold up the entire round of investment. Usually, I can classify the issues that force this reaction into two buckets. The first and most contentious issue is the diktat issued by the incoming investor to disallow any of the previous investors from participating in the new round.

As an investor who invests in multiple stages, we have specific clauses in our investment documentation that allow us to participate in future fundraising rounds of a company. Whatever the logic the new investor can provide (more on this in a later post) we as the early backers of the venture expect the founders to stand up for us and remain loyal to their word and contract, that were negotiated and signed when we initially decided to back them. While many founders ensure that we get to participate in the new round (thank you to them), we do not have sympathy for those who behave this way even without being coerced by another investor.

At the time when these founders needed the money, they eagerly signed the documents with these terms clearly being stated, but when it comes to actually following through for a follow-on round they want to cry foul. To completely sell yourself to the incoming investors and screw over your earliest backers doesn’t bode well for our ecosystem. Firstly, the new investors will only put in stronger clauses to ensure the same doesn’t happen to them in the following round and secondly, the later investors will be way more cautious and hesitant when considering the opportunity to participate because of your past behavior towards investors.

Unfortunately for them, Artha does not respond well to oppression tactics and while we can understand the occasional tough spot a founder finds himself/herself in, the founder cannot always cry wolf.

To be involved in a bitter conflict at a time when we should be celebrating victory is a situation I want to avoid at all costs, but founders need to understand and respect that just like them we too are running a business and to deny us the rights that we mutually agreed before entering the relationship, tinkers with our business model. Just like they would not like to tinker with a business model that is doing well – neither do we!!

21/2018

 

 

6 Books I’d Recommend to Every Entrepreneur

An entrepreneur’s primary role is to sell. At any given point the entrepreneur is selling whether it is

  1. Selling himself on why he is pursuing this idea.
  2. Selling his employees on why they should join or stay at this venture
  3. Selling his friends and family on supporting him in his new (and often crazy) endeavour
  4. Selling his customers to try out the new product or service he has developed (and to pay for it)
  5. Selling his business as an investment opportunity to potential investors
  6. Selling mentors on why their valuable time will be well invested in him
  7. Selling to investors to continue supporting his business

The list of selling activities can go on for pages… and I still would not have even scratched the surface of the number of selling activities that an entrepreneur is actively involved in. Therefore if there a skill that an entrepreneur should learn is the skill to sell.

I have found that the following 6 books made the maximum impact on my sales, investment and entrepreneurial careers as well as the careers of people whom I have mentored and helped to grow in their respective sales and entrepreneurial roles.

Ideally, you should read these books in chronological order since the level of complexity increases as you progress down the list.

  1. The Greatest Salesman in the World by Og Mandino
  2. How to Sell Anything to Anybody by Joe Girard
  3. The Four Agreements by Don Miguel Ruiz
  4. How to Win Friends and Influence People by Dale Carnegie
  5. How I Raised Myself from Failure to Success in Selling by Frank Bettger
  6. Unlimited Power by Tony Robbins

Have any books helped YOU shape your entrepreneurial career? I would love to know so do share them in the comment section!

11/2018

The math of early stage venture capital

Today I met with an entrepreneur in the travel space that kept reiterating that they wanted to grow organically and without burning money. The “startup” wanted to take it’s a offline business model of booking air tickets, where it earned a respectable profit – online. 

Coming from a strong referral I spent a couple of hours understanding what they did. I concluded that while their current business model was perfect for a family run business they didn’t realise that early stage venture capital would demand that they show rapid growth in the value of the company.

So, I explained to them the following math:

  1. As an early stage venture capitalist I want to build a portfolio of startups that will yield atleast 60% irr.  
  2. So if I put Rs. 100 in 10 startups I have a total portfolio investment of Rs. 1000 
  3. My holding period for an investment is 7 years 
  4. After 7 years the Rs. 1000 investment at 60% irr would turn into Rs. 26,843.50  
  5. I expect 9 out of 10 startups to fail 
  6. Therefore I expect that the return from a single startup will return the Rs 26,843.50 
  7. So, the single investment of Rs. 100 should to return a 122% irr or 268x in 7 years to grow to Rs. 26,843.50!  

At the end I explained to them if their business lacked the potential to growing a rapid pace then early stage venture capital was the wrong form of capital to raise. I think something clicked in their mind when I drew out these numbers and they left thanking me.

I just hope I didn’t scare them off venture capitalists, forever! 