Category Archive : Pitching

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!


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!

The failure vortex and how to get out of it

It is easy to figure out when founders have been pitching for investments without any success and for a while. The pitches become nonstop monologues that will end at the allotted time or when abrupted by questions from us.

Naturally, the founders overcompensate to avoid failing on another pitch. They try different tactics to avoid disappointment, but a series of rejections can take its toll on a founder’s psyche, and slowly the tactics become bad habits. Many founders are not aware that these bad habits are creating a vortex that is attracting further rejections. What seems intuitively correct is practically fatal.

So here are a few tips for founders that will help them in their next pitch.

  • Eliminate the problem areas in your pitch deck

If you’re getting stuck at the same point in your presentation, then it may be an excellent time to eliminate that slide. If that is a slide that you cannot eliminate then use an example to get your point across.

Doing the same thing again and again but expecting a different result is the definition of insanity- for a good reason!

  • Speak at a measured space and

The two significant signs of low confidence are speaking in a high pitch and speaking at a fast pace. The good news is that there is an easy fix for this.

  1. Record yourself pitching so that you hear the difference between your regular and confident voice and that you use during pitching.
  2. Do test pitches where you speak in a tone much lower than your standard baritone and speak at slower than your average space.  
  3. Write down, “breathe” at a spot where you can see it during your pitch and breathe.

These exercises may seem stupid to you, but you have to ensure that your message is getting into our heads. When you talk fast at a high pitch and without taking a breath,  the only thing I’m thinking is – something is wrong with this business!

  • Act as if

Yes you may have just enough money left to take the Uber ride home

Yes your core team may be on the verge of quitting

Yes your parents are hounding you to take that job you hate so you can make ends meet and;

Yes all this stress is tearing you apart inside

However, those are your problems that we are not aware of right now. During your pitch, we should not be feeling the weight of the issues we’re inheriting. Instead, we want to dream about the promise your opportunity holds, and we want to know you are the guy that will get us to that promised land.

Therefore, clear your head before you start a presentation. I watch specific videos or listen to particular music that gets me in the right frame a mind before I make my pitch for investment. I force myself into a mental state where all the issues in my personal or professional life don’t get reflected in my pitch for investment. For my investors, I am ‘the guy’ wearing the confidence of the success, and a bank account overflowing with money.

Confidence is infectious and FOMO is not a myth!

  • Do not brag or lie

Asking you to act as if may seem like I am encouraging you to lie or brag but let me be clear that that is far from the truth.

A successful person does not need to stamp their success everwhere, and neither do they have to remind people of their success. Most of the successful people I know underplay their success, displaying palpable confidence that is felt but not witnessed.  

Therefore when founders start bragging about meetings with Saif, Sequoia, Lightspeed or well-known super angels in a feeble effort to create FOMO they are pulling the rug from under them. We can safely estimate at what stage of the start-up’s development these top funds will take an interest in investing in them.

Therefore, bragging about meeting x, y or z, when you don’t have a POC, is a sign of your immaturity in understanding how the venture capital ecosystem works. To misunderstand their interest in taking a meeting is a sign that desperation is getting to you – not something you wish to convey to a potential investor!

Act as if is an attitude, a demeanor, and a mental state. There isn’t any space for lies and show off when you are acting as if.

Why Should the Investor Connect the Dots?

A comment on my post yesterday inspired my post for today.

Sachin alluded that the investor “might just be…. unable to comprehend the idea in the spirit that it actually existed” and that “Some of the times, people who propose the idea are unable to defend it they think that the other person is more credible so he might be right.” These points are fair, but I disagree.

The intelligence/understanding/smartness of the investor being pitched to, can be utilized to enhance a founder’s pitch, but cannot be blamed for the founder failing to effectively communicate his/her idea. Expecting the investor to connect the dots could work sometimes, but it could just as likely go off-course. Therefore, it is a good habit for founders to err on the side of overcommunicating and utilize effective check-backs during the presentation to ensure that the investor is following the line of thought that they wanted to convey i.e. the founder should always maintain control over the room that he/she is presenting to.

One way for the founder to gauge how effective (or ineffective) his/her pitch has been, is to pay close attention to the questions raised by investors during the presentation or Q&A. If similar questions are repeatedly asked during/after their pitch, founders should realize that some part of their presentation is leading to a reaction in the investors’ mind that prompts them to ask these questions. The foundation of preparing a great sales pitch is if the founder/s is/are able to back-track that train of thought, identify the point(s) that triggered those questions and answer them (in the presentation itself) before the questions are verbalized.

In sales presentations, it is also important to remember that the customer (read: investor) is never wrong. The customer has only understood, analysed and decided on the pitch that was presented to him/her. To expect the customer (read: investor) to understand what has not been effectively communicated is self-defeating – neither will it improve your pitch nor will it change the customer’s (read: investor’s) mind.


How Big Hairy Audacious Numbers Hurt Founders

Yesterday, a founder was having a tough time trying to convince me on his business plan. After the umpteenth attempt, he asked out of sheer frustration, “How is it that xxx company with shitty service and many issues gets all kinds of funding but you can you not give me the initial seed capital to prove myself?”

He was right in a sense, many companies like Ola, Oyo, Swiggy, Flipkart etc. went through phases when their products/services were shitty. They had numerous consumers complaining about them on social media sites and there were questions about whether they would survive the horrible reviews. How is it then that they could raise so much money? How could they convince early investors that they will become these massive unicorns?

In my opinion, it was the founder’s ability to convince the investors on the existence of a market segment that was under served, accurately depicting (for the investor) the issues that this targeted segment is facing. Put simply, they were able to showcase the size of the target segment that could be served right away and the potential addressable size. This is usually the most difficult part for investors to believe and the least researched part by founders.

Many investor presentations have Big Hairy Audacious Numbers (BHAN) which ignite wows, oohs and aahs from family and friends, but that number does not hold up to a deeper dive. It quickly shrinks as the investor digs deeper. The easiest way to shrink the BHAN is to ask the founder which customers he will say no to and which ones simply don’t face the problem he is solving. Every founder needs to ask himself/herself the question, “which customers are too small for me and which customers am I too small for?”. Once those boundaries are set, usually the BHAN shrinks to a fraction of the original, in this case it shrunk over 90%.

Even though that sliver of the original number could be huge, it would make me, (or any other investor) doubt whether the founder clearly knows how to get the most bang for the limited budget that an early funding round provides. It also destroys the credibility of the traction that the founder has achieved until that moment because it raises questions as to whether a large chunk of the current customer base include customers that the founders don’t intend to serve!

These doubts cost the founders dearly and while they can come back with better research and understanding, it will require nothing short of a home-run to re-convince me or any other investor.

As far as the questions on the shitty services are concerned it is impossible to have 100% satisfied customers, 100% of the time. There will always be some slippages, but if the new solution is a little better than the old one and the founders demonstrate a culture of constantly evolving their venture to improve this solution, customers will forgive and continue to use their product/service. Therefore OYO, Ola, Swiggy, and Flipkart should be an inspiration and not a point of frustration for founders that are getting rejected.


Sell the Sizzle in Your Next Pitch

Many things are important towards the success of a start-up pitch but getting the audience to relate to the problem that is being solved can be the difference between a nod or a nay. For many founders this could mean that they must essentially dumb down their pitch, and I would agree with that approach over a technologically complex and “intelligent sounding” presentation any day.  In sales we call this approach, selling the sizzle.

In a nut shell what I am suggesting to the presenter in you, is to hone down on the objective of the first pitch i.e. being relatable enough to warrant further investigation. I would not advise neither expect a presentation to get an investor to write a cheque immediately after the pitch, that is unheard of and nearly impossible. However, if your pitch has the recall value to keep investors thinking for hours, days or even weeks after it – the goal has been achieved.

These are some key ingredients to achieve the desired effect on an investor audience:

  1. Create an image of your target customer
  2. Explain the challenges that the target faces today
  3. Delve into the loss (in time, money, etc.) that this target faces
  4. Elaborate how that loss is hurting the target and how the current solutions aren’t helping
  5. Elucidate how your solution solves these problems (a video case study is recommended)
  6. Calculate the value delivered to the target
  7. Quantify how many such targets exist i.e. TAM, SAM, SOM, etc

Your story should get woven in such a way that the investor finds themselves in the shoes of the target and can visualize the issue, the solution and the value it would provide to them. A great example is this Bhavish Agarwal’s 2011 pitch for Ola.

Notice how Bhavish asks the audience for a show of hands of how many people have had a bad taxi experience. Almost everyone has faced this issue at some point or the other or knows of someone that has, i.e. relatable. Instead of delving into the awesomeness of Ola’s tech stack, he uses ‘you’ multiple times during the presentation to gently put the audience into the shoes of a taxi hailer. He shares just enough pain points to get your creative juices flowing and start looking for a solution to this imaginary problem. Smartly, he chooses to stay out of the techplaining which he understands can (and will) get covered during follow-on conversations with interested investors.

If you think about it, it is easy to argue with an explanation but hard to argue with an experience. Therefore, it makes logical sense to cut out the excess fabulousness of your pitch and focus on only delivering a pitch that is edible, visualizable and recallable. The rest can wait.


Keep the Fundraising PPT, Simple

I sat through a pitch call today that went on for 35 mins (but it seemed much longer). The founder kept going through slide after slide of information which harped on the same point (the business model). To move things along I valiantly attempted to summarize the business model for the founder and indicate that I understood what he was saying. However, that energized the founder to ramble on aimlessly until I had to finally close the conversation as there was another founding team waiting to pitch to us on another line.

Unfortunately, at the time I shut the call the founder hadn’t gone beyond explaining his business model and even though they had approached us from a very important referral source we decided to pass on the deal. Does it seem like we acted too fast? I do not think so.

Ultimately it is the founder’s responsibility to simplify their business model in a manner that investors can understand not the other way around. Therefore, founders should be vigilant that an investor’s time is limited, their attention fickle and once the investor has lost interest it is nearly impossible to get it back.

I found a good solution to avoid getting stuck in tangents and it was provided by the folks at Sequoia. Founders utilising this outline will eliminate the unnecessary slides that are elongating their pitches and will also find the outline helpful in providing a simple yet concrete structure for the pitch to move along on so that the founder can get to the more important part of the pitch viz. the Q&A.


PS: Here is the SlideShare version

When is the Best Time to Reveal that Your Cofounder is Related to You?

It is important that founding teams declare if two of the co-founders are married to each other, blood relatives or cousins. The team can choose to reveal that after the pitch, but I prefer if the team takes the bull by the horns and reveals the full extent of the relationship before they start the pitch. Investors that have apprehensions about investing in founding teams where the members are related, should decide if they will be willing to look over those issues before the pitch, not after.

Unfortunately, many founding teams are advised to withhold such information or to mislead investors by playing around with the last names to avoid detection, but such sneaky tactics only reinforce the fear that the founding team with familial ties drown out the ethical voice that should discourage actions that shake investor confidence.

To allay the fear of those investors that have the first-hand experience of watching their investment value destroyed due to factors like, family feuds, withholding important information or the family member opening a competing venture, founding teams should be as communicative as possible so that these fears aren’t allowed to fester.

The investor may still decide not to invest in the company but at least the founding team does not lose face when investors find out that the founding team used diversionary tactics to slip one by them!


Choose Your Termsheet Battles Carefully

Since there is a limit to the amount of negotiation that takes place on any deal, founders that intend on fighting to win every point of the battle will rarely ever win the war. Founders should enter negotiations for investment with a clear understanding that things are bound to change and that it is their duty to ensure that the people entering their company feel welcome as partners. When the welcome feels akin to pulling out teeth the signs are ominous.

As a founder, the next time you sit with a VC for an investment deal negotiation, ensure that the most important matters are on terms that you are comfortable with e.g. investment amount, valuation, reserved matters, board composition, liquidation preference, ROFR, anti-dilution, clawback, conditions for the second tranche, etc. These are points worth negotiating on.

Then there are also the terms that will raise a sceptre of suspicion that can be discussed with the investor but remain non-negotiable e.g. look-in of founders shares, vesting of founder shares, one vs two tranches, information rights, approval for major expenses, termination, fraud, etc. The harder you fight for altering or removing these clauses the bigger the ditch you are digging for yourself.

Therefore, I would like to offer you a peek into how I prepare for any negotiation with founders. I mentally create 3 lists of points: must-haves, should-haves, would-love-to-haves.  My priority is to ensure that I get all my must haves and in the absence of any, I am willing to walk away from the deal or concede points from my other two lists. This strategy works well as it allows for win-win conversations. Invariably, I have walked away from negotiations not only with my entire must-haves list and most of my should-haves but also, conceding points that were important to the other side as well. It is only when both parties walk away reasonably happy from a negotiation table that everyone knows that a good deal has been cracked!


Don’t Sweep your Failures Under the Carpet

Yesterday, we revamped the pitch book that we share with potential investors interested in Artha Venture Fund. Although the revamp was long overdue, I kept procrastinating until a fund manager in Hong Kong took out an hour from his day to offer me insightful critique for our 35+ slider presentation. He asked me to cut out 35% of the existing presentation but add a slide that initially I was hesitant to do.

Right after the slide that talks about our previous investment performance including the top 6 companies in our portfolio (by valuation), we added a slide that talks about our two biggest investment blunders, why they happened, what the outcome was and what we learnt from it.  It didn’t take me more than a minute to decide which investments I would include on that slide since I discuss them frequently with investors in person, but I was apprehensive of putting them on a presentation that wouldn’t allow me to explain myself.

While reviewing companies, our team always goes through their reviews on Google, Amazon, Flipkart, Zomato, the Play store, Glassdoor, etc. During this process, we don’t look for the best & recent reviews but scour through the list for the 1 & 2-star poor reviews to understand where the company’s product/service is lacking. We do this because 99% of founders will provide snippets of the best feedback in their pitch deck but leave out the bad ones altogether. I believe they do it for the same reasons I did because not being able to explain why there is a big ugly black blot on an otherwise beautiful painting takes away the cloak of invincibility that you work on building throughout a presentation.

In my opinion, after adding the hotly debated slide, we have enhanced our reputation as astute investors. That slide candidly lays out our biggest blunders for potential investors offering a window into how we look at our failures and what we have learnt from them. It makes us relatable, it makes us human.

I recommend that all founders who are currently preparing, reviewing and editing their pitch book should put a slide of their ugliest reviews and explain why it is there, how they resolved the situation with an offended customer/supplier/whoever, whether the guffaw warranted a corrective action within the company, if the corrective action lead to lasting changes (be honest) and what the result of those actions was.

I (now) firmly believe that this is a slide that will stand out in your pitch because it does in mine.