21 Point Action Plan to Corona-Proof Your Startup Dream

Calling the shutdown caused by the Coronavirus pandemic, an economic crisis is a gross understatement. It could be a crisis for the established business ecosystem, but it is the equivalent of a tsar bomba for the early-stage startup ecosystem. If all of us do not act quickly, the entire venture capital ecosystem is staring down at years of effort, getting incinerated in a matter of weeks.

When the Prime Minister, Mr. Narendra Modi, announced the Janta curfew, he talked about blackout drills and wartime curfews to a population where the majority hadn’t witnessed one. It was a reminder of a dark 15-20 period when India went through several wars with Pakistan & China. That ignited a mortal fear in me as well.

I feared that this crisis could destroy the decades of work that it took to provide confidence to young graduates to convert themselves from job seekers to job creators. We had to show years of results to convince Indian & global investors to pour money into startups via venture capital funds, angel networks, superangel syndicates, and venture debt funds. All this effort all this sacrifice, of the tens of thousands of people that make up the entrepreneurial ecosystem viz. over 39,000+ founders, 10,000+ angel investors, 500+ VC funds, several visionary politicians & government officers is on the brink of collapse.

However, real entrepreneurs are problem solvers, optimists, and overachievers. Any challenge, even something that challenges their mortal existence, will help an entrepreneur find another gear within them. As they say, even in adversity, they only see opportunity.

My team and I started to sound out Artha Venture Fund’s founders on the business impact the coronavirus pandemic was about to make a couple of weeks before lockdown. We asked our founders to create new budgets to account for the onset of nuclear winter in the fundraising world, bring their expenses down to the bare minimum, and to show patience along with courage at this time.

It has not been easy to convince the optimist in them to slow down for now and conserve energy to speed up later. Last week we put all our heads together on a zoom call to chart out an action plan for saving their dream – their startup.

I summarized the call in a 21-point action plan to save your startup memo for the founders. My team went a step further to make it into a beautiful & impactful presentation. In the spirit of joining hands during this adversity, I am sharing that presentation with you:

 

It is important to remember the immortal words of General S Patton:

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Together we will win the coronavirus fight in our homes, in our businesses, and our minds. Let’s roll!
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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!

How to deliver bad news to investors

Hey founders, today I’m going to address a crucial topic: When to update your investors with bad news. If you’re an entrepreneur and running a business, you will have to give bad news at some point.

There are many ways to give bad news. One of them is not to give any news at all, let everything go down, and then explain why you have only ruins and not a building on fire. This method isn’t recommended, but some people choose it – I don’t.

There are minor issues or bad news that can be managed in your monthly and quarterly updates. Like missing your quarterly numbers by 3-4%, or if you’re having a tough time recruiting people, or if a particular distributor who was contributing a large part of the business dropped you for reasons unknown or customer complaints. These are the kinds of things you can manage in your monthly and quarterly updates.

However, certain kinds of news shouldn’t be neglected. These should be communicated to the investors immediately. If a co-founder has left, or one of the co-founders has been diagnosed with severe disease and will not be available for the next 6-8 months, or your fundraising efforts are falling through, or a significant client that contributes a substantial chunk of the profit has left. These are the kinds of situations that need to be communicated to the investors immediately, preferably not on e-mail.

What I recommend is organizing a conference call or an in-person meeting. Explain what is going on to the investors face to face, in a way that is direct with no sugar coating. Be humble about the fact that things have gone wrong. Don’t try to play up things to avoid the investors being angry at you. If the situation is terrible, investors have a right to be irritated and will point out things that could have gone better. You should take criticism in your stride as you’re expected to execute successfully. Take responsibility, be direct, and you’ll find that investors will probably come back with solutions for you to manage the mess.

In adverse situations, you should have a turnaround plan. I would recommend having one if you’re going to have a face to face meeting. If you don’t have one, let the investors know and get back to them in a few days or a few weeks. There may be some questions the investors have, for which you may not have the answers. I would recommend not making up turnaround plans on the spot. If you don’t have the answers, tell them. Mention that you’re going to get back to them in 5, 7 or 10 days (or whatever number of days you believe you need) but ensure that you keep those promises.

Delivering bad news should not be difficult. It’s only tricky when you don’t want to give bad news, and you feel hiding is the best way forward. But it doesn’t solve anything. In fact, it only leads to the problem of getting bigger. If hypothetically, the company shuts down, and investors find out that you knew in advance, you could find yourself in a hot legal soup.

I’ll leave you with that, and I would love to know how some of you guys have shared bad news in the past. Also, if you have tips for other entrepreneurs, do share them in the comments.

How to sell anything to anybody

I did several part-time jobs while in college but the only part-time job that I held for all the four years of my degree was as a salesman in a jewelry store. The managing partner of the store and still like an elder brother to me, Haresh, gave me this book, How to sell anything to anybody by Joe Girard. Haresh considered this book to be his bible on sales, and once I read it, it was my sales bible too. However, this book is not about sales.

This book is about creating a systematic approach to

  • Recruiting new customers without burning a hole in your pocket
  • Getting your customers to like you
  • Getting your customers emotionally attached to the product
  • Attaining (and maintaining) a high closing percentage
  • Engaging with your customers even if they don’t buy right away
  • Engaging with your customers after you have made the sale 
  • Getting referrals from customers, friends, family and service providers (including your barber!) to grow your business
  • Creating a team around you to ensure you get the highest return for your own time

Joe Girard sold 13,001 cars in his sales career. That is a staggering number because his sales career ended in 1978 i.e. way before the internet; WhatsApp or Facebook made it easy to reach out to a customer.

Joe was profiling his customers, listening to their needs, adjusting his approach to sell his customer. He also made several sales by reaching out to his customer just at the time that their car was ready to be replaced!

How did he know when to call? He kept all this valuable information on his customer in a physical CRM i.e., way before Salesforce, Dynamics, PipeDrive, etc. made record-keeping infinitesimally easier. 

It is for these reasons that this book is a must-read for all founders whether they handle the sales function or not because as I had mentioned before this is a book about creating systems. Therefore I recommend that every founder know how to support the sales function whether they sit in tech, operations, HR, or fundraising.

I have re-read this book several times in my career. Most recently, I re-read this book to create a system to approach, engage, and recruit LPs for my fund. The system ensured that only 13% of the 115 crores we have in commitments came from distribution relationships. Therefore, in the remaining 87% of the cases, I utilized Joe’s system to recruit, involve, and close LPs. My team used a CRM to manage follow-ups and we created new content to reach out to our LPs.

This approach saved us almost one crore a year in paying out fees to distributors, which is a massive cost saving for a MicroVC fund like ours. What is the investment?

Rs. 280 and 8 hours of reading time.

You don’t require a finance degree to explain that these are fantastic returns on your investment and time.

Now it’s up to you…

The passionate vs the obstinate founder

Recently, I had a long conversation with someone about the challenges I faced working with an obstinate founder that they referred to me. The person countered that the founder was passionate about their business idea, and I misunderstood their passion. I disagreed with their assessment.

During the week, I have contemplated the difference between obstinate and passionate. I realize that it was difficult to separate the two. Obstinate is often misunderstood to be obsessive; a term often used to describe Mark Zuckerberg, Jeff Bezos, Brian Chesky, Elon Musk or Jack Ma.

I love obsessive founders. I considered myself an obsessive founder. I am probably even more obsessive as an investor. Why VCs love obsessive founders is well explained by Mark Suster in this Medium post titled Why I Look for Obsessive and Competitive Founders. If you are a VC investor, then you should read this post.

Moral: Obsessive is good, but obsessive is not obstinate.

Obstinate is what Oxford defines as stubbornly refusing to change one’s opinion or chosen course of action, despite attempts to persuade one to do so.

Obstinate founders can take a fantastic thing and reduce it to rubble because their need to be right is more important than their need to win. It is the classic winning the battle but losing the war syndrome.

Gordon Tredgold wrote a wonderful article explaining the difference between stubbornness and determination, aptly titled Don’t Confuse Stubbornness with Determination.

In it, he provided a list of signs that can warn a founder whether their stubbornness is becoming an issue.

  • If you never win and you never quit, you’re an idiot
  • Will power vs. Won’t power
  • Remember that your goals must be measurable
  • Think about results
  • Consider adaptability
  • Your goal will remain the same, but your plan for achieving it will be different

His suggestions are absolutely banging on. I encourage you to read the article if you constantly find yourself butting heads with prospective and/or current investors.

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.

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 I refuse to promote women's entrepreneurship

Tomorrow I am judging a start-up competition in Delhi that awards its winner up to Rs. 5 lakhs to start their business. Since the contest is only for women, I have received several messages thanking and congratulating me for promoting women’s entrepreneurship. Unfortunately, I am not a big believer in “women’s” entrepreneurship.

I believe that word entrepreneurship is asexual and to treat someone, mainly because they are a female founder (or entrepreneur), with a different mindset is simply not right. Why should we denigrate a founder, just because she is a woman? Does her X chromosome make her business any less valuable, profitable, or exciting?

Therefore, it irks me that there are events, panels, discussions, specially curated to promote women’s entrepreneurship or female founders, exclusively. Most female founders and executives that I have interacted with see it the same way. We all know that anyone discriminating against a business run by a woman leader or refusing to fund a female founder hurts the person holding the bias much more than it hurts the woman – not only in terms of mindset but also on return on investment. 

When I look at my portfolio, I see amazing founders. It is just an afterthought that over 50% of them have women co-founders like Prerna at Daalchini, Kanika at Jadooz and Dhanya at KabaddiAdda. Even within my family office portfolio, several of our most successful investments are powered by female founders like Shivani at Tala, Avneet at CarveNiche, Mahima at Coutloot, Naiyya at BabyChakra and many more. They have made us several x’s on our investment (and no I do not keep nor intend to keep a separate portfolio performance based on sex), and some of them will turn into unicorns in the future – one of them very soon! 

However, none, nada and zilch, of these founders or their start-ups are in our portfolio because they were women. They earned every bit of the success they have achieved, and I respect them for their blood, sweat, and sacrifice – as an individual. In my interactions with them, I see them as entrepreneurs NOT as women founders, and I hope that they know and feel that they are equals.

Therefore, I do not see any good reason to promote female founders or entrepreneurs, because I have experienced excellent returns on my investments by treating each founder as an individual and backing their businesses based on merit. The moment that I start treating a founder differently because they are women, it means that I do not see them as equals. I will skew my thoughts to cater to my bias, and it will hurt them as much as it will hurt my bank balance.

So I am going to continue to be supportive, critical, effusive, disappointed and elated by my founders without discriminating on them because of their race, age, color, sex, national origin, religion, and physical disability. I believe this approach is the best way to promote any founder.

Be prepared for due diligence BEFORE your fundraising!

There are very few things that I do not love about venture capital but taking a founder through due diligence is one of them. I have written about the importance of due diligence in the past and a best-case scenario, due diligence should not take more than 30 days to complete. But realistically it takes anywhere between 90 to 180+ days. The delay is due to minor oversights made by the founder that pile up over a 12-18-month period but majorly it is their overall lack of preparedness for due diligence that delays due diligence.  

The unpreparedness of founders for due diligence is baffling to me. It should be advertised that successfully completing due diligence is more important than the fundraising itself! Because if a start-up loses an investment offer even after advance negotiations, they can recover from that but if they lose an investment offer during due diligence – it is the death knell for them!

This about it – who would want to invest in a company that has failed due diligence with another investor?

Therefore, I stress the importance of “preparing” one’s start-up for due diligence even before beginning the fundraise. Over the last 12 months, I have specifically told each of the founders that raised or attempted to raise money from Artha Venture Fund – to be prepared for due diligence if they want to see our money in the bank account as soon as possible.

For the uninitiated there will be several levels of due diligence like

  • Financial DD – that is carried out by an accounting or audit firm to verify that: –
    • All transactions and its bookkeeping have been done as per standard accounting norms
    • The traction numbers provided by the company are accurate
    • The financial model can be compared to the numbers in the books of accounts.
  • Legal & Compliance DD – that is carried out by a legal firm working in conjunction with a company secretary to verify that: –
    • The company has made all their necessary filings (monthly, quarterly and annually)
    • The commercial relationships that the company has entered have been captured in a proper legal contract that protects the company’s interests
    • All employees and independent contractors have signed contracts for the employment or services with the company – including the founders
    • All registrations, licenses, and permits that are required to operate the business have been procured and are current
  • Valuation – this is something unique to the Indian ecosystem and this usually carried out by a merchant banker to:-
    • Review the financial model for the company and its future projections
    • Deduce a valuation based on the above information
  • Internal DD – this differs from investor to investor but in our case we: –
    • Speak to former employers, associates, references and even your school to get a background on the founder
    • Speak to current or former employees, contractors, advisors, industry experts, suppliers and customers of the company to get their perspective on the company, the founder and the internal working
    • Conduct mystery shopping campaigns to verify/validate that the product/service is of the quality or efficiency that is being promised
    • Conduct on the spot checks on the company and its operations

Unfortunately, due diligence isn’t something that can be wished away by an investor in a sound frame of mind therefore founders would be better prepared if they would just prepare themselves for due diligence. So, if you are someone that is looking at raising money from us here is our standard due diligence checklist – be prepared for this before you send your pitch deck!

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On whose advice should you pivot?

A founding team must (not shall) display a strong belief and deep commitment to their business. The teams that constantly shift their business model on the feedback of funders eventually find themselves lost at sea. So, there are many times to pivot your business – but a failed attempt at raising a round of capital just isn’t one of them!

As Investors, we evaluate businesses with a limited vision periscope and often, “tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”

At Artha, we remind ourselves and founding teams through the disclaimer in our rejection emails.

Please note, these are only recommendations and as venture capitalists, we are only required to be right 20% of the time to be amongst the top VCs in the world. We can be (and are) wrong 80% of the time in our investments, so please do not consider this as the final word for your business.” 

Therefore, it is sane advice to any founding team out there that is currently raising capital.

  • Utilize the funder’s feedback to alter your business’ investment pitch.
  • Utilize the pitches that didn’t result in a sale to alter your business’ sales & marketing pitch BUT
  • Only take your customer capitalist’s (read: paying customers’) feedback into account, to pivot your business

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