Tag Archive : funding

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:




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!  


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!!




Farming as a Service

At a personally & professionally challenging time in the 2nd quarter of 2016, I went out and stayed at Damodar Farms in Vapi for a short while. The serene setting of a farm, farm-fresh vegetables, raw milk and Mahatma Gandhi’s The Story of My Experiments with Truth allowed me to cleanse my soul and reset internally.

In addition, the farm stay made me realize that what I eat, and drink plays an important role in determining how I feel. That awesome feeling got me hooked on an idea. Those who experience the joy of eating high-quality nutritious food will not want to go back consuming the “dumb” calories provided by chemically sprayed, industrially produced or genetically modified food.

Months after returning from the farm, I continued to eat only farm fresh produce. I was so motivated to get the freshest produce that I embarked on a quest to buy farmland, rear cows for milk, grow vegetables and supply the produce to my family, possibly making this my side business. I scoured the internet and my WhatsApp groups to seek advice on where I should buy land and what the infrastructure and setup costs to run a dairy & fresh produce farm would be. The deeper I got into this play, the more I realized that this couldn’t be managed remotely, at least not by me.

What I required was a group of individuals who had farming experience, strong motivation, excellent organizational skills, marketing, and branding experience to educate the audience about the benefits of buying fresh produce. My part would involve investing the capital to buy land and equipment, aid marketing & sales strategies and put together a solid team who would run and scale the business.

However, there was a major glitch in my utopian plan. The growth of the team was directly proportional to the amount of money that I could invest every year and therefore made it necessary to weigh in the team’s aspirations. Since putting a lid on expectations wouldn’t work, I started looking for startups who do farming as a service. The business offering is simple – the venture will identify the land, provide an in-depth ROI analysis and facilitate the investment. The abundance of liquidity in the market coupled with the idea of purchasing profitable real estate would bring onboard many HNI’s with both money to spend and willingness to pay a service fee based on returns.

Nikunj Thakkar from our team is in charge of finding me a startup who does farming as a service startup to invest in. If you know someone that is pursuing this (or you are the one) email us on attn: Nikunj Thakkar.


Beware of This Type of Angel Investor!

Exactly a year ago, I wrote about a growing malaise in the angel investment ecosystem in the post You are NOT an angel investor. It is serendipity that I am writing about sub 5-lakh ($7500) investments from angel investors that are starting to cloud the cap table.

Founders that are raising multiple small cheques from many different angel investors are only shooting themselves in the foot. They should take a moment and ask themselves (and hopefully the investor) why the investors aren’t willing to put in a respectable investment of at least Rs. 5 lakhs?

Do they

  • Lack conviction in the venture?
  • Are hedging their bets by spraying and praying?
  • Are they testing this new investment class?
  • Do they not have the liquidity required to invest more?

If the answer to any of these questions is a “yes”, the founder has reason to be gravely concerned. Investors that lack conviction in your venture are coming along for a ride only if it is smooth, the moment your ship starts swaying in rough waters, they will be the first ones to jump off. The scenario isn’t any better for the spray and pray investor. Both these investor types will create havoc for the founders not only by paying late on the investment but also reneging on their commitments if the company goes through stormy weather. If the cheque size is Rs. 5 lakhs or more, it is still worth getting these passive investors albeit they pay on time. However, to raise a small cheque from an unreliable investor are two variables that can be best avoided.

The investor that doesn’t understand angel investing or doesn’t have to wherewithal to invest a respectable sum of money into your start-up, is only making you the petri dish to understand a new investment class. Why should your venture be that experiment? Why don’t these investors just pay for executive education programmes on angel investing in India or abroad? This will only set them back about the same amount of money that they are willing to invest in your venture. Let them learn investment lessons on their own dime (and time) and not use your bandwidth to do so. In addition, you can avoid the mess that these rookie investors will, later on, create by needling on non-issues or holding up later rounds because they didn’t get the upside that they envisioned.

A second thing that the founder should be wary of is an investor who has a limited net worth and is investing it in a highly risky investment class like startups. What will they do if the investment goes south, like a majority of startup investments do? (it’s the truth, whether we like it or not) Can these small investors gang up and sue you for selling them an investment opportunity that they did not understand? In most western countries, only accredited investors who have the money and understanding of sophisticated investing are allowed to invest in startups. Despite petitioning different government organizations to bring in this type of accreditation, I have seen no action. Why should your startup become the case study to create that accreditation in India?

I have personally been in investments where these small cheque investors were invited with much fanfare. They were responsible for ruining good opportunities for exits, acquisitions and even raising new rounds of finance. The reward you will get from this small investor is just not worth effort. Avoid this investor at all costs.





Enterprise Building 101

This was one of those weeks that reminded me why I love my job so much. I am lucky to have access to some of the brightest entrepreneurial minds in India (possibly the globe) working to build powerhouses that are revolutionizing traditional industries. Every day, I learn about problems that my business is facing and unique new solutions to fix them. This information also benefits the entrepreneurs in our portfolio and under my wing.

I met with 2 founders that have built solid businesses and are also active angel investors. Out of the various topics that we discussed here are two nuggets of wisdom that are pure gold for founders & investors.

I learnt the importance of delegating responsibility From Pravin Agarwal (Founder of Better Place) –We are coinvestors and board members of Confirmtkt

Pravin advised the founders of Confirmtkt to identify the main pillars of their business eg for Confirmtkt these pillars would be Tech, Operations, Data Mining, B2B partnerships and B2C and appoint/recruit (from outside or within) a person to oversee each one. This person must have significant expertise in that department and can drive its growth. Although the other founders and heads of department may have certain things to add, the buck ends with the person in charge of that pillar. By dividing the responsibilities and having just one person concentrating his/her entire focus and effort on one pillar the speed of execution and decision making would significantly increase.

While this sound like common-sense, the way Pravin explained it was pure gold. As a founder, I have in the past, felt the need to be involved in every aspect of my business and I see this attitude being mirrored in many of the founders that I work with daily. However, in my opinion, the empowerment of individuals through the proper delegation of responsibility creates a leadership hierarchy that will propel a company forward. This is advice that I not only preach but also practice.

I learnt the importance of motivating each employee to be inclined towards generating a profit to achieve profitability for the entire organization from Mr. Ramakant Sharma (Founder of LivSpace)

Employees at every level must make any and every decision with grave responsibility keeping in mind not only its impact on their team but also on the organization. I have come across many startups, who end up making losses at the unit economics level because junior employees who operate the day-to-day functions and deal with them are given no say in any decision-making processes. This is a problem at the eye of the storm.

Therefore, as a practice, Mr. Ramakant advocates that everyone should understand how their role affects the bottom line, i.e. the larger mission of the company. They should strive to achieve individual profitability, the profitability of their team and those that report to them and therefore the profitability of the organization. He also encourages front-line feedback on why profit targets are not being met or what are the changes that are needed to bridge the gaps.

It only makes logical sense that a company that has a profit culture that percolates down to the last employee, will be profitable. This isn’t just left up to the top management to ensure. Employees at every level that imbibe this culture are sure shot superstars and destined to rise.

Implementing these two core strategies can transform any company and its fortunes.

Like I said, it’s experiences like these that make me love my job!!!


Does India Exist Outside the Globe?

In the past couple of days I’ve met a number of Venture Capitalists, Limited Partners and Hedge Fund who claim to be “global” investors but then quickly state that they don’t have a mandate to invest in India! 

To leave out a country with a 5,000+ history, the 3rd largest economy, 2nd largest population and the fastest growing economy on the globe from their “global” plans is an act of high level stupidity. Don’t call yourself a global investor when you cannot invest in 20% of it!

How can these people be considered serious money managers and miss out the greatest wealth making opportunity in recent history? 

The common excuse from money managers to ignore India is that it’s difficult to understand how to business here… really??? These same ultra cautious managers willingly invest in economies with manipulated currencies, saddled with with debts that aren’t going to be repaid. All of this in an environment of dissent that cannot be shown and without any control whatsoever – legally or politically! 

But guess what “smart money managers”… us unimportant Indians have found the money from our own citizens and the large India diaspora to fuel our own growth.. so continue calling yourself global without a presence in India.

You’re not fooling anyone but yourself and your investors.

Giving my due on due diligence

Many founders, angel networks, brokers, co-investors and others who we interact with ask us why we take so much time doing our due diligence so here is my answer to that.

Our due diligence processes are lengthy, arduous, irritating and most importantly slow – that is by design.

Due diligence like the word itself says that there be a “diligence” in the processes that are followed. Our due diligence teams aren’t just on the lookout for legal & compliance issues that your company may or may not have – that is the easy part and we have outsourced those functions to professional teams that do a fantastic job.

Our internal team is on the look out to validate all the claims that were made by you in your presentation, business models, financial models & meetings.

So, when you claim that your company will save 40-50% of the costs the are currently incurred or that your product cannot be replicated or that you have an EBITDA margin of 20% we verify all these claims. We speak to your university, your ex-colleagues, your ex-bosses to get a background on you, your propensity to deal with pressure and whether you are someone we can trust. We get our associates to buy your product and service and that of your competitor(s) and give us feedback on the difference between your offering and theirs.

Then with all this feedback and learnings we rebuild your business model. People on our team will take positions of the founder and argue and counterargue points raised by one another. We bring in economic data to validate our points and we involve the vast network of our friends & supporters to validate or repudiate our arguments.

While all this is going on we keep a tab on your business and whether it is increasing or decreasing. Is there an uptick or downtick, has something happened within the business or outside that can affect or catalyse the venture’s prospects? How do you cope with that change? How do you respond to our findings? Are you evasive? Do you have a solution? Do you ask for help? Do you have someone who you can go get help from? Yes, we are watching you all the time.


 Besides the money, I give you I can earn again… but I am making a commitment to you of our time resources which are perishable. I cannot earn them back even if I want to. So, it is my instructions to our team that they be clear on supporting a venture because to find out after we invested that we had doubts that someone didn’t bring to the table will waste of our time – and time is not something I have.

Why is this good for a founder?

Can you imagine how much information we have collected and the amount of effort we have made before we have put a penny into your company? None of these resources have come free and the time and effort we have put in pays off handsomely because our recommendations come from a epicentre of knowledge and aren’t us throwing darts at a wall. Even as a founder, I could not buy that knowledge even if I wanted to. Secondly, it is better to have the surprises out on the table before we solemnize the marriage than to regret what we knew but didn’t investigate or ask after we have been pronounced investors & investee.

I have no qualms of walking out of a deal or being pushed out of a deal because our due diligence processes are invasive. If all you have said can be backed up in our due diligence it will increase the value of your words. However, if you believe that too much of your presentation was fluff and you cannot back it with numbers – expect us to find out and to make appropriate changes to the deal terms.


Part 2: Early stage investment math – the rule of 3x

Monday’s post, the math of early stage venture capital sparked off interesting debates on various forums. Generally, there is a belief that 268x return in 7 years is unrealistic, many conjectured that early stage VCs expected lower returns, some made the argument that 20% irr was the return expected from a VC (answer to that later).

It occurred to me that maybe (just maybe) the naysayers haven’t looked at the math behind the multiplier effect of early stage investments. So herein below is the math of how a 1 crore investment in seed turns into 243 crores in 6 raises over 75 months. I have refrained from naming the rounds to avoid a tangential debate otherwise here are my assumptions:

  1. A startup raises money for 18 months and starts scouting for a new round in 12 months therefore I have taken a median time of 15 months for a startup to raise the round.
  2. The valuation increases by 3x for a startup between the last round and the next (ideal scenario). The numbers move up or down by a factor of 1x due to many factors that may or may not be under the control of the founder (or funder) but in an ideal scenario the valuation should multiple 3x.
  3. This model may not apply for startups that require long development cycles like startups in the medical space, manufacturing, etc.


Valuation Multiplier 3
Timeline (months) 15
Round 1 Round 2 Round 3 Round 4 Round 5 Round 6
Timeline (months) 15 15 15 15 15 75 #of months
Pre-money valuation (in crs) 4 15 56 211 791 2966
Raise (in crs) 1 4 14 53 198 742
Post money valuation (in crs) 5 19 70 264 989 3708
Seed Investment Value (in crs) 1 3 9 27 81 243
Founder’s Holding (Post Money) 80.00% 64.00% 51.20% 40.96% 32.77% 26.21%
Founder Valuation (in crs) 4 12 36 108 324 972


The message is clear, money invested in early stage venture capital demands that the investor provides more than just risk capital and that they stay invested for 6-7 years to see a surge in their valuation. When the startup starts scaling new heights, the investor’s early risk is rewarded handsomely. Granted that most startups will not pan out the way the investor and entrepreneur expected and that is the risk the investor must live with and get rewarded for.

Lastly I am a firm believer in risk adjusted returns for my money which means that money should flow to those areas where it achieves the highest reward to risk ratio (and not the other way around!).

So, I compare the returns of my team’s work at Artha India Ventures to the work my team at Artha Energy Resources is doing wherein they have placed over $5 million capital from a clutch of investors (including us) into operational wind power projects on long term PPAs at 15% irr in the last 6 months. If my money can earn that return, why should it be deployed at 20% irr in highly risky early stage investments?

The clearer the investor and the entrepreneur are about what they expect from their investment… the easier it is to keep each other happy!


Thank you Vijay Anand of The Startup Centre for sharing the previous edition of this discussion.

Boss, I won’t sign an NDA!

Each day brings with it an opportunity to learn and share.
So today I will share my view on why asking an investor to sign an NDA before sharing your deck is stupid, ridiculous and foolhardy – this blog post has been inspired from events that took place mid-day today.

First, let us all be clear that the strength of a venture is in its execution and not the ideation. I cannot remember where I read or heard this but I repeat it a lot (much to the chagrin of my team),

Ideas are a dime a dozen and you’re still overpaying for it.”

Second, to all my “NDA required” founder friends: Is your idea so simple that anyone who reads your business plan can copy it, create the same result as you would have and make all the promised multiples? Either you’re in the wrong business OR you aren’t someone who believes in his/her execution skills. Neither of those impressions creates a positive aura for you in the mind of the investor.

Third, if I did in my wildest dreams sign an NDA: I would ask the founder to make it a dual-responsibility NDA wherein any advice I have given to the founder or venture can be implemented only and only if my investment is taken. If my advice is implemented without my investment then I should be given the upside that I have missed.

Does that sound ridiculous?

Well so does asking for an NDA to see plan for a business so easy that anyone can do it.

This is not to say that a founder should never request an NDA.

An NDA can be requested if (and when) things move into the due diligence stage and indepth information is required about the venture by the investor OR in the very rare case that your product/service is so unique that it can be protected by an IP. Even in the latter case the Indian IP laws (to the best of my knowledge) do not protect you if you do not move beyond the ideation stage.

Therefore founders, please, please, please… do not waste your time and mine by asking for NDAs to see your business plans – I won’t sign them!