Desperation is the Name of the Game

If all things are equal between two candidates that want me to be their mentor, what would be the difference, that would make all the difference? No, it’s not how equity you will give me or how much respect you have for me… The correct answer is – desperation.
I am not referring to the desperation to get time, money or references, but the desperation that burns through the eyes and words of the prospective mentee to succeed. The desperation that cannot be dissuaded by failure, drowned out by rejection or simply because they didn’t get an immediate response from someone they attempted reaching out to for help. I am referring to that desperation that will make a person turn the world upside down to get what they want – yes that desperation.
In a world of unlimited opportunity, this is the kind of desperation I look for, to decide who I should devote my limited time (a precious resource) to. A person must innately want to achieve the skill he is seeking my mentorship for, and not only be attempting to achieve it because he ‘has to’. This distinction leads to a visible difference in the amount of passion and desperation a person exudes.
The lack of this type of desperation and conviction in the importance of achieving that skill doesn’t bode well for my ROTI (Return on Time Invested).
So, if you think I’m being arrogant, standoffish or aloof to your call for help, I am only checking to see if you are as desperate as you are making it out to be.
29/2018

A Sunday Treasure Hunt, for a Good Cause

I am the Vice-Chairman of Mumbai One Round Table 221 (M1RT221) which is part of Round Table India. One of the objectives for our table this year is to host an enjoyable philanthropic event that while contributing to a noble cause will provide an interactive and enjoyable Sunday afternoon with family and friends.
Our first such fun event for 2018 is the “Carwars: Treasure Hunt” that is taking place on March 11th, 2018 from 9 am to 12 noon at National Sports Club of India (NSCI). Participants will be given a set of clues to decipher, which will take them around Mumbai to parts of the city that they haven’t been to in a while or never before. The last time we hosted a similar treasure hunt in 2015, it was a resounding success. We have a ton of memorable pictures of participants posing as statues at Hanging Gardens or hidden signboards around Fort. I am sure that this year will be better than the last one J
The entire proceeds from this event will go to Reevive of Cancer Charity Trust. Reevive an organisation that helps financially challenged cancer patients to fight this horrible disease by giving them access to quality treatment. Their zero administration cost policy is what sets them apart. The organization supports patients from the Tata Memorial Hospital and the money that is donated to them gets directly deposited into the Hospital’s treatment account so that it can only be used towards the treatment costs and medicinal expenses of patients. This ensures that any money contacted to Reevive directly reaches the hands that need it the most.
This event will be a Sunday well spent with family & friends for a cause to help those in need.
Breakfast will be provided at the venue before you go off on your hunt so get there early! There will also be lunch after the hunt (so make sure you make it back!)
To register for this event click here: http://imojo.in/6t6gzz
If you would like to be a sponsor for this event or donate (because you’re an awesome person) email me by clicking here
This event is supported by the Young Volunteers Organisation.
26/2018

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.
 18/2018
 
 
 

Investor Speak: A Single Founder vs A Founding Team

This past Saturday, I was at a IIT-Kharagpur as a panelist in their 2018 version of the Global Entrepreneurship Summit. As an early stage investor on a panel that included 2 entrepreneurs and 1 corporate VC the different viewpoints we provided to the same questions was eye-opening. At a point in the discussion the moderator, Flipclass founder, Vineet Dwivedi, asked why Indian VCs prefer founding teams versus single founder start-ups. He shared his own experience of having faced a lot of opposition while raising money. Donning the early stage VC hat, here are some of the reasons I support a team structure versus a single founder.

  1. Indian entrepreneurship ecosystem vs global ecosystem

While the entrepreneurial ecosystem in India is improving by leaps and bounds, it is still difficult to start a business, run a business and even close a business in India. A founding team must manage a lot of core and non-core issues to be able to effectively run their venture. These are challenges that the current Indian educational setup does not prepare them for.
Unlike American universities that offer (don’t play the name game) undergraduate programs in entrepreneurship, preparing young talent for the challenges an entrepreneur may run into – the Indian education system does not have that luxury.
The current Indian education system only prepares talent to enter a specific department (finance, technology, etc) in an organization. It does not provide them with entrepreneurial qualities that are needed to run multiple departments in a single business or even manage delegated HOD’s.
Therefore I get better sleep at night, knowing that I am investing in a team that has the diversity to secure and grow the different facets of  a business versus betting on a single founder that isn’t equipped to deal with all the issues and may be overwhelmed by trying to juggle too many things at the same time.
2. Flexibility required for pivoting
Many of the early ideas lack market validation and are therefore prone to pivot drastically. Therefore, I would rather back a team that has the bandwidth that would permit this quick pivot in case the initial thesis isn’t validated by real data from entering the market.
3. Lack of quality talent
It took me almost two years to find the right CTO for Artha Energy Resources, so I understand the trouble that a startup goes through to find and retain the right kind of talent. As soon as raw talent gains experience and matures, there is dime a dozen established and well-funded companies that are willing to offer tons of money and perks to swindle (I used this word because sometimes the benefits of being with the smaller firm are much larger than a bigger paycheck) it.
I have witnessed co-founders leaving their startup for better opportunities from a competitor after having delivered a fantastic product. So, betting on a single founder increases the risk of my investment. I would rather diversify that risk by investing in a team.
4. Equity hoarding by Founders
It is a unique trait of the Indian entrepreneur to want to hoard all the equity. This alienates key talent that is needed but will not work for anything below the general market salaries that are being offered. The only way to attract this much-needed talent would be to give them generous amounts of equity in the company.
I cannot invest copious amounts of money in the early stages for founders to be able to pay market rate salaries for experienced talent that is required, without accounting for it in larger equity positions (read: Investor math). Instead, I choose to put together a team of people with enough talent to reach the set targets and prevent them from jumping ship by providing an amount of adequate equity while keeping the salary bill affordable.
If a single founder showed maturity in farming out equity to deserving talent, I would prefer working with a single founder with a strong team, rich experience and the incentive to perform.
In a startup ecosystem that is gradually maturing, I am certain that my preference of a founding team over a single founder will be challenged and may even pivot with time. I look forward to facing my theory being stretched, smashed and even replaced.
14/2018

My Pre-Budget Wish List

As Finance Minister enters the parliament to present his 5th budget… These are the changes that I wish to see!

  • Personal Taxes
    1. Reduction in number of slabs
    2. IT exemption limit increased to Rs 3,60,000
    3. Top tax slab reduced to 25%
    4. Exemption for equity investment increased to Rs. 2,00,000
    5. Penalty on Income Tax evaders increased
    6. Announce final round of Voluntary Disclosure of Income Scheme
    7. No change in LTCG on listed equity investments
    8. No LTCG on startup investments that are held for over 3 years
    9. Farm income over 50 lakhs should be taxable
  • Corporate Taxes
    1. Flat tax of 25%
    2. Removal of exemptions
    3. Investment in qualified start-up funds (impact & seed) allowed from CSR allocation
    4. Dividend Distribution Tax reduced to 15%
  • Startups
    1. Increase Fund of Fund allocation to Rs. 15,000 crores
    2. Tax exemption for investing in SEBI registered start-ups funds;
      1. 1 crores for individuals
      2. 5 crores for corporates
    3. Removal of IT exemption scheme for start-ups
    4. Increase in allocation for CGTSME loan schemes
  • Power
    1. Removal of MAT on power projects
    2. Utilisation of Coal Cess to encourage rooftop solar projects & rural electrification
    3. Tax and other benefits for banks to lend to power projects
    4. Custom duty on import of solar panels.

Now crossing my fingers (but not holding my breath). Best of luck everyone! 😊
12/2018
 

A Holocaust of Renewable Energy Investors in India

It has been over 12 months since the we have received a payment from our energy consumer, Ajmer DISCOM – owned by BJP led Rajasthan government. The outstanding payments (now) add up to 20% of what we paid for the asset!Luckily my investors paid in full for the asset so there weren’t any loans to repay but not every renewable energy generator was as lucky as me, many took loans, have run from pillar to post to get paid and after exhausting all available options they have finally been forced into looking at other avenues to repay the loans. The gut wrenching stories range from mortgaging familial properties, dipping into their savings or in worst cases selling property to keep the loans current – this is the state of renewable energy investors in India, a population that is dying under the weight of the outstanding dues.
I used to assure my investors that the invoices are with a government entity that has to pay penalty interest of 15% on the past due amounts which is as good as keeping the money in a high yielding bond. My faith was vindicated last year when, under the direct order of the Rajasthan High Court the DISCOMs immediately paid the delayed interest amounts and I (like many others) did get the money!
This year however, the DISCOM is extracting more than it’s pound of the generators flesh by

  1. Withholding payments to generators even though it has received funds from the Central Government under the UDAY restructuring scheme 
  2. Asking renewable energy generators to back down their substations when they are in the middle of producing their maximum energy 

The investors have been living with these issues for years now and most of those risks have been priced into the financial models for these projects. The blow that broke the camels back is the DISCOM newest filthy proposal: sign an undertaking giving the DISCOM a 50% interest discount otherwise wait indefinitely to get paid.

Yes, ladies and gentlemen, you have read it right – the debtor is offering the creditor an amnesty scheme!

The 50% discount would mean that

  1. The interest paid to the bank (around 10-12%) is higher than the interest received from the DISCOM 
  2. It ss less than the yield of 12 month fixed deposit at a nationalised bank  

This leads to a negative IRR situation for the investor!


Does the Narendra Modi government intend on building its 100 GW plan on the carcasses of renewable energy investors? The banks don’t want to lend to this sector, the investors don’t want to invest new capital in this sector and it is easier for me to find people who want to sell their renewable power projects than those that want to buy them.
The PMO and the Ministry of Power is fully aware of what is going on because just last week we received a letter from the Maharashtra DISCOMs offering the Rajasthan amnesty scheme to its creditors… the model is here to stay and will be replicated till all renewable energy investors have been gassed into oblivion.

The sun is setting quickly on renewable energy investors in India