My funding picks of last week (w18)

Fundraising activity continues to slow down; therefore, my team and I had a tough time shortlisting our favorite picks with just a handful of deals to choose from. After shortlisting all early-stage deals activity for week 18 from Traxcn, Inc42, and YourStory, we jointly picked out the following as the best funding picks for the last week:

 

Name: QuillBot

Amount Raised: $4 Mn in a round led by GSV Ventures and Sierra Ventures

What does QuillBot do?

Edited from Traxcn: Millions trust QuillBot’s full-sentence thesaurus to get creative suggestions, rewrite content, and get over writer’s block. QuillBot uses state-of-the-art AI to rewrite any sentence or article you give it.

Why do I like QuillBot?

My team and I are Grammarly power users processing tens of thousands of words for our investment notes, meeting minutes, emails, blogs, private chats, and more. I believe that there is space for a Grammarly competitor, especially one that understands the Indianized English – also, can Quillbot (or Grammarly) build a plugin for PowerPoint, please!

 

Name: YAP

Amount Raised: $4.5 Mn led by BEENEXT

What does YAP do?

Edited from Traxcn: YAP offers a white label program management platform. They also issue a Yap Tatkal wallet, which allows their clients to provide their customers physical or virtual prepaid cards linked to their products. They also offer a QR payment solution in the mobile wallet.

Why do I like YAP?

The lockdown caught the banks with their pants down due to unpreparedness to go digital. The post-lockdown scenario is bleak for physical banking, and banks must prepare themselves to fully service their customers from the palm of their hands. YAP is building APIs to bridge that gap hence one to look out for.

 

Name: Mindhouse

Amount Raised: ~$680K from BTB Ventures, GGV Capital, Aartieca Family Trust, and Angels

What does Mindhouse do?

Edited from Traxcn: Standalone mental fitness and wellness center brand

Why do I like Mindhouse?

The COVID19 virus reserves it’s worst for those with weakened immune systems. Therefore I expect that fitness (physical or mental) will be on the priority list of most in the post-virus era. Mindhouse attempts to enter the space that mind.fit is operating in. Will it succeed?

Flashback Friday: CarveNiche Technologies

As I approach my personal goal of personally investing in 100 startups within 10 years, it was time to reminisce. Each new investment gave me a new experience, sometimes good, sometimes bad and sometimes ugly. Last week I wrote about my first angel investment, United Mobile Apps. This week is its investment #2!

CarveNiche is an innovative EdTech startup. They developed advanced EdTech products such as beGalileo (India’s largest personalized after school math learning program for K-12 education), Wisdom Leap (free online source for K-12 education), and Concept Tutors (personalized 1:1 tutoring focussed on the international market).

CarveNiche created a niche in the EdTech space. It is the first to develop a product using the latest technology, such as Artificial Intelligence (AI), to teach a subject like Maths. The flagship brand, beGalileo, recently became India’s first after school Math learning program to be available as a Windows App.

At present, they have over 750 women entrepreneurs who are running their centers through CarveNiche. The renewal rates exceed 90 percent, which shows the value they provide to the students and parents.

Founder: Avneet Makkar Total funding raised INR 5.5 crore
2020 status: Operational with HQ in Bengaluru Number of rounds 3
Co-investors: Lead Angels, Mumbai Angels, Calcutta Angels

 

  1. Why did we invest in CarveNiche?

CarveNiche’s initial business model was to deliver a superior classroom experience for the school students by utilizing the latest digital hardware with a customized software platform. The platform provided instructors the ability to track the progress of each student and personalize the student’s teaching plan based on how well the student grasped the subject. The platform also offered a messaging service to connect parents & teachers so that they could track the progress of their students at school & home.

I liked the founders. It was a known fact that Indian schools lacked modern equipment to upgrade the delivery of instruction in the classroom. Looking at the massive size of the market, I decided to invest based on the broad target market, solid team, and their clear understanding of the problem and its solution.

 

  1. What were the risks involved with an investment in CarveNiche?

The risks presented themselves in three ways.

    • Long sales cycles: The company had a tiny window to sell its offering to school administrators, their boards, and their trustees. Next, their team must negotiate contracts, find financing to help the school purchase the required equipment. After that, CarveNiche would implement the solution and train the instructors on how to use their platform. If the company could not complete all these steps before the start of the school (academic) year, the sales decision, the invoicing, and the revenues from it would get postponed to the following year. The company must continue to fund its sales team for long periods before they could see the results of their efforts or get feedback to innovate on the product.
    • Providing subprime debt: Most Indian schools do not have a profitable business model. They must regularly fundraise to meet their budgetary needs. Therefore, most schools could not afford the hardware for CarveNiche’s solution – unless provided with equipment financing.

With most of these schools running operating deficits funded by government grants, donations, and trustees, these schools had an inferior debt profile.

To survive, the company had to come up with an equipment leasing/purchasing plan, and they approached us for that financing. We gave subprime debt to a few schools to evaluate their ability to repay, but most of the schools defaulted on their obligations to CarveNiche and us. That experience burned a severe hole in CarveNiche’s bank account, forcing them to abandon this product offering and the selling to schools’ business model.

 

  1. How long did you plan to invest in CarveNiche?

At the time of the investment, it seemed like CarveNiche would scale quickly and get acquired by a larger player like Educomp. However, our investment coincided with the start of the demise of Educomp, and even though the company raised a couple of follow-on funding rounds, they had to (thankfully) pivot to a B2C business model.

 

  1. Would you invest in a similar startup today?

I learned from CarveNiche’s experience that trying to build a massive business that sells to institutions that possess inherently unprofitable business models is like living in a fool’s paradise. The Modi government invests 4.6% of GDP in education, so I know there is money to be made in EdTech.

However, I find that the B2C plays must spend a lot to acquire a customer, and their LTV / CAC ratios stay <1.

In B2B, I have not found a group of founders that understand the pain that CarveNiche went through and have developed a business model that addresses those issues; therefore, we have cautiously stayed out of this space.

CarveNiche’s new business model providing online tutoring has promised, even if it was a bit niche. However, it has scaled beautifully in the COVID19 era. The company has turned around and raised a new round to aid its growth. Avneet has stayed the course despite several setbacks, so she deserves every bit of the luck that comes her way.

In conclusion, I would not invest in the original CarveNiche business model – but I would invest in Avneet.

 

  1. What are your learnings from the pivots that CarveNiche has made over the years?

CarveNiche was my 2nd angel investment, and it taught me many lessons that continue to guide me today. I’ll share a couple of them:

    • Follow-the-money: It is essential to understand how long it will take a business to convert billed revenue into money in its bank account. If the path to getting the money is long and fuzzy – avoid that business model. As a founder or an investor.
    • Avoid investments in long working capital plays: If it takes a long time to close a sale, then a long time for to invoice for sale, and an even longer wait to get the money from that invoice into your bank account – what is getting utilized to keep the lights on today?

If the answer is venture capital, then I would not invest in that business.

Help us help you get that business partnership you want!

During my door to door salesman days, I could go through a wall if that meant I would get a referral to a potential sale. My team and I created, and memorized closes to secure referrals. My managers and I tracked how many transactions took place from referrals, and we pulled up salespeople that had low referral closes. It is clear to any salesperson that a referral is worth its weight in gold – it is a job half done.

Continuing in the same vein, now more than ever, founders are on the lookout for business partnerships to increase business avenues, and you must know that your investor has access to a vast network of people. Your investors’ immediate network has access to an even more extensive network, i.e., your investors know some people that know some people who are very important people.

So why is it that most founders fail at utilizing our reach?

A majority of the investors have every intention of helping you, but here is another critical question.

Have you made it easy for us to help you?

Despite best intentions (and regardless of the size of the fund or team), we have a limited amount of time and resources to address the needs of founders. A little bit of help from you would make it easy for us to help you. Your help would help us get more done in a shorter time and make you and us happy.

Therefore I came up with a list of steps, distilled from my efforts in securing referrals, whether it be for investors into our fund or for business development. Besides, I analyzed the efforts of founders who got the best out of their investors and those that failed at leveraging them, and the result was more straightforward than I would have envisioned when I began writing this list.

  1. Self-research on your target connect.

Venture capitalists have thousands, if not tens of thousands of contacts, and we are very adept at networking and finding people. However, you need to do your research on the people you want us to connect you with.

Usually, your reason to connect with the target is very different from why (or how) we connected with them. Our personal experiences could bias our opinion with your target, i.e., we could have approached them to invest in our fund, and they refused?

Therefore you should do your research on the target, utilize our knowledge about them to sharpen your understanding and find out whether an association with your target would be fruitful.

  1. Be as specific as you can in what you seek

It is a known fact that the most sought after people have the least amount of time. It is likelier that those people have an even shorter attention span. Therefore you must grab their attention, deliver your request before a notification takes your target onto another window.

Therefore avoid long-winded emails and big paragraphs, write in point format, be specific and get to the point quickly. When you show respect for your target’s time (and attention), it speaks volumes about how well you understand their position.

PS: Do not forget to be courteous & spell check!

  1. Know ‘why’ would your target want to work with you

If you or your company is the ultimate beneficiary of your proposal, expect a long period of silences to your requests. You must find a win-win situation and communicate how your association with the target would benefit the benefits them directly or their company.

If you cannot find or demonstrate the benefits of the association for the target – why would they get out of their chair to help you?

PS: If your strategy is to appeal to your target’s charitable side – please find a better reason.

  1. Create a short presentation (or note) on your proposal

After analyzing 40 million emails, Hubspot reported that emails with less than 200 words had the highest response rates. It is sage advice.

It is an excellent chance that your target receives hundreds if not thousands of emails in a week. Your warm introduction through us would encourage the target to etch out time to respond. However, long emails get flagged for reading when we have more time. Which (in most cases) I don’t.

There is a hack, though:

  • Create a short presentation (5-8 slides max) that outlines your research on your target, defines what you do, what you can do for your target, and how your proposal creates a win for the target.
  • Your presentation should excite them to get in touch with you (or get the relevant person from their team to get in touch with you)
  • Write an interesting note that generates enough excitement for the target to open your presentation.

  1. Get your investors’ buy-in.

Once you have found a win-win, written an action invoking short note to go with a presentation that will get you a callback, next, get your investor’s buy-in.

Some founders treat their investors as gofers who should do the founder’s bidding regardless of the investor buying into the proposed plan. You must understand that it takes much effort to create and cultivate relationships. Just one poorly-thought-out request could ruin that relationship for the foreseeable future.

If we get bought into your well thought out plan, and you can convey how we could enrich our relationship (with the target) through your proposal. You would’ve created a win-win-win that will get us to go those extra miles for you.

  1. Write a short, courteous but direct introduction email to your investor asking for your specific help from the target

With your investor bought in, write a quick introductory email asking for a specific connection to your target utilizing the steps outlined above. Your email must convey that you were specifically looking for an introduction to the target (and why).

Emails that convey a spray & pray approach get treated as spam.

  1. Draft the email for your investor

For extra credit (and to ensure that your message isn’t lost), go ahead and write the email that your investor could copy, paste, as their own words, and forward the email you sent in step 6.

It is unlikely that your words will get copy-pasted in the form that you’ve sent it in. However, your words will load our words when we write our email, thereby ensuring a near-total control to you on the messaging.

PS: It won’t take but an extra few minutes, but knowing how busy and dynamic an investor’s day could be, you leaving anything to chance is foolhardy.

  1. Give them a way out

Your target must have a courteous way of saying ‘no’ to your investor. I have explained before that each relationship takes much effort; therefore, the target’s failure to help you through your investor should not lead to a loss of the connection itself.

We want to help you, but if that means it puts our relationships on the line – it isn’t the sort of song that you wish to play in the back of our head.

PS: Give your investor a way out too. You can utilize this forgiven favor soon! 🙂

Flashback Friday: United Mobile Apps

United Mobile Apps (UMA) developed and published mobile applications software. The company issued software products for mobile devices with a focus on connection management, device management, and data synchronization. UMA marketed its products and services to original device manufacturers throughout India.

UMA had a vision of enabling access to all the User’s data ‘Everything – Everywhere.’ To implement this vision, UMA worked on a cross-platform software called Unify (U5) which had the following modules:

  • USync: Synchronize data from mobile device / laptop / PC
  • UManage: Manage the device remotely
  • UShare: Share the backed-up data

 

Year of Investment: 2012 Total funding raised USD 1.2 Million
2020 status: Shutdown Number of rounds 2
Co-investors: Blume Ventures, India Venture Partners & Mumbai Angels

 

Anirudh A Damani (aD) gives his insight behind this investment.

  1. Why did we invest in UMA?

aD: UMA was trying to optimize the mobile telephony infrastructure by utilizing the correct cellular network bands based on the type of data getting transmitted. So, their solution allows the network operator to use 4G for rich data applications, 3G for emails, 2G for voice calls, and GSM for SMS. The solution also allowed a seamless offloading to wi-fi for data sapping applications.

It was the perfect solution for an infrastructure challenged market like India with its notoriously poor network quality. I also liked the founding team, the right mix of engineers, and businesspeople for a complex infrastructure play.

 

  1. What were the risks involved with an investment in UMA?

aD: There were a couple of significant risks. First, the company must invest a considerable amount of money on R&D, an expense that it could not stop even if sales were slow – which was the second risk. The company had a long sales cycle and relied on the correct alignment of several external factors for its success.

 

  1. How long did you plan to invest in UMA?

aD: For a long time, I  had a conviction that UMA would be my first unicorn. I had planned to hold onto it forever as UMA’s business model would make it a cash cow. Unfortunately, unfavorable market conditions dashed my expectations.

 

  1. What was the primary reason behind dead pooling UMA’s investment?

aD: As I had said earlier, the company relied on external factors for its success, e.g., the quick rollout of 4G networks to be a viable solution for network operators. The network operators would then ask handset makers to install UMA’s chip in the handset and pay a royalty to UMA per device per month.

However, the 2G spectrum allocation scam in India led to a slow 4G rollout in India. Though unconnected to India, different regions around the world also witnessed a slowdown in rolling out 4G. This stalled the company in its tracks. The company tried pivoting to a new business line, which met with moderate success, and it needed additional rounds of capital to survive the delays but failed at raising a new round.

 

  1. Are you satisfied with the efforts of the founders?

aD: Absolutely! I believe that the founders gave it their all, and factors beyond their control led to their eventual demise. I continue to have a ton of respect for the founders, and I look forward to investing in them once again!

 

  1. What mistakes did UMA make, and what was your learning as an investor?

aD: It would be incorrect to blame the founders for making mistakes for situations beyond their control. The most significant learning for me was to ensure that the founders held (at least) 60% equity before raising a Series A round.

 

  1. Would you invest in a similar startup today?

aD: Absolutely!

 

 

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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Family & Friends – Please Save Your Capital!

A couple of months ago, I found my jaw hitting the floor during a start-up pitch. The founder of an early-stage B2C startup revealed that he had previously raised a family and friends’ round of the princely sum of 5+ crores (~$900k). That capital was exhausted in less than 18 months; the monthly burn was over 50L per month with a double-digit staff strength. All this effort was delivered less than 25 lakhs in sales – since inception!
Runaway spending, low traction, running out of cash are situations that I regularly encounter as an early-stage investor. What worried me was the lack of oversight the family and friends had on how the founder invested their capital and their lack of experience steering the founder from avoidable expenses.
For example, precious and expensive capital found itself funneled into:

  • A massive PR & Branding campaign which wasn’t delivery but continued to burn a hole every month
  • Lobbying for international “paid awards” that cost a bomb but did not deliver results.
  • Massive allocation on R&D, but it was a ruse. The money got spent on traveling to different countries to find manufacturers to white label their products to the company
    • I have seen others do it at 1/10th the cost & time

I cannot hold the founding team entirely at fault here too – part of the blame should be on the investor class. They infused excess capital into the business, thereby encouraging the founder to burn the money on things that don’t matter, ultimately setting up things to fail.
My presentation of these entrepreneurial misadventures is not an attempt to rub salt on the wounds of the family and friends’ investors or the founders.
I want to point out something fundamental. Except for unusual situations* family and friends must limit the amount of capital they commit to an entrepreneur. Leave the larger rounds of capital to the professionals. Not only will it save capital for generous family and friends, but it will also save founders from committing hara-kiri with their startup ambitions.
If this were a one-off situation, I would not have written about it, but I am witnessing a marked increase in the number of ventures backed by family and friends and coming to us for a seed round. We like family and friends supported investments because it shows that those closest to the founder also believe in them, but like healthy foods – too much green can be injurious to health.
Most of the time, family and friends judiciously put in a small amount of capital, just enough to get the venture started. However, there were many examples where family & friends have drowned a lean start-up culture with a deluge of capital – killing the enterprise and blowing away the capital.

So, the obvious question that arises is, how much should a family or friend commit to an entrepreneurial family member or friend?
The good news is that a family or friend need not look too far.

The best accelerator programs in the world, i.e., Y-Combinator or TechStars, commit $150,000 (~₹1 crore) for a 7-10% equity stake in pre-seed ventures. Similar programs in India like 100x.vc, Indian Angel Network accelerator, or VentureNursery (in the past) invested between 25-75 lakhs for a similar equity position.
All the branded investors mentioned above have many good and bad investments; therefore, with their experience, they can guide founders on promoting the right and shunning wrong behaviors in their start-ups. So, for inexperienced family and friends’ teams, the correct amount of capital would be between 50% to 75% of what these guys invest, i.e. anything in 40-75 lakh range.
Family and friends can decide where to invest in this range based on the domicile of the venture but ensuring that the founder has 6-9 months to find a professional investor while they continue to grow their start-up. It is the founders’ responsibility to consistently update their investors whether things are going well (or not). Developing this habit is vital but critical in case things are going well, but finding a professional investor is taking time. Family and friends could opt to put in some more capital IF they are comfortable with the start-up’s progress and are objectively taking the additional risk.
However, the family & friends’ capital tap must end at that.
 
* While It is still advisable to leave the more giant cheques to a professional but in certain situations, it makes sense for a more significant allocation from family and friends. These are exceptional situations, not the norm.

  1. If the family and/or friends have in-depth domain knowledge and are objectively backing one of their own
  2. In Meditech or Healthtech like start-ups that require more massive upfront investments and the family and friends’ investors have in-depth domain knowledge

My Funding Picks from Last Week (W48)

I am back with my favorite funding news of last week! I had shared my purpose in starting this weekly post, and I have received much positive feedback. Therefore, I was eager to dig into the top news from last week to share with you today.
Last week was a stellar week for fundraising, with over $1 billion raised. There is some deviation in that number as YourStory claims that the total was $1.18 billion, while Inc42* claims that the total was $1.08 billion. However, both agree that over 90% of the money comes from the $1 billion round for Paytm announced through VSS’ twitter handle.
However, Paytm does not fall under the parameters of an early-stage start-up; therefore, within the early-stage funding news for the week, these were my favorite:

Tripeur.com – $1 million from SenseAI, Better Capital, Patni Wealth Advisors, Incubate and Rajul Garg and Alacrity India

What is Tripeur?
Tripeur is a cloud-based corporate travel expense management solution. They utilize AI/ML technology to reduce corporate travel expenditure by 30% (as claimed) with better reporting and productivity gains for the travel admin. They claim to have served over 50,000 business travelers and booked 1.4 lakh trips for them through their online platform.
What do I like Tripeur?
I have slowed down investing in travel over the past few years, but it still makes up almost 25% of my overall investment portfolio. We evaluate travel start-ups as it continues to be a significant investment theme for AVF.
Within travel, I have found corporate travel to be the ripe space for disruption. I had identified corporate travel as the number 1 pain point to solve in my October 2017 post on the travel space.
While I haven’t utilized the Tripeur platform yet (I sent them a demo request over the weekend). However, I can speak from experience that a decent corporate booking platform can expect a very sticky customer base. They must provide access to the best prices with easy booking and cancellation options along with accurate reporting for the finance team.
These pain points are widely prevalent across all corporations, big or small. Therefore, people would readily refer customers to Tripeur if they can do what they promise, providing significant savings on CAC.
Tripeur could find much value in associating with many of my portfolio companies – Confirmtkt, Repup, OYO, VistaRooms, and others.

FirstU.in – undisclosed round from India Quotient, FirstCheque and Farooq Adam

What is FirstU? 
FirstU is an online platform that provides subscription-based periodic services for automobiles. Users buy monthly subscription plans and avail regular services such as vehicle inspection, repairs, washes, accident assistance, etc.
Why do I like FirstU?
Several start-ups attempted to solve the problems of the fractionalized vehicular maintenance space. Most of them tried to upgrade your neighborhood mechanic, but the cost of retraining and retaining them far outweighed the benefits provided to the revenue accounts. The few that have been attempting setting up a company or franchise-owned multi-brand workshops have done better, but even then, they continue to burn money.  Their LTV / CAC ratios are quite unfavorable as there is a long time gap between repeat services. Therefore, the start-up must resort to deep discounting to attract new or repeat customers.
I have written about my love for subscription start-ups as they develop the habit of their customers paying them. Once they form this habit, it takes a massive effort for a newcomer to “break” the psychological pattern of paying the same company. It creates the ideal “sticky” customer relationship. It is precisely the spending relationship that I love to see my start-up get into with their customers.
Once FirstU expands outside of Bangalore, I’d love to explore a B2B association between Everest Fleet and OneWay.Cab and them.

GreyAtom.com – $1.2 million from Montane Ventures, Pravega and Ritesh Arora

What does GreyAtom do?
GreyAtom provides a boot camp for learning data science and web development. The “students” work on real-world problems, get reviewed by their peers, which accelerates their learning curve. The claim to have upskilled over 35,000 learners with 87 percent making a career pivot of their choice.
Why do I like GreyAtom?
That working knowledge trumps the knowledge learned at a prestigious school is a known phenomenon. Therebefore the GreyAtom platform providing the workers of today the opportunity to upgrade and update their skills, but alongside their current roles is the need of the hour.
GreyAtom creates a win-win for the individual and the corporate. For the upskilled individual, it means better prospects at their current employer or the ability to switch over to a new role for which they were previously unqualified. For a corporate, incentivizing their existing team members to upgrade their skills would reduce attrition, improve job satisfaction, and reducing hiring and training costs. There is a lot to like about GreyAtom!
All I could wish for is that someone would come up with a similar platform to improve the skills for finance and marketing people. I’d be their first investor and a corporate customer for life!
*I am an investor in Inc42 through Artha India Ventures

Discovering the true cost of acquring a new customer

Earlier this week, I wrote an email in which I explained the reasons why I was passing on a deal that my team and I had tracked for more than three months.

The eventual reason for letting go of this deal finally dawned on me when I re-did the calculations for the cost it took for this venture to acquire a new customer (or a unit of “new” sales). When I completed this exercise, I could finally appreciate the vast disconnect in the way the founder and I saw the same traction numbers and the valuation for the company.

First, this is how I recalculated the cost of new customer acquisition, starting with a net gross sales number which was done by:

The NGSn number must be positive, and only when if the Gross Sales / NGSn > 2x it piques my interest.

Next is how I calculated Net Sales (new) or NSn:

The NSn number is usually and understandably, negative – profoundly negative when a start-up is experimenting with different marketing strategies early in their development. However, NSn must turn positive before raising your pre-Series A round as it is a clear indicator of achieving product-market fit.

Those preparing for Series A rounds should get to NSn / NGSn > 0.5x as a clear indicator that each rupee invested in marketing delivers an ROI of 2x or more.

Unfortunately for the founder in my example, the NSn number was deeply negative, i.e. in the -0.5x range. I concluded that this start-up was raking in less than the amount of money and effort invested in marketing, i.e. product-market is not yet achieved. The fact that the NSn / NGSn ratio was touching almost -1x in their best sales month made it difficult for me to assign any positive value their traction.   

*I say new sales or new customers because usually any returning customers do not (and should not) cost the company marketing rupees. In the case that returning customers cost the company marketing money, then the budget for that should be kept separate. Remove these returning customer costs from each line item from the formula, to ensure that the ratios are accurate with correct data.

Startup Board Meetings 101

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

Why do I think that?

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

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

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

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

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

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

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

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

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

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

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

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.