Arrived late and missed Anand Deshpande’s Keynote address.
What do VCs look for
Manik Arora, Founder and Managing Director of IDG Ventures India is talking about how to approach a VC. How they decide who to fund.
How to contact a VC.
Don’t call or send email without any introduction. VCs like to hear about you from someone they trust. A customer, ideally. Or a known successful entrepreneur, seed investor, etc. Otherwise they have no idea how seriously to take you.
Also, ideally, a VC who is going to invest a huge amount of money in you, likes to feel that he knows you. So, he would be much more comfortable investing if he’s known you for an year or two. Which means that you should meet and interact with VCs even if you are not looking for funding. You don’t want funding right now, but an year from now, when you are looking, and if you’ve been “hanging out” with that VC for a while, he will feel much more comfortable.
The Business Plan
Is important. It’s main purpose is to ensure that VC wants to meet you. Should contain the:
- Elevator pitch
- Vision and Mission statement
- Market and Industry Environment – Size, Segment, Growth, Issues/Trends
- Value Proposition, Key Products/Services and Sustainable Differentiation
- Competition strengths and weaknesses and Entry Barriers
- Most Indian Business Plans don’t have this.
- If this section is done really well, VC gets quickly interested.
- Shows that you are a sophisticated business person, as opposed to a techie.
- Business Model and Sales/Marketing Strategy
- What is the revenue driver, and what is the cost drivers
- Market Traction Achieved so far
- This is hard for early stage investors
- So you probably don’t have much, but important to show speed with which you got there
- Management Team Bios/Details
- Organization Structure
- Financials – Historical Actuals, Forecasts; Cash Flow + P&L
- Exit Options – Names, Comparables, Price Paid, Multiples
- Capital Required – How much, for what, over what timeframe
- Risks and Gaps – What could go wrong, what don’t you have
Details available at http://idgvcindia.com
Do you need experience? Yes.
Start in a large company, so you know what business is about, what process is about, and also what are weaknesses of a big business, that you can exploit.
The Pitch/First Meeting: “Credibility”
Preparation before the meeting
- Show up a little early. (You’ll be surprised at how many people come late.)
- Dress appropriately.
- Have practiced your pitch a couple of times.
- Have a presentation ready / bring a couple of print-outs
During the meeting
- Don’t try to only make your points – listen to them too
- Answer questions directly
- Ask the VC questions – gauge the VCs knowledge and style. It is fine to decide that you don’t like the VC and would not want to work with him
- Discuss the deal briefly, don’t worry about valuation/dilution just yet
- Towards the end, ask the VC the process going forward
- Towards the end, ask the VC how he can add value
- Leave with next-steps clear and follow-up if you think this is a VC you want to take money from
Moderator is Madhukar Bhatia of nFactorial Software. Panelists are Manik Arora of IDG Ventures (whose talk forms the top half of this article), Yoshima Somvanshi of NEN (National Entrepreneurship Network), Sandeep Kumar, MD of Product Dossier, Vishwas Mahajan, CEO of CompuLink, Ajay Phatak, MD of Jopasana, Rajeevlochan Phadke (CEO of Image Point Technologies, a very interesting company that I hope to write about in a separate post).
What environment is needed for successful startups?
Manik: A risk-taking society is a must. A person must be willing to take a risk. His in-laws must be OK with this decision. People must be willing to fund him – angel, seed, VC. Another problem with startups in India is that biggest market, US is too far away. Having a large domestic market is key – and that is slowly growing. CIOs in India are now willing to buy locally. Must have large feeder companies, where people can be part of growth and experience it, and learn from it, and find co-founders at.
Ajay: In the “risk taking society” an important ingredient is also risk taking customers.
Sandeep: Customers are not willing to trust Indian startups. Can’t be sure the company will be around after 10 years. And this isn’t just the customer’s problem, because success stories are not there.
Vishwas: Early advice he got: He had an idea, and went to someone for funding. Was told: don’t come to me until you have 5 customers. That will teach you a whole bunch of things. And you will be taken more seriously. You don’t know all the real requirements and complexities until you have real customers.
What are the trends?
Manik: I don’t look at trends anymore. Look at the team. For example, everybody thinks web is hot in India now. But the last time the web was hot, about 25 to 30 companies got funded, and only 4 or 5 are still around. And now if you see, most of the top 15 websites in the world are actually platform companies. What can you do that would really be new and interesting?
Students in Startups (How to attract people to startups, and retain them)
Yoshima: NEN just had a startup jobs program. In some college in Delhi they had a placement day just for startups. 25 jobs where offered and 18 were accepted. One of the things that worked well is the fact that students did internships with startups, and got an idea that the work is interesting.
(Very cool, I think we should try something like this in Pune -navin)
Manik: I see lots of people in Wipro who work 14-15 hour days. And salary is less than what the market pays. So why do they all stick around? Apparently, the answer lies in Premji’s philosophy – whenever a guy is 60 to 70% ready for the next level in the job, he is pushed into that responsibility. They are too busy with their responsibilities to worry about leaving.