1M/1M Strategy Roundtable: Where Should You Raise Money?
Recap of the 9 December 2010 roundtable by Sramana Mitra
During this week’s roundtable we had a group of entrepreneurs from the Pune Open Coffee Club gather at the offices of Persistent Systems to participate in the roundtable together. It is a very good format for entrepreneur groups around the world to get together and network around the roundtable programming which happens every week, religiously.
First up today was Jacqueline Floro-Pierre with ShopTranslated from China. ShopTranslated is a mass market online retailer of plus sized women’s clothing, with merchandise in the $59-$99 range. Jacqueline and her partner Cortney are designing and manufacturing the line out of China and selling in the US. They are still very small, but have some validation. And we already know that this is a very large market from working with La Grande Dame.
Jacqueline asked an important question: how do you mitigate your working capital challenges in an e-commerce company at the very early stages without raising financing?
Well, there are multiple nuances to the answer. First, there are two primary aspects that have to be managed: inventory financing and customer acquisition costs. In 1M/1M, we are working with inventory financing companies and for our premium members, we do help you connect with the inventory financing sources.
And of course, we are not advising you not to raise this kind of financing. In fact, I just did a case study on Coastal Contacts, a $150 million e-commerce company that sells contact lenses online, and has built itself up largely by using inventory financing as opposed to venture capital / equity financing.
At the same time, we also have seen several examples of entrepreneurs who have successfully bootstrapped their e-commerce companies without any external financing until much later in the game. Some examples include Flipkart and Redbus in India, and Freshdiet in the US. So it can be done, but you have to be really scrappy, creative and resourceful.
Next Vin Lim presented Qyzzy.com, which can be succinctly summarized as the Yelp of Malaysia. Vin proposes to build a restaurant search, reviews and ratings site for the Malaysian market catering both to tourists and locals. I asked him about his customer acquisition strategy and heard the word “advertising” a lot. Facebook advertising. Google Adwords advertising. Well, all that costs money, I would like to see a more cost-effective customer acquisition strategy.
One thing Vin said that I liked a lot is that the Malaysian government is spending heavily on tourism development campaigns, and Qyzzy may be able to become a part of that campaign. That sounds great.
In terms of monetization, Vin expects the ad networks to supply ads to his site by selling ads to local restaurants. I am not sure if Google AdSense, for instance, has a network of advertisers in Malaysia that includes restaurants. If not, then Vin will have to sell his own local ads. May also be expensive to do.
Overall, the business needs further research and validation and the assumptions need to be checked much more extensively before launching.
Raising money—OrangeScape’s case
Then Suresh Sambandam with OrangeScape came on to discuss a specific issue of where should entrepreneurs try to raise money? Should those entrepreneurs who have built their business elsewhere move to Silicon Valley to raise money? Suresh is a 1M/1M premium member. I invited him to this public roundtable to discuss this topic because I know that many entrepreneurs are dealing with this issue. Since 1M/1M is a global program, we have many entrepreneurs in various parts of the world who are building interesting businesses, and trying to determine how best to interface with the eco-system that exists in Silicon Valley.
Let me summarize some of the highlights of the discussion. You can listen to the rest in the recording.
First, if you are building a business catering to the local market (e.g. Malaysia, India, China, Italy, Argentina, wherever …), you are better off raising money locally. The likelihood of your being able to attract Silicon Valley / US money for an early stage venture catering to a foreign market is abysmally low.
If, however, as in Suresh’s case, the game plan is to go after a global market, the scenario changes quite a bit. Suresh has an Application Platform-as-a-Service (APaas) business that already has a number of multinational customers, albeit all acquired in India. OrangeScape has received substantial coverage in India, and I wrote about them in Forbes. OrangeScape is a Gartner Top 10 company in their space. Among Indian VCs, there is quite a bit of interest in investing in them.
The question is, should Suresh take money from Indian VCs, or go for a Silicon Valley VC who is savvy in investing in real tech companies. There is no question that it would be easier for Suresh to attract the Indian VCs. But he may also be able to attract the Valley VCs, except, they would require the Biz Dev / Sales HQ for the company be moved to the Valley. It is also true that the Valley VCs see a lot more high quality deals, so the bar is higher to raise money.
One option, which many entrepreneurs will end up taking, is raise a round in the local geography, line up the ducks, build up a solid customer portfolio, including US customers, and then raise the next round in the Valley.
Or, bootstrap longer.
It is clear to me, after doing these coaching sessions for over two years, that entrepreneurs need a lot more training on positioning and go-to-market. As such, I have created video lecture modules with case studies in the 1M/1M premium lounge on these topics with very specific guidance on what analysis to perform and how. The easiest way for me to teach a large number of entrepreneurs some of these basics is to have you spend 30-40 hours on the curriculum I have created, and THEN have you come work with me on refining your strategies and positioning.
1M/1M Premium Lounge
I have thought a lot about how to make entrepreneurship education and eco-system scalable and accessible to a vastly larger number of people. The answer to that question, I believe, is the 1M/1M Premium Lounge. Over the upcoming months, the program will become much, much richer. But for the moment, we can get you started and give you a significant jump-start.
Recording of the roundtables
About Sramana Mitra
Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies, writes a business blog, Sramana Mitra On Strategy, and runs the 1M/1M initiative. She has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her Entrepreneur Journeys book series, Entrepreneur Journeys, Bootstrapping: Weapon Of Mass Reconstruction, Positioning: How To Test, Validate, and Bring Your Idea To Market and her latest volume Innovation: Need Of The Hour, as well as Vision India 2020, are all available from Amazon.