VC BootCamp is an event organized by YourStory.in which takes a curated set of audience comprising of entrepreneurs through the rigours of fundraising.I am Utpal Vaishnav from Space-O Group, Rakesh and I attended the event along with fellow entrepreneurs.
The day observed heavy rain in the morning so the event started little late. The event began with a presentation by Jubin Mehta of YourStory.in who briefed about how YourStory.in was founded by Shradha Sharma and how it became one of the largest entrepreneur communities in India. It was amazing to know that it touches upon over 12000 entrepreneurs via different programs.
This was 4th workshop of its kind in India. Earlier workshops were organized in Delhi, Chennai and Hyderabad. It was good to know that the culture of startups, funding, acquisitions and everything in-between has started developing in Gujarat as well.
Pretty exciting stuff for Gujarati Entrepreneurs like me.
Then, Soumitra Sharma, an very knowledgeable Professional from IDG Ventures, India took over the show. While from appearance, Soumitra looked like a very young professional, his knowledge was extremely deep in the subject. Within just a few minutes, it was clear to almost all the participants that they would not like to leave their seats and instead, invest all the available time in getting deeper insights on the subject.
In this kind of workshops, speakers don't provide specifics and straight opinions but Soumitra is a different professional. He provided straight answers and a very matured point of view about how VCs look at the businesses. That was the best thing about the whole workshop.
The workshop provided lot of insights about how VCs think and what are some of the important things entrepreneurs should understand thoroughly while talking to a potential VC.
It began with understanding what Venture Capital is, what's global VC landscape, what is the role and perspective of limited partnerships, global and Indian perspectives of VC and non-VC financing options.
Here are my key learning from the workshop:
1. Be cautious when opting for VC funding:
Take Venture Capital only if you have to. When you take VC funding, you not only give away a potentially huge portion of your equity, but a lot of control as well.
In worst cases, VCs might ask you to resign from your post and take a professional CEO take over. VCs will have Veto power in key decisions. This does not mean that VCs are against you. VCs want you to be successful but they are managing limited partner's money and it becomes their #1 priority to protect their interests.
2. If you are too much in love with your idea, VC funding can be counter productive:
It might not be a good step to take VC funding if you're in love with your idea or business. VC funded businesses are created such that they can be sold for higher return in typically 7-10 years. Key element of VC funding is their exit plan and VCs make money when the exit happens as anticipated.
If you love your idea too much then you may not even think of selling your business to someone else for profit.
Well, there is nothing wrong with being in love with your idea; it is just that VC funding might not help you if that’s the case.
3. VCs understand the market very well. Make sure you too:
According to a statistic presented, 50% VC investments lose money, 30%break-evenand 20% make a lot of money.So VCs focus on investing in the BEST company, not every company who pitches them for investment.
As an entrepreneur, you might be thinking that your company is best, that is obvious but not important. Your company has to be "the best" from VC's perspective.
Many VCs consider that companies that are innovative, capable enough to disrupt the market and have a potential to be sold at a much higher price in typically 5-7 years are the best.
However, the key here is to understand your VC's perspective and make a pitch that is an opportunity for them not just for you.
Also you need to understand Global VC Investment Trend. As of 2013, The US has seized up most part of market share. China is second while India is third. Also, it appears that this year the trend will be downwards.
Not understanding the trend may be the last thing to do when you want to opt for any sort of venture funding.
4. Fish where the fishes are:
It was so obvious, still most entrepreneurs find it hard to get. Soumitra said that you have to have your presence where the VC hubs are.
In India, Bangalore, Delhi and Chennai are considered VC hubs. Even Pune is not in the list. And Ahmedabad is nowhere in the map. Why is it so? The reason lies in simple economics: Demand Vs. Supply.
VCs have to choose the BEST companies to invest in. The parameters that apply to separate the best from the rest are fulfilled in the hubs easily. For example, in hubs, it is relatively easier to get talent, as talents also want to remain in the hubs. This could be a huge risk item if the business operates in non-hub area.
It is very logical to be where VCs expect you. It is almost no brainer but very important insight.
5. Ensure that you have got the basics right:
You have to have firm business plan, stable founding team, early traction and no product risk. It is okay if you have business model risk but if you don't know if your product is needed in the market or not then VCs would consider such pitches very skeptically.
If your product is not generating money, that may be fine. If you're in the US, then even traction proxies (e.g. number of active users per day or downloads per day) are valued a lot. In India, general trend is to see if there is a real traction, real profit. If the product is generating some money, you're at a plus.
6. No VCs sign NDAs:
That's how it is. If you are too secretive about your idea then it might not be good to talk to VCs. Well, VCs are professional and would not share the information with others but they have their interests to protect and considering the trend, a VC who invests in e-commerce business for example, may want to explore other e-commerce investment opportunities.
The learning that VCs get while you discuss your idea with them, may be used in other businesses. You cannot ask VCs to sign NDAs, simple as that.
7. Burn your boats or get lost:
As weird as it may sound; but that's about it.
If you have more than one business or you're giving services as director to other organizations, then VCs may ask you to formally stop all these activities.
They want your undivided attention in the business they invest in.
One thing that was discussed was: Software Services company who would want to opt for product development is difficult to get funded by the VCs.
The reason is simple. Income from software services stream won't let founders focus on product development tasks. Similarly, if you have a business in textile and you're starting a software product company then VCs would consider that thing as a risk as you are likely not to have your skin in the game.
Instead, if you are 100% focused on your business, you do not have any other stream of income, no matter if you have business background or not, VCs would want to favor you for a simple reason - you have your skin in the game.
If we consider, these things are basics of the business that every entrepreneur has to get extremely clear about. If you want to continue your business despite of such risks, of course you can but then it is a matter of choice.
The choice that VCs would make will be based on very clear thinking. And if at any point, you are considering VC funding, you must get what's right from their perspective.
In 2013, we are not opting for any external VC funding but to me this was a very important perspective to understand. VCs, whose core business is to invest funds in promising startups and figure out a way of exiting in a way that the whole game becomes profitable, think in particular way.
As a business owner, we sometimes fail to look at the business from their perspective. The reason is not that we do not want to do that but the reason is that we are not aware of how it should be looked upon.
So, for any business, founders who put in their time, resources and money are like VCs from one perspective. It is just that the form of their capital is spread across different resources. Some of the lessons learned in the session will provide a different lens to look at the business.
The surprise of the day was the closing session by a very energetic entrepreneur from Ahmedabad named Nirmit Parikh from Cruxbot. In the age of just 26 years, he has experienced a lot. An industry giant recently acquired his startup CruxBot. The details are yet to come but some people said that he declined the acquisition offers from Google and Yahoo! and the deal he made is in in millions.
Nirmit radiated a LOT of energy and inspired the entrepreneurs in the room. At one point he also said that he sleeps for just 2.5 hours a day and invests all of his time in making the startup work!
Not many entrepreneurs do that. Inspiring!
The day ended with lot of learning about the subject. This was one of the best investments of time I've ever made in my professional life.
Utpal Vaishnav is co-founder and CEO of Space-ODigicom, an Ahmedabad based Mobile Apps Product Development and Marketing Company and author of an upcoming book on Agile Software Development Framework. Visit www.utpalvaishnav.com to find out more about him.