[Ask Your VC] Murli Ravi, Head of JAFCO Investment, Singapore

Can’t wait to chat with a VC?

YourStory presents ‘Ask Your VC’ – an opportunity for you to connect with a VC virtually, through a forum of questions and answers. You ask the question, we ‘connect’ you with the expert to get meaningful and relevant insights pertaining to the entrepreneurial eco-system.

And to kickstart…. introducing Murli Ravi - Head of JAFCO Investment, Singapore

Here’s where you can post your questions : YSBuzz

How do you define and create your startup culture in the initial days of your journey? How imperative it is to the success of the venture?

Lead from the front.

I used to pooh-pooh warm and fuzzy words like culture and vision early in my career. People come to work because they get paid to do their job. That’s it, right? Maybe that’s somewhat true for large companies but I realised soon after starting to work with startups that startups live and die by their culture.

People join startups for various reasons, whether to learn new things quickly, do something fun, make a difference to the world, or whatever else. Defining what the ‘something’ is that you the founders care about; and living that ‘something’ as a core value every day will help the right employees self-select to join you and keep your company moving in the direction you want it to move. This is true especially in tough times, when you want to be sure that everyone on the team is pulling in the same direction.

Take Amazon.com, for example. Early in the company’s life, Jeff Bezos used to say to potential new hires, “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three.” He couldn’t have been any clearer than that. Anyone who then agreed to join the company would do so with eyes wide open, knowing exactly the kind of culture Bezos had put in place. Anyone who didn’t agree with that wouldn’t be on the team to begin with.

This is not to say that you should adopt Bezos’s values for your own business. You decide what you want for your company, articulate it clearly, and live those values yourself. You might decide that your company’s culture needs to be built on employee autonomy (Netflix is a good example), innovation (Google), customer happiness (Zappos), rigid but clear top-down control (Foxconn), fierce but healthy internal competition, or a whole bunch of other values. I highly recommend reading this Netflix internal document, which does a great job of explaining how Netflix defines its company culture.

How do I share ideas for my startup without the fear of it being stolen?

Stop worrying.

This is a question that comes up way more often than it should. Let me quote a piece I wrote on my blog which answered this question:

Every now and then, I get asked how to get started as an entrepreneur, yet protect one’s business idea from being copied or stolen. This is an irrelevant question. Or, at least, there are bigger fish to fry.

Here’s what I said on Quora to someone who asked me to answer a variant of this question:

I’ve seen over and over that ideas are pretty much useless. Execution is where it’s at. There are several businesses that are considered successes today, which originally started out doing something quite different. So it’s about execution and adaptability.

There are also several successful businesses that were followers not leaders, yet today they are more successful than the pioneer (e.g., Netscape->Firefox/Chrome, Altavista->Google, Friendster->Facebook, etc.)

How do companies protect themselves? Technology is patentable but not business ideas. Even if you do have a patent, that doesn’t mean the patent is valid (because patent offices generally don’t have the resources to validate whether every single patent application is for something novel) or that you will have the financial muscle to enforce a valid patent in a court of law. So one can protect one’s business by doing one or more of the following:

• Constantly innovating to keep ahead of the market -- Google? Apple?
• Devising a business model that makes it hard for your customers to leave -- MS, FB?
• Devising a business model that allows you to control your suppliers -- Apple? Walmart?
• Expanding quickly across your desired regions -- Groupon?
• Obtaining special rights and concessions that protect you -- defence companies, banks, utilities...
• Offering the best value -- Amazon?
• Providing the best service in your specific region or location
• Building a good brand over time -- Coke is Coke, Singapore Airlines is Singapore Airlines, no one can copy this

All of the above have risks, of course. (And, not all the companies named above are successful at every single thing they do. I’m no fan of Groupon, for instance.)

Plus there’s inertia -- just because someone hears your idea doesn’t mean he’s going to start doing it. People...

...are lazy.

...have other priorities.

...are risk-averse.

...may not share your dream or be imaginative about the problem you’re seeking to solve in the same way as you.

...are sceptical.

All of this is a form of in-built protection for you.

So, the short answer to your question is: have an idea? Who cares? First step: get started. Next step: keep moving.

None of this means you should disclose every last detail of your business idea to someone else. This is usually not necessary anyway.

If you’re specifically worried about venture capitalists stealing your ideas, read this post as well.

When is the right time to raise funding?

Ideally, never!

The slightly longer answer is, if you know you will need expansion capital at some point, raise the money before you actually need it. That is to say, raise from a position of strength, not when your sales are tanking and you’re desperately trying to pay overdue salaries.

The next point about raising money is that you need to be able to articulate what you need the money for and when. Articulating your plans is a way to use the fund-raising exercise as a form of self-discipline. You can set ambitious goals that are just slightly out of reach and measure your progress towards achieving those goals over time. If you can’t articulate your plans, don’t raise money. Fund-raising isn’t the reason for your company’s existence.

Somewhat related to the previous points is that you shouldn’t raise too much money too soon. What is too much? Once you’ve defined how much cash you need for your current needs, add a buffer for contingencies -- faster than planned expansion, slower collections than anticipated or anything else -- of say, 15%-20% of your round size. Anything dramatically more could result in one of three problems.

The most obvious problem of raising too much money is excessive dilution. I haven’t met an entrepreneur yet who hasn’t been concerned about dilution, so let me not spend too much time on this.

The next problem is complacency. If you have a teenaged child, neighbour or a sibling, give them your credit card for a month and see what happens. Don’t let that happen to your company.

One less recognised problem is that, having accepted more money than is really needed at the current stage of one’s business, the entrepreneur and investor agree to set a high valuation so as to minimise founder dilution. Sounds great, right?

The trouble then is that, having set a very high bar, the entrepreneur is now under tremendous pressure to match up to his own and his investor’s sky-high expectations. Worse, when the next financing round needs to happen, your potential new investors may balk at paying an even higher price and your previous investors (and you yourself) may not be willing to accept fair terms. This may jeopardise the fund-raising itself and potentially harm an otherwise sound company.

This situation of raising money at too high a valuation doesn’t happen very commonly but when it does, it seems more common at very early stages, when neither the entrepreneur nor the investor may know what the “correct” price is.

My general advice is to err on the conservative side: don’t raise too much money too early and don’t push for too high a valuation at a very early stage. Leaving a little money on the table in the short term can help you build a long-term partnership with your earliest, most dedicated supporters and lead to a happy, productive relationship.

A final thought: I can think of one exception to the approach of raising cash based on the company’s intrinsic needs. I call this the “valuation ladder” reason. Let’s say your company raised money three years ago, is growing fast and has plenty of cash in the bank today. You’re in the enviable position of not really needing to raise any more money. At the same time, you’re still a year or two away from thinking about an IPO or sale of the company (or maybe you’re not even thinking about an exit, which is a perfectly valid choice). In this situation, you may consider raising a small round so that an external investor can put a more recent price on the company, which shows a nice bump up on your last valuation and can act as a guide for your exit valuation. Doing this more than once shows the market, your existing investors and your employees that you’re climbing the valuation ladder. You don’t have to raise money for this; you can also achieve pretty much the same climb up the valuation ladder if a new investor agrees to buy shares from an existing shareholder.