Questions investors get asked too often

The Lalit Hotel in New Delhi was host to the Delhi regional round of TechSparks 2014 (see all that happened). We saw a packed house and every one present there took back something valuable. But this was also one of those occasions when you'd see a set of entrepreneurs venting out a hidden angst against the investors. Yes, investors in India are known to be a bit risk-averse and they fund a fraction of the companies they see but this is the case in most of the markets, except the Silicon Valley maybe. VCs are in the game to get returns as well and one needs to understand and spend some time in the ecosystem to know a VC's mindset (that's why you need to start up two years before you actually startup). The focus of this post is going to be those genuine but nagging questions that are asked way too often.

Why are only IIT/IIM founders funded?

This is the perfect example of when correlation does not imply causation. It is not that founders get funded because they're from these 'premier' institutes. In most cases, the situation is that these entrepreneurs get funded and it turns out that they're from these institutes. There are a set of institutes who promote and foster entrepreneurship and this effect snowballs. Once a student sees success stories of his seniors, when she hears about entrepreneurship around her, when there is more exposure, there is a high probability she'll give starting up a shot. This in turn gives rise to another healthy cycle of failing, learning, forming a network, restarting and eventually, success in the long run. These are the main reasons why an IIT/IIM founders get funded more often.

Why did they get funding inspite of not having a revenue model?

Another question is the curious case of VCs funding companies which don't have a revenue model. But if you're a tech entrepreneur and this continues to baffle you, it's definitely time to build your foundation. Technology involves scale, massive scale. That's why an application like Whatsapp can be valued at billions of dollars, much much more than something like McDonalds which has been running successfully for decades. Technology offers an opportunity to get a highly connected, growing and engaged user base to which services/products can be offered to make money. Most investors would be happy to invest if you've got a healthy, growing and engaged user base. Revenue model can be devised accordingly. This does not mean that one should ignore the business model but it is just that if you have a solid user base, chances of building a successful venture is much higher as compared to when there is only a business model and no users.

What do you look at while funding?

It's a simple answer: People. Very cliched but that is what it comes down to at the end of the day. Investors have themes on which they invest and try to have a company around each of the potential themes but when it comes to an individual company, it is the people. A personal rapport, the ability to work together, respecting each other, all these factors matter. The investor should have confidence that the entrepreneur would persist and make the business work, come what may. Hence, it is always said that it is best to approach an investor via a warm introduction, that's the first filter. (And this can be also linked to the first point to an extent- some of the institutes and alumni have a better, tighter network which helps each one of them to succeed and gives a launch pad). This doesn't mean that a team of kickass people cannot fail but an investor has that extra pinch of confidence. And this comes on top of the usual suspects - a large addressable market, a solid differentiator and the ability to execute.