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December 28, 2015

Is there Any Downside to Active Entrepreneurs Making Angel Investments?


In an article titled "The Curious Case of Entrepreneur-Angels", Santosh Sreedhar of Avalon Consulting and Neeraj Gupta of Excubator explore whether the founders Flipkart, SnapDeal, CommonFloor, etc. should be turning Angel Investors "even as their core venture has still not turned around profits". Extracts:

However, there are a few who believe the trend should not be encouraged as it distracts the entrepreneur from the core business, which in many cases is still not profitable. They feel that even though some of these entrepreneurs have “made money”, many are still to prove their capability to “build businesses”. As one leading VC put it - “Its not a business if its not profitable”. They argue that such investments are bound to distract the entrepreneurs from focusing on turning their core business profitable.
Putting a clause in the term sheets restricting entrepreneur investments in outside ventures is not a norm in India or elsewhere. However, disclosure rules require entrepreneurs to keep the Board informed if such investments are being made. Entrepreneur investments in conflicting opportunities are not encouraged, but those in synergistic opportunities are often encouraged by the Board.
This is a topic that I've discussed with some entrepreneur-angels as well. My conclusion:  Especially in the Internet & Mobile sector, where change happens very rapidly, the angels who can spot opportunities and also add the most value (at least, tactics wise) are probably those that have "been there & done that most recently" - ie the Entrepreneur -Angels.

I was talking to couple of such recently. One of them said he is only investing in those ventures that address a gap in the market that he, through his existing and previous venture, has clearly spotted a need for. The other entrepreneur said, once he makes the investment - unless the founders of the investee companies scream for help - he does not bother to track them closely. In both cases, they averred the investments did not distract them from their primary venture. And, given how savvy most of the new generation entrepreneurs are (including wrt investor relations), I did not find any reason not to take them at their word.

From a VC perspective too, this trend should be good news. A couple of years ago, among their main problems was the lack of a pipeline of "well cooked" startups - for them to cut $1-M+ cheques for. And the perennial problem of lack of exit opportunities. Given how busy the bigger startups have been in acquiring their smaller VC-backed peers, the Entrepreneur-Angels are solving both of these problems for VC investors!

Any Comments? Join the discussion on LinkedIn here

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

December 23, 2015

What went wrong at Avigo Capital? An Analysis of the Firm's Portfolio




Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

Dr. Lal Pathlabs Signs off a Good Year for Private Equity-Backed IPOs


Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

December 17, 2015

Why Does India Celebrate Rahul Yadav?


First a quick extract from Sumanth's post:

Despite all the buzz around India having arrived as a hot startup destination, there have been precious few aspirational startup exemplars since the halcyon days of  Sabeer Bhatia and Narayan Murthy. A false dawn if ever there was one…
Equally tragic is the fact that folks who could potentially be startup heroes—a Sachin Bansal or a Vijay Shekhar Sharma—seem to be idols with feet of clay…either
backing the likes of Rahul Yadav with angel investment to continue this cringe-worthy charade of faux startup-ism or needing him to fill seats at their own events.
How I wish the media highlighted the story of a Santosh Panda who has diligently persevered to build Explara over several years with almost zero funding…or of a Nikhil Pahwa who selflessly fights for a public good like net neutrality at a great personal cost…or a Girish Mathrubootham who is pioneering a seminal “value arbitrage”  competitive differentiator that other Indian SaaS startups would do well to emulate.

Clearly, Sumanth hasn't penned this stuff to win new friends! But is he right in saying that Indians are obsessed with funding - so much so that it "is more akin to a full-on, shameless public orgy"?

As the first in the country to create a business around funding announcements, we at Venture Intelligence are admittedly somewhat biased on the topic. (Venture Intelligence tracks private company financials, transactions - Private Equity/Venture Capital, M&A, etc. - and their valuations for our bread-and-butter. And getting paid by investors to do this - since 2002.) Having said that, hasn't Girish Mathrubootham - who Sumanth includes among the list of good guys - by raising as much as $94 million for Freshdesk, dealt with venture funding for what it is: a financing tool (nothing more, nothing less) that's available to be used by entrepreneurs if they so choose? Despite having been cut from the Zoho cloth, Girish has been pragmatic in not making "no VC funding or exit for me" into, well, an obsession.

For entrepreneurs who do raise funding, it makes tremendous sense to tomtom the event. As Sumanth has observed, the media loves funding stories. In fact, you just can't pay the media (officially at least) to talk about your great product - and consequently miss the opportunity to reach out to their audiences  - than when it's coupled with a funding announcement.

So, why does the media obsess about funding?

Because funding provides a "chaapa" (ie, a seal or a way to "Cover Your Ass") to talk about a startup - since someone has actually cut them a cheque. Especially with Early Stage companies, where financial data does not provide much to go with, the funding "chaapa" counts for much among journalists, even the less lazy variety. Media visibility can also be a double edged sword: when things go south, the media will be quick to pull down the very startups they've celebrated the most. If the funding tap does run dry, going by the experience of 2000-01, we can bet that all the cover stories, special pages and awards events focused on startups, will get pulled. So, it makes sense for startups to bask in all the funding driven free PR that they can get, while the media's obsession is still on.

Regardless of the disagreement on the obsession factor, I loved Sumanth's piece for calling, ahem, "a spade a spade".  It is such independent thinking and fearless commentary by folks like Sumanth, Mahesh Murthy, Alok Kejriwal, Anand Lunia, Sridhar Vembu and Haresh Chawla (an angel investor in Housing.com who's penned a very different sounding piece on Rahul Yadav) which makes tracking the startup ecosystem truly interesting.

Related Images:

April 2015 (Source: The Quint)


December 2015 (Source: Bizztor)



Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

December 15, 2015

Startup Failures of 2015


Techinasia has rounded up a list of 11 startups that gave up in 2015. The list includes

From Foodtech:

Dazo
Investors: Rajan Anandan of Google, Amit Agarwal of Amazon, Kunal Shah of FreeCharge and Founders of CommonFloor, TaxiForSure, and Yo China.

Spoonjoy
Investors: SAIF Partners; Sachin Bansal of Flipkart

From E-Commerce:

DoneByNone
Investors: Seedfund

From HR Tech:

TalentPad
Investors: Helion Ventures

From Hyperlocal:

Townrush
Investors: Lightspeed Ventures

From IoT:
Lumos

Interestingly, Yash Kotak, a co-founder of Lumos, has published a detailed article in YourStory listing "7 Reasons Why My IOT Startup Failed".

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

December 08, 2015

Private Equity Exits Via Public Markets on the Rise



Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

Private Equity Investments Down For The Fourth Straight Month


Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

December 03, 2015

Why do Bill Gurley & Jason Fried Hate Unicorns?

Silicon Valley VC and Benchmark Capital partner Bill Gurley has been calling a bubble for a couple of years now. Gurley explains why he is so concerned with bubbles in his latest interview to Technology Review magazine:
Great entrepreneurs are relatively disadvantaged in these markets where so much capital is available. In a market where capital is hard to come by, they can still raise money. In this market, they can raise a ton of money, but so can a lot of [less capable] competitors that wouldn’t be in business otherwise. 
...Imagine two companies. One is told, “I want you to get to $100 million in revenue and you have to be profitable when you get there.” The other is told, “I want you to get to $100 million in revenue and I don’t care if you lose $40 million getting there.” Which of those two exercises is harder, and by how much? I would argue it’s at least 10 times harder to do the first. Until you can prove that you can generate cash flow, you don’t have a sustainable business. No matter which of these unicorn boardrooms you walk into, everybody thinks it’s perfectly okay to burn tons of money
The fact that some Unicorns just refuse to die seems to have also pissed entrepreneur Jason Fried, Founder of proudly bootstrapped software firm 37Signals (a story much like India's Zoho). So much so that he has dusted up and re-released his 2009 vintage The Onion like Press Release titled "37signals valuation tops $100 Billion after bold VC investment". The deal terms (in case you - like me - do not remember the 2009 original)? 0.000000001% of the company in exchange for $1!

Extracts (emphasis mine):
In order to increase the value of the company, 37signals has decided to stop generating revenues. “When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation,” said Mr. Fried. “Once you have profits, it’s impossible to just make stuff up. That’s why we’re switching to a ‘freeconomics’ model. We’ll give away everything for free and let the market speculate about how much money we could make if we wanted to make money. That way, the sky’s the limit!” 
A $100 billion value for 37signals is “not outlandish,” says Aanandamayee Bhatnagar, a finance professor and valuation guru at Grenada State’s Schnook School of Business. Bhatnagar points to a leaked, confidential corporate strategy plan that projects 37signals will attract twelve billion users by the end of 2013. How will the company overcome the fact that there are only 6.8 billion people alive today? “Why limit users to people?” said Bhatnagar. In order to determine the valuation of companies, Bhatnagar typically applies the following formula: [(Twitter followers x Facebook fans) + (# of employees x 1000)] x (RSS subscribers + daily page views) + (monthly burn rate x Google’s stock price)2 and then doubles if it they use Ruby on Rails or if the CEO has run a business into the ground before. Bhatnagar admits the math is mostly a guess but points out that “the press eats it up.”
Since the founding team (obviously?) can't manage a company that has suddenly become this valuable, 37Signals has hired a former YouTube executive Mr. Mirage as COO. His comment:
“37signals will lead the new global movement filled with imaginary assumptions on growth and monetization potential,” he continued. “We’re excited to roll out a list of unconfirmed revenue possibilities that involve crowdsourcing, a robust set of widget creation tools, 3G, augmented reality, social stuff, and an app store. Also, everything we make will include a compass.” 
Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.