Global Themes

How do you find flat world VCs?

Came across this thought-provoking post by Basab Pradhan in which he talks about “flat world ventures” and how the traditional approach to VC “is leaving big underserved gaps in the market”…Although the article is largely about Indian start-ups and their approach to global markets, a lot of it is probably relevant to Chinese start-ups as well…

Basab defines “flat world ventures” as startups whose product or service is largely put together or provisioned in India for global markets. He cites his own company as an example which does research in India for the US market (there are of course others including Aranca and RocSearch - both run by friends and fellow LBS alumni, Hemendra Aran and Neeraj Bhardwaj)

Basab argues that the reason why flat world startups are underserved by traditional VCs is because of the fact that they straddle two worlds and “it is very rare that you will find a VC who is as familiar with the Indian market as he is with the US market.”

While finding such a person may well be impossible, the situation is not really as bleak as it looks…In most cases the entrepreneur (and his/her team) will have connections and network in at least one (if not both geographies)…so what they can look for is an investor who can complement their relationships and networks…reminded me of a report on the Indian VC marketby Alok Aggarwal, head of Evalueserve in which he talks about some of these issues… (see 4.3 and 4.7 of Alok’s recommendations) (also see “Another hot day…in an over-heating market“)

Another way of achieving that balance is to actively try and cultivate a network in more than one geography…this is even more critical as startups and markets increasingly becomeglobal and move beyond traditional VC boundaries…(see my earlier post on “Globalization – What’s it got to do with me?“  )

And I slightly disagree with Basab’s 4th point (re. what should VCs do?) where he says ”The reassuring handshake will get rarer, unfortunately.”…I think the opposite will be true…as global travel becomes increasingly feasible and economic, the value of personal touch in a relationship is likely to become even more salient…

February 6th, 2007 Posted by Shantanu | Entrepreneurship, India, Venture Capital | 2 comments

What’s a Biz Dev guy doing pretending to be a VC?

…aka “putting the value-add back in VC”

I dont have these words in my designation but I would like to think that I am part of the “value add” in Amadeus – something that every VC firms claims to do…some are true to their word…others use it to look good in front of entrepreneurs.

So how does one add value?

Keep Reading…

January 25th, 2007 Posted by Shantanu | Venture Capital, What VCs really do | 3 comments

It’s the people, stupid*

Ed Sim recently wrote a nice post about how being a VC is really about people:

“…So in many ways, being a good venture capitalist is dependent on our ability to understand what drives the people we work with, how to constantly challenge them and motivate them, pat them on the back when they need it, and push them harder if they are slowing down…As much as some would like to think that being a VC is about the technology or numbers, it is all about the people.”

I usually have to spend a few minutes explaining to people what is common between my earlier job as a diplomat and being a venture capitalist…Next time I will simply point them to Ed’s post.

Interesting find: It’s Still The Economy, Stupid
.
* with apologies to James Carville

December 24th, 2006 Posted by Shantanu | Entrepreneurship, Venture Capital, What VCs really do | one comment

“How much should I expect, end of the day?”

I promised earlier this month to highlight some of the most common questions that entrepreneurs have about venture capital financings and related topics…and I hope some of you managed to read Max’s thoughts on “how much equity should you give up?” which I used to begin my series.

A few days ago, I came across Krishna Mony’s excellent blog and found this post on his site: “How much to hold back?” 

Its a neat and well-written expplanation of the basic maths behind how much equity could founders expect to have at the end of the day? Over to Krishna:

“Most of the startup entrepreneurs have this persistent question on valuation. Let me now direct them to read this before they have my hair for splits. From now on, I would look forward to something more intelligent from them so that it tests my skills at a significantly higher level calling for some sophisticated financial modelling.

“So how much should I expect to own at the end of the day? ” is that question.
It all depends on how capital efficient you are. If you need to raise $5M followed by $15M followed by $20M, there is not much pie left at the end of the day.

Let’s see what that looks like:
Seed/early : $ 5M at a $5M pre-money leaves you with 50%
Expansion : $ 15M at a $15M pre-money leaves you with 25%
Later stage : $ 20M at a $40M pre-money leaves you with about 16%
Back out 8-10% for equity to other managers, warrants, founders, etc and you have 6-8% left over.

Unfortunately, too many entrepreneurs don’t think this through completely and are extremely resentful or disappointed at the end. Furthermore, if things don’t go as planned the money could come in at much lower valuations or you might need to raise more rounds.

In a capital efficient play, you end up with a much greater share. For example:

Seed/early : $1M at a $3M pre-$ leaves you with 75%.
Expansion : $3M at a $12M pre-$ leaves you with 62%.
Later stage : $3M at a $27M pre-$ leaves you with 56%

Back out 8-10% and you have over 45% still in your possession. You’ll notice that I even used lower pre-$’s in this second example and it still came out significantly ahead (nearly 7x).

December 23rd, 2006 Posted by Shantanu | Entrepreneurship, FAQs for Entrepreneurs, Venture Capital | no comments

“So you want to be a Venture Capitalist?”

On a tube ride back home – after a long day of meetings agonizing over investment decisions – I was reminded of Stewart Alsop’s quote about some VCs being in the “god category”.

I had read the story before but had only a vague recollection of where it had appeared and what the conclusion was.

Yesterday, a diligent search on the web revealed this gem: “So You Want to be a Venture Capitalist?”

You may have to register (free) to read the article in full but I would recommend it to everyone who is contemplating a career in this business – and to everyone who has spent more than a couple of years on the inside….

Some good quotes from the story:

The first one from one of NEA’s founding partners, Richard Kramlich, hinting at the selection criteria at his firm:
“Two-thirds of the partners who were at NEA in 1997 are no longer at the firm; the surviving third accounted for 85% of the firm’s profit”

John Doerr at Kleiner Perkins, “it takes probably six to eight years and you should be prepared for losses of about $20million…Of course, while we take risk, we work like hell to avoid crashes”…

And finally the “God quote” that was nagging me:
“I think I’ve done very well as a venture capitalist, but I’m not in the god category”, Mr Alsop said. He defines a venture god as someone who has made $100million to $500million on a single investment. His list of industry deities includes Mr Doerr, Mr Kramlich and Michael Moritz at Sequoia Capital…”

Sobering…

I don’t know how many such “gods” exist outside Silicon Valley…in Europe and in Asia…but I feel hugely privileged to work with one of them…

.

See also one of my earlier posts, “How to become a VC“

November 23rd, 2006 Posted by Shantanu | Venture Capital, Venture Capital in US, What VCs really do | 5 comments

Why Venture Capital has to Globalize…

A few weeks ago, in response to a post by Ed Sim, I wrote that for me, Globalization was really about opening new markets (particularly in Asia) for our portfolio companies.