Whats next baby? Lets go VC hunting

Ok, Ok. So I am bitter. Bitter about the hypocrisy and bitter about the hot air that surrounds the VC community in India today. As an Entrepreneur you tend to take these things to heart. In the next series of Blogs, I will take you through our quest for funding and how it pans out.


So when we started in the BPO the business we were told, "Build a good team, Build Customers. Funding will follow. Trust us". So we did just that. Stated with a motley crew of 8 people and built it way up to 100. Went out an got some customers as well . Oh yeah and revenue (Monthly Recurring Revenue). It took us 2 years to do this. Along the way we even finalized bank financing (we were later told that this was quite an achievement).

So we did all this and proudly started taking to the VCs. I ignored the advice of my friend (a fellow Entrepreneur) to stick with our "old way" of funding. Hey, I had all the ingredients right? Screw my friend. The VC he met up with was "not typical" (I was just going to learn what "typical" meant).

The first one had the week before evangelized the concept of funding startups in an interview with a business magazine. We were so excited. We would find someone who empathizes with us and take us from where we were to the next level. After all we were not asking for much money. That’s good right? ... NOT !!!!

So this guy starts talking about how his company does not have the "appetite" to do small investments and that they were just in the process of re-orienting themselves to handle large investments only. He suggested we look for friends, family, TiE and the janitor (ok I added this one for effect) to fund our "next step". He said "You need scale". So its not enough to scale from 8 to 100. It needs to be bigger much bigger!!! I guess the early stage "there’s no risk to me" advisor forgot to talk to us about scale. So we came back sufficiently chastened. I was afraid that he was going to charge us for the coffee he gave us but thankfully they absorbed the costs. After all they had $350 Million under management.

Of course he put his Harvard education to good use and floated a few buzzwords that bamboozled us. We really came out feeling we hadn't achieved much. Don't Revenues, Customers, Team mean anything without size? Probably not to this guy but for us it seemed a significant achievement. Maybe we needed to be scam artistes to get some money. Do straight businesses get funded anymore?

Then we got a call from an advisory company... stay tuned folks... it gets interesting.

P.S: I haven’t told my friend about this visit. I'm sure he'll find out 'cause he knows I publish this Blog :-(

The Great Indian Market

One of the questions I keep getting asked when I travel overseas is about the market potential for Technology and Services in India. "Hey its a country of 1 Billion, must be a huge market", they say to me. Well yes we are a country of 1 Billion and we are a large potential market (note the word potential here). This might be true to a certain extent for consumer goods but we have a long long way to go before India translates into a good market for technology and service companies.

When I visit countries like Korea, Japan, Australia, and Taiwan, I am amazed at the maturity of the local market. Companies can sustain and prosper by just focussing on the local market. Not in India though. The first thing a technology (especially Software and Services) company does is scout for overseas projects. Why is this? Why can't companies thrive on the local market? Is it price? Is it opportunity? Is it attitude? What is it that prevents Indian companies from looking at India?

The problem probably has its roots in the way computers and technology proliferated India in the first place. Software has always been seen as something thats given away with hardware. Though that perception is changing now, software and services are not something that Indian companies are willing to pay big buck for (unless you are an SAP or IBM).

Next, the software revolution in India started mainly with services (Y2K etc etc). Since there was practically zero market in India for software services, most companies were outward facing servicing markets like the USA. Even today all the big players get over 90% of their revenues from the overseas market.

All this has resulted in virtually no product of any substance being developed for the Indian market (the only notable exception being the accounting package Tally). Its just not possible for a startup to think up a product for the Indian market, get it funded and then market it here in India. No surprise then that all Indian companies wan't to get into services.

The other party to blame is the end customer in India. In most cases they are rude to vendors, dont pay on time and want to squeeze companies on pricing so much that its just not worth it to service them. To top it all, we love the "Made Overseas" sticker (must be a hangover from the British Raj). Companies here don't mind paying a foreign company list price and a premium for services (if its foreign it must be good). However they will extract every ounce of discount from the poor Indian company. Until this reverse racism goes and there is a good eco system to fund small product companies, India will always be a back office and will never make its mark as a country worthy of producing technology products. Even Infosys was not successful with its product thrust and thats saying something.

So next time one of our VC friends comes into India and gives us an expansive discourse on how we need to "develop products", I think they should walk the talk instead of theorizing and fund a few companies from the ground up. There is too much CO2 these days and its time for the theoriticians (read VCs and analysts) to put up or shut up !!

The Venture Capital Scene in India

Two weeks ago the TiE Group hosted John Doerr, Ram Shriram, and Ray Lane in Bangalore. It was a nice interactive session with the three very knowledgable gentlemen.

It was also a reminder that the VC industry (if I can call it that) is in its infancy in India. There is no true VC at least for companies looking at entry level financing. This leads me to question the very definition of a "Venture Capitalist". Most of the VCs in India are looking for mature (read as "low risk" investments). While this is fine, most of them seek cheap publicity from the newspapers by calling themselves VCs who help small and entry level businesses. However their private persona is very different than their public persona. Approach them as a small company and they'll treat you like a fly. Take for example a leading VC who got featured in Business India. Their entire interview was full of (sic !) prose that justified the cause of early stage funding.. blah..blah etc. However a friend of mine who has a fairly well established company but was looking for some entry funding found out that there was a LOT OF DIFFERENCE between what they said in the magazine and what they say in private. He was out of there in 5 minutes. He swears that he'd rather deal with banks than VCs. At least they don't have two faces.

As I said before, thats fine, but can we please stop this hypocrisy?