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Sunday, May 28, 2006

Timon Innovation Centre - India - Israeli JV beckons entrepreneurs and smart VCs

I have great pleasure in announcing with Zohar Gendler, CEO, Technion Entrepreneurial Incubation Centre, Israel that we have finalized the business plan for Timon Innovation Centre ( TIC ) to be founded in India. We want Timon to be a breeding ground for fantastic projects mooted by brilliant entrepreneurs in the Medical Devises and IT sectors. Those of you wannabe entrepreneurs, harbouring dreams of making it back to India ( with your experience, wisdom and wealth in tact ) and willing to invest in the TIC may please write in. We put the 1st phase of the project to cost close to US $ 9 million.
VCs have shown interest to invest in the companies operating from TIC but not in TIC itself. They feel it could be a fund of funds model. Our business model has been consciously designed such that investment in Companies in TIC can only be made thro TIC so that startup entrepreneurs are not intimidated by direct presence of VC on their boards. Many of them have opined that they don't mind VCs being present together with us. They fear that VCs would soon begin to breath down their neck stunting creativity midway.
We target at the bottom end, a very reasonable 3 exits out of 15 investments over a period of 7 years. The projects shall be vetted for their viability and constitution by a core team of Advisors drawn from elite Technologists / Academicians from IIT, IISc, IIM and Universities and Institutes overseas. These advisors shall be available for the incubatees to seek timely guidance besides sharing their enormous contacts all over the world.
Besides all else, TIC would provide you with an investment opportunity in well founded startups backed by sound teams and enforcement of complete corporate governance. Investments in public listed equities in India have become almost impossible owing to runaway valuations fuelled by recent bull run.

Just in case you are interested in knowing more about us, please write in for more info. You might as well Google talk / skype me at kmonyb.

Zero Stage : Hottest VC Op in India

The hottest VC op in India is in the Zero stage. The growth stage has become a strict No, No since all public listed companies are quoting at ridiculously high valuations and there is no point in even wasting time doing due diligence on them. The VC general partners in India are somehow busy looking only at them – for fear of losing their carry and whatever little is left of their reputation. But what they lose sight of is the fact that the hedge fund money which is pushing the Indian stocks to stratospheric levels don’t sound warning bells before they hit the switch. And these kids would soon find themselves trotting their way to the cleaners….!

In the seed stage there are wonderful ideas being pursued by brilliant individuals. Yet they are not so visible since they ( unlisted individual teams ) are not so brilliantly organized. One needs to train himself to know where to look. Many of them have read my blogs ( favouring zero stage funding ops ) and have approached me. [ ] I too keep doing my bit and some of them are under advanced stage of incubation. If one tries taking them to the Indian VCs, they would have rejected them long back. Know why ? They are just looking for a quick exit before they have even made an entry ! Bad lessons learnt from short backoffice stints. They never know the joy of creating an enterprise. They have neither tried creating one themselves nor have they got the ability to make the right investment call. They are mere also-ran VC extras.

Incubation is what clicks. It’s a fine art. I’d rather define it in simple terms as the art of guiding an idea from zero stage to execution and eventual listing thro a string of services. Once it is complete, Indian VCs would like all of it and would shamelessly announce themselves in their portal home page as “ We are a $ ____00 million Venture Capital Fund focused on investing in early stage opportunities in India .....”. And they expect us to believe it….!

Saturday, May 27, 2006

How to staff an Indian VC Office

I have been scanning the Indian VC ecosystem for the past 5 years and find that most of the US VC funds appoint some General Partners / Associates for their Indian VC office who have absolutely no idea of how to grow their business in India. I would suggest them to look for the following traits besides their regular checklists and selection methodologies.
Background : Candidate should be trained in the relevant field in India besides having earned his spurs overseas. Normally Indian nationals holding an Indian Passport who have studied in the US universities ( are mistaken for great visionaries - in fact, some of them were just lucky enough to have a rich dad ) get appointed as General Partners / Associates out here. What follows endorses the conviction that they are hopelessly inefficient in their selection of investments. Some of them can’t find anything better to invest other than in B-grade Travel Portals or C – grade brokerages. This in a country which is one of the leading emerging market economies and boasts of an entrepreneurial history of over 200 years.

Always look for people with dyed in the wool Indian ( Operational / Financial / Legal / Corporate ) experience. They must have worked in Indian Companies and have done a thing or two here. That’s what would make them a good judge of an investing opportunity in India. Qualifications should merely be their vision of an opportunity. Ask them the parameters they follow before selection of an investment. That should reveal the real candidate you are looking for.

Attitude : Entrepreneurs are what they are because of their fibre. They are way above the VC general partner / associate who assume that they own what they are asked to invest. If the VC crony thinks that he’s a royalty, they’d get whacked all over the place. Get rid of this pest, at once. And don’t blame India(ns) if you don’t. The right attitude to be a good VC in India is to be humble, mild mannered and not jingoistic. Learn to respect an entrepreneur for his original idea and his commitment. You might reject him very well if you don’t like his presentation, but do not ever ridicule him. His plan could be a success with some other VC and then you’ll look like a horrible orifice.

Talents : This is the hardest part. Just look for someone who has been tracking Global and Indian Businesses for the past 5 years. If he can list out 10 sensible merits and demerits of both the categories, you’ve got your guy. You can trust this guy with your investment mandates.

Get the real him : Ask this guy what he would do when he realizes that he made a mistake. The answer would reveal the real guy inside.

When hiring an experienced guy, just ask him how many seed stage funding he had recommended and what parameters he followed. And of course see what happened to the ideas that he had rejected outright. If it has been taken up by someone else and it really did work, Junk this guy at once. He’s a sure loser. Most of the current folk would not survive this test. They don’t look at good seed stage proposals and the really wired entrepreneurs take this rejection as a challenge and get it up on their own. This happen with 95% cases.

Friday, May 26, 2006

Web 2.0 VC scene changing ?

There is, however, some evidence the VC environment is changing. For one, Web 2.0 entrepreneurs don't need large amounts of money because they can use free open-source software, and low-cost hardware and network bandwidth to develop and distribute a new Web-based service.

This means entrepreneurs can take an idea and create a business without worrying about whether they can get financed. This is a healthier approach because the start-ups that are successful in attracting customers and generating revenue have better leverage when they decide to pursue venture capital to jump-start growth.

At the same time, some VCs have started to realize they need to behave differently if they want to play in the Web 2.0 world. They need to be more aggressive, they need to take more risk and they need to accept the reality that financial success could come from a variety of small investments rather than a few large opportunities

Thursday, May 25, 2006

How to choose your co-founders

Normally startup entrepreneurs face this problem. The co-founder has left midway. Most of the times for very natural reasons like - he has a family to support and can't stay without income for long. At other times, it could just be that the departing founder may have lost hope in the venture and wants to stay quit.
Anyway it's a daunting task ahead for the other(s) who stay dug in. All the development plans, cashflow projections and budgets go haywire if the contribution from the walking out partner is substantial and is critical to the venture. Normally startups have in some way or other equal contributory roles from all the founders and mid-course departure of one is surely going to burden the other(s) with pro-rata share of the load ( financial and developmental ). Remember, the startup stage is even otherwise the most painful and slow stage of growth of a business, and it always pays if you choose the right co-founder(s).

Here are a few things to do before you accept a co-founder ;

a) Background check : Ideally he must have put in at least 3 -5 years of career which yielded him a reasonable networth in terms of liquid assets. It's important that he has no great immediate demands on his resources by way of massive loans on house, car etc. He should be able to pull on without income for at least 2 years.
b) Documentation of implications : There should be clear understanding in writing between the founders regarding their roles and proportionate distribution of venture risk ( to avoid blame games ), financial implications of mid-course departures ( like forfeiture of investments ) , parameters and circumstances under which to bring in another founder ( acceptable to the remaining founders). All of these and more should be built in the initial subscription memorandum or whatever document that is.
c) Consistency of expectations : Get people who have a realistic expectation regarding the various stages. For eg. "I expect the product to hit the market in 6 months" will not work. Document the idea clearly and subject it to validations by outside agencies or even potential customers. Important - communicate their findings at a meeting where all would-be co-founders are present.

d) Lifestyle patterns : It's always better to choose people who have more or less similar lifestyle tastes and choices. At least those who share the same values and outlook towards money, life, career goals etc. That way, their forward moves tend to be predictable. You can sense a storm before it hits.
Will add to it later. If you have some valid points, please comment in.