Start a company when you are young

I met a partner at a top VC firm in India who told me that I should get a job instead of starting up because according to him average age of the founding team of funded startup was 34-37 and thus I would never be able to raise investment. I think about this now and laugh because I think GharPay’s team has beaten the average by 10-12 years. The odds are definitely stacked against a young Indian entrepreneur but there are some tremendous advantages of being young.

1. You and your team doesn’t have kids to feed or a loan to pay off. GharPay’s entire top team of five people take as much as an average 27-28 year old would be earning after working up the corporate ladder. And these are very best people that I know. I doubt I would have been able to recruit only the best from my friends had I been 30, when most of them would never be able to take a serious pay cut.

2. You are on the path to success very early. The best musicians, dancers and scientists started off really early. To really build a blockbuster company, you need to be really good at starting and running companies, which comes from real world experience only. Better to start early.

3.  You are foolish enough to tackle a big hairy complex problem because you have no clue about the real world. And you become seriously successful only if you solve a big hairy complex problem. When it comes to entrepreneurship the only experience you need is the experience of having run a business previously. Domain knowledge helps but you can always spend a few months to a year understanding everything you need to run your business.

These are some serious advantages young people have, and its upto you to exploit these and fast!

Simple guide to an investment process

The capital raising process for a company from investors was a process that was quite unclear for me and I’ve certainly acquired more knowledge about it during my internship at Intellecap. So here’s a rough outline of the process for the rest of us.

Venture capital investment 101

1. Finding investors:

Typically companies contact investment banks or consultancies to guide them through the entire deal. The role of the investment bank is to represent the ‘sell-side’. The bank will create a ‘flyer’ of sorts to pitch the company to their network of investors consisting of PE firms, VCs, other banks, etc. The difference between the investors is in the kind of value theyll bring to the company. Large organizations rasing money do not need strategic management support, while small companies do. So VCs are commonly contacted for small companies rasing their first few rounds of investment. While PE funds who just provide the capital are contacted for more mature companies.

If a few interested investors are found, then its time to

2. Send them an executive summary:

But before that legal contracts to prevent disclosure of information or bypassing of the investment bank are signed. If you found the investor yourself, then an NDA won’t be signed probably.

The executive summary contains more details of the company and also about the sector. The summary has more numbers, details about the management team, product, etc. The summary could range from 15-30 pages. Here normally the entrepreneur makes a few pitches to convince investors.

The investors estimate the risks, valuation and the stake they might get. If it fits into their needs they’ll give the green signal for the next stage.

3. Business plan shared and valuation done:

The easy part is now over. The longest period of time is now ahead. The business plan can be prepared by the company and then rectified by the investment bank or completely built by the investment bank. The business plan consists of every single detail about the company including financial models, legal documents, etc. It is of utmost importance to have a genuine business plan with valid assumptions and acceptable estimations because all the lies and unacceptable numbers will come out in ‘due diligence’.

Using the business plan and financial models provided to the investor, the investor and the investment bank make ‘valuation models’ independently. The model uses a few estimations and assumtions to come with a number that estimates the worth of a company.

4. Negotiations and term sheet:

All the parties involved in the process come to the negotiating table. The valuation figures are shared without exposing the valuation models to have negotiating leverage. Negotiations over the valuation, stake, business plan, etc are held. Everything that an investor is worried about are discussed.

If the buy-side and sell-side parties are satisfied with the conclusions of the negotiations, a term-sheet is made (I’ve not experienced this or seen this stage, so I have a faint idea only). The term-sheet contains all the terms agreed upon, the clauses that allow exiting the investment, the division of shares, the kind of shares (preferential, non-voting, etc), etc.

5. Due diligence:

This is the longest process of the whole deal. After the term sheet has been signed, due diligence is begun. Due diligence(DD) is the process of checking the details provided in the business plan by the company. So there’s legal DD, tecnology DD, operations DD, organization DD, etc. This is done by the buy-side by either hiring a firm or doing it themselves. This is a very expensive and long process so it is kept till the end. The process can take time ranging from a few months to one year.

At the end of DD the report is prepared. If there a few discrepancies they can be overlooked or negotiated on or sometimes the deal is canceled.

6. Money comes in:

If the DD report satisfies the investors the deal is inked and money is transferred. All the terms agreed upon in the term-sheet are now in place. Congratulations!

In the whole process you can choose not to involve an investment bank or consultancy and do the whole process yourself. Its just always easier to get the experts involved.

———————————————–

So that’s the process of investment. A little more wisdom that I’ve heard from VCs, investment bankers.

1. Avoid looking for equity based capital for as long as possible.

2. The process is very time consuming so don’t hunt for capital when your company needs attention.

3. Take money only when you really don’t need it. i.e. when the company is doing well and not desperate for capital

4. Getting investment is not really always good news since you’ve given a lot of control to other parties. You might end up making no money in an exit if you do not have preferential shares or voting rights.

Hope this information helps some of you! I’ve tried to be as accurate as possible, but there are no steadfast rules.

What is the role of the Social Entrepreneur?

I’m reading ‘How to Change the World: Social Entrepreneurs and the Power of New Ideas‘ by David Bornstein. The book is a collection of stories and essays on social entrepreneurs; and a must read for anybody fascinated by social change. I’m on chapter 8, which is an essay titled, ‘Role of the social entrepreneur’. Its very well written and I wish I could reproduce it. In this post I’ve written a few of my views on the essay and have quoted Bornstein contextually.

The main motive behind the chapter was to show how social entrepreneurs are hidden behind their path-breaking ideas and rarely given credit. Actually its not a matter of credit, but also that social entrepreneurs are not as well scrutinized or researched as the case with business entrepreneurs. While business entrepreneurs have been given due credit for their role in changing the economies, social entrepreneurs are yet to be recognised as important forces of societal change. This is because sociologists consider factors driving social change- demographics, technology, economics, political processes- but do not consider the role of a ‘charismatic leader’. In social innovation, ideas are more valued than people. People are just audience and are considered to have minimal role in an idea’s successful propagation.

Such a thought would not fly for a second in the world of business, because its been proven over and over again that people driving ideas are more important than ideas. An idea with a great prospect will fail to reach its true potential if not fanatically pursued by a passionate and determined leader.This reasoning holds true in the social entrepreneurship world too.

A contemporary example will be Al Gore for ‘Global warming’ (personally, I think his picture is biased and very distorted. But thats another story.). His main role was that of an evangelist, a whistle blower or a lobbyist. He’s made the US and Europe, frantic and paranoid about global warming. Thats no mean task. I think he’s done more, than any scientist could have with research statistics.

Bornstein says, “An idea is like a play. It needs a good producer and a good promoter, even if it is a masterpiece. Otherwise the play may never open; or it may open but, for lack of an audience, close after a week.” Ideas need champions and this is especially true for ideas which threaten status quo and go against all traditional wisdom or norms. Bornstein quotes James O’ Toole from the book, ‘Leading Change: The Argument for Values-Based Leadership’, “The major factor in our resistance to change is the desire not to have the will of others forced on us.” So if ideas need to take root as concrete realities, they’ll need an obsessive, bullheaded tyrant with motivation to drive, persuade, cajole or inspire others into accepting the idea and its prospects.

Today when we try looking at various major social change that were once revolutionary and today, seem only logical, there was certainly one leader/entrepreneur who ignited the change. I can think of dowry abolition, sati abolition, widow remarriage, etc all being pioneered by various personalities like Ram Mohan Roy, Dayanand Saraswati, Babasaheb Ambedkar, etc. The fact though is, there’s hardly any literature on scrutiny of their methods employed to reach their targets. Its probably because all the above people were praised as saints or mahatmas, one beyond any comparison with normal humans. In Christianity all the saints were almost certainly just proponents of great positive social progress and not really ‘Holy’ in the strictest terms. Since their motives were so selfless, their methods of achieving them haven’t been recorded. It so appears that even though social entrepreneurs were identified and glorified much before business entrepreneurs (who were first identified in ‘The Wealth of Nations’ by Adam Smith in 1776), there’s hardly any popular study on their methods.

I hope you read ‘How to Change the World’‘, for essays on some contemporary entrepreneurs, who are Steve Jobs and Bransons of the social world. And if the world is lucky, you’ll decide to change the world too.

Speak at Conquest!

Conquest is an international business plan competition held by Center for Entrepreneurial Leadership at BITS-Pilani. It is happening from March 8th to 9th at BITS-Pilani. We are looking for young entrepreneurs who could be a part of a panel discussion centering around Starting up in India(exact topic yet to be confirmed).

Why should you join us for Conquest?

1. It attracts some of the best early stage startups of the India and Asia.

2. Best judges and mentors.

3. Brilliant and active audience at BITS-Pilani.

If you are a young entrepreneur and would like to speak at Conquest, mail me at nayak.abhishek@gmail.com . We can then decide the best schedule for you.

Bplans and BITS

I’m just amazed to look at the number of BITSian teams in various business plan competitions across the country. I’ve seen at least one BITS team in every major business plan competition this year. And it’s not one team which is doing well, but about 7-8 of them. Eureka had only two undergraduate teams and both were from BITS. One of them came third too!

Somebody’s doing something right and I hope that somebody is CEL as a whole and Epsilon specifically. Epsilon is a brilliant concept, though has not been perfectly executed yet. It doesn’t scare of people by asking for business plans or even executive summaries, but just a few basic questions about their ideas. The idea form is the same as the YCombinator’s application form. The questionslike, ‘How will you make money?’ , ‘Who do you fear the most?’ are simple enough to answer in early idea phases. Because of this, Epsilon recived about 140+ entries last year. On average each team has about 4 people, so that’s about 560+ people thinking business. 30 of these ideas turned into business plans.

Of course not all of them will turn into businesses or rather are not in that advanced stage of refinement yet, but they’ll get there with more work.

Even in Conquest, which undoubtedly has the best judging panel in the country, has a lot of BITSian entries. Some entries, which although did not make it to the finals, have VCs interested in them! And their are two BITSian finalists, which is no mean job considering the kind of competition. Yours truly is in the waiting list, and is hoping for other finalists to back out .

This is a great time to be in BITS!

BBB on Are startups hyped in BITS?

Day before yesterday Akash hosted a BBB(BITS Big Bout) on “Are startups hyped?”. Though I felt it wasn’t a very appropriate topic(explained further down the post), I was pretty excited about the whole the event cause 1. The format for the forum being tried was completely new and more participative 2. The topic had the word ‘startups’ .

Previous BBBs were modeled on the NDTV’s ‘We, the People’ style. It worked well for topics which directly resounded with students like ‘R&D in India’, ‘Open Source’, etc. But turned into a monotone for topics like ‘Global warming’, etc. What was going wrong was that, the passionate people who were working on Global warming were already on the panel and there were very few people from the audience who felt bold and confident enough to question the panel. Slowly the participation dwindled and one of CEL’s most well recieved projects went from having full houses to being a dormant project.

Last semester some of us sat down and thought up a new format which hopefully would elicit more audience participation. The expert panel wouldn’t be high on a stage, but rather sit spread among the audience. The moderator starts off with an introduction of the topic at hand and asks a member from the audience for his views. People who disagree with the speaker or want to add speak thereafter. After a few people have spoken, the moderator then asks the panelists for their view. This repeats for every thread of discussion.

It worked decently well day before yesterday. Lots more people contributed and there was lots of energy in the hall. As per the topic itself, I felt it was a few years too soon for the discussion. Because there are very few startups on campus and what was being referred to as startups in the discussion were really just business plans becoming a fashion. The the truth is even business plans are not that fashionable to the common crowd. I don’t really see that happening. yes, agreed number of BITSian business plan has gone up from 2-3 to 20-30, but thats still really low. And also people who are writing them are extremely passionate and are actually future startup founders. Being in CEL, I’ve had the opportunity to interact with a few of the teams writing the business plans. And I strongly think they are people who would surely startup later in their life, but right now on campus they’re working on their first ideas and teams. The day it’ll turn in to fashion is when people start doing it because it’s cool. Right now that’s happening only in CEL. Some of us talk about startingup and business plan competitions so frequently that it sounds like a cool thing to do to others who’ve never actually had an idea to startup on. When it’s all talk and little work, things turn into fashions and fads. But in the bigger BITS picture, people writing business plans have wings where other things rule and starting up is surely not one of them. Their efforts and ideas are genuine.

The panelists were Kavi, co-founder of Mobile Medics and Manoj, CEO of Source Pilani. They had quite a few great points to make, but others sounded quite naive and contrary to what I’ve read from blogs and articles by successful startup founders in their third or more year of running.

1. Money need not be the biggest motive. I disagree here, while money need not be the only motive, it has to be the biggest one. Else why should anybody startup? I’m not talking about social entrepreneurs, but entrepreneurs who sell good services and technology. If employment of more people is a bigger motive than money, then it can be better achieved by expanding existing companies. I really don’t know how strong do some entrepreneurs feel about employment, but I wouldn’t invest or use a company’s products if money is not driving them. Because more money can be created only when better products and better services are provided, whcih is an advantage for me as a customer or an investor.

2. Startup right after college, not during it. I’m guessing since both Kavi and Manoj are in the service sector, where there’s no cost and minimal time involved in product creation, they think so. For a technology startup, there can be no better place. You have free labs, free technical mentors(proffs) and free brains(students). After college doing a technology startup is nearly out of question. Unless you happen to have the monetary capacity to hire labs, hire people to work for a few months without any revenues generated.

3. Working in the industry doesn’t give you much leverage. This could be true if you have an idea, but decide to join a company with similar products, to understand the sector better. Because really, you have little control over what part of the project will you be involved with and probably little chance to network with clients. But if your idea comes while you are working in a company, whose product you realize is shitty and can be done better, then you have a massive advantage. 1. You know what exactly wrong is one of your future competitor’s doing. 2 You know what sort of customers are buying and how much do they value the product.

4. If your startup fails, you are not in too much trouble. Seriously? You wasted two years(most startups fail in the first two years) of your life working on an unknown bankrupt company, creating something which was not worthy of getting sold, burnt through a ton of cash. I’m certain that universities do not look kindly at such performance, maybe corporates will lend a kind ear. But really startups have a million reasons for failure and one could be, because you suck. Unless you’ve strongly proven the contrary in your career previous to your startup, I doubt people would hire you. Also I read someplace, entrepreneurs are not always reliable team players. I’ve seen that a bit at CEL too.

One point which both Kavi and Manoj agreed on was that starting up as early as possible is advisable. The logic behind it being, you have little less to lose. I guess this is true. And also it’s much easier to struggle early in life than later. I’m not sure how many people in their 30′s would like to live as poor as possible to do a startup? Well I would , but I’m more than willing to live poor for even 3-4 years and then end with nothing. But after I’m 30, I would expect a lot of cash after the effort. Failure then is just not acceptable.

Still in high school and already earning.

I just had to blog on this.

Yesterday Techcrunch had an article on Playspan, which got funded 6.5million USD series A by four(well known) VCs. The article gained much popularity on the web, because apparently the founder, Arjun Mehta, is in his sixth grade. Yes, sixth grade.

People in the silicon valley are mostly engineered to startup. But, engineered to startup at sixth grade? That’s before you are officially taught, science is physics+chemistry+biology. A comment on the same article gave a link to Paicontent’s article on Playspan getting funded, but this time giving the name of the founder as Karl Mehta, who (thank god) is surely more than 40 years of age, considering his qualifications. This is obviously a more correct perspective of the whole situation, since I doubt VCs would yet-to-launch companies run by 9 year olds.

Anyways, the mangled truth is out there and doing better than the actual truth.

This got me thinking about the other really young entrepreneurs I’ve read about.

1. Ben Casnocha. The more famous among the young entrepreneurs. Did something at 13 years old. Did something again aged 14. I’m not sure anymore, since he’s today more well known as a speaker and author of the book My Startup Life. He’s currently 19.

2. Ashley Qualls. She runs Whateverlife.com. A source of web layouts for girls. Mostly myspace layouts. And also a magazine called whateverlife. She was recently in news, because courts wouldn’t allow her or her parents to touch her multi million dollar fortune, because of her age. She’s 17.

3. The sibling founders of Myyearbook.com. Two are aged 16 and 19.

4. There’s this chap I read about quite recently. An Indian aged 19, who moved to the silicon valley at 14 because the laws here wouldn’t allow him to start a company. I just can’t recollect his name. Somebody help me out with this.

Of course, none of these beat the 9 year old I mentioned earlier. If he’s got some association with founding of the company, hats off to him!

Ah! I feel so old at 19 . I’m late at starting up already!

Check out the top 30 entrepreneurs under 30 by Inc.com.

And before I forget, notice all of them have started up on the web.

update: I accidentally found this article on Ephren Taylor, who’s done quite a bit of stuff in his past 20 odd years.

To startup in India.

I was contemplating today on my priorities and what I wanted out of life. The one thing that I realized is that, I want to make money . A ton of money. Money that will blow my brains out kind .

I see two ways to achieve that end.

1. Gamble.

2. Buy dozens of lottery tickets.

3. Startup.

4. Work and save money for decades and then buy the Bentley and let your kid drive.

The first two are possibly quick, but extraordinarily risky. I personally favor the Startup option. And I’m absolutely not swayed by the glam factor of starting up. I’ve come close to starting up once and in the process of coming closer again. I cannot say I’ve risked it all, but I can say I’ve suffered the pain, trauma and torture. Oh, its tough tough work.

This chap explains the mathematics of it well. I’ll reproduce it here.

 

The spoils go to those that take risks — the ones who work at startups, very early on.
Microsoft is the most successful technology company of all time (though Google is hot on its heels). The first guy at Microsoft made about $50 billion (Bill Gates). The second guy (Paul Allen) made about $25 billion. Steve Ballmer who was one of the early few and joined in a leadership role made about $15 billion. If you were in the first 50 people and got 1/10th of 1% (common for a startup today) you made about $200M. So the first guy made $50B, the 50th guy made $200M. Guess how much the 1,000th employee made, probably about $20M. And the 10,000th employee maybe made $2M. This is in the most successful technology company of all time.

If you want to make some serious money and you join a really good company (where the numbers will be 1% of Microsoft’s) as the 10,000th employee or even the 1,000th employee you are not making the right decision – the math just doesn’t work in your favor. If you want to make some serious money you have to take some risk and join something early, at least among the first 50 employees. I’m not saying that every job you take should be at a startup, but if you never do it, it’s going to be hard to make serious money in the tech industry, unless you work for 20 years and climb to the top of a big company.

In the same post, he also gives his perspective of the Indian mentality of looking for security. Most people around me have a very similar attitude. Everybody is sincerely focussed on making a good resume to get into their dream company or dream university. I am not saying it is wrong, but the major reason for this attitude is because of plush pay and security attached with the job or the possibility of a plush pay after masters in a foreign university. I think few people want to join IBM or Schlumberger to innovate or do a masters because they love research work. They want security and a little money. Do I sound hypocritical because three paragraphs before I said I want a lot of money and now I’m bashing people who want security. I forgot to add, I also want to do something I’m truly passionate about. I do not want to live somebody else’s life, worse a life thrust on me by the society.

The startup scene frustrates me. College startup scene frustrates me even more. VCs in India are closing shop because they do not have quality startups to fund. This makes the job tough for the few good ones too. GigaOM says, there is more money than startups. Its a vicious circle. VCs do not fund, startups do not start.

Reasons for the sad state of startups in India.

#1 In India, where the per-capita income is low, it makes a lot of sense for VCs to focus on seed funding and startups which require low investments. They typically come in from the US and look for similar sized investments, they had back there. In terms of a couple of million USD. And look for a promised ROI of a few hundred million USD in a decade. That is just a lot of money in Indian terms. Why not deal in million INR. Makes so much more sense. Typically startups will require a seed fund of less than 100,000 USD in India, to run for a year.

#2A major factor why people do not startup is also because people just do not want to invest their own money in it, nor are relatives. I can’t expect any investment or commitment from my own parents . Also people with ideas do not seemingly realize how bad the Indian VC scene is. I’ve met tons of highly experienced people wanting to startup, who think only with an idea, they can expect a VC to just put his money into it. In their naivety, armed with a business plan, off they march to networking dinners to pitch.

Ok, I was one of them. I’ve written a few business plans in the past with the hope of getting funded. I now write them with the hope of winning business plan competitions which will give me seed money for my startup and not to pitch to VCs.

#3People are always assuming, they are not qualified to startup. Yes, I agree most small businesses are as a result of somebody noticing the client being unhappy with his company’s service, so he start ups with a solution. But, there are a lot of businesses which do not require experience which can be gained only by working at another company. You just need an eye for problems. Worst is when they say, they do not have an MBA, so cannot run a business.

#4 Not enough role models. When you have such few entrepreneurs around, it’s difficult to see what success or failure brings. I think stories of people succeeding are more important than failure stories. Though I need to come across more failure stories, because I am way too optimistic for my own good.

These are some points which are starkly obvious to me. If these points could be changed, lots of things would become easier for budding entrepreneurs here.

James Hong of HotorNot has a great post on startingup.
While writing this post I also read Lightspeed ventures blog on Failure.

To Startup at college.

I originally wrote this post on Efactor, the CEL blog on May 05, 2007.

My first post on efactor and I’m addressing a question which I’ve never been able to answer satisfactorily. Should students startup while still at college? I’ve tried to give all the possible answers people tend to give when asked.

No they shouldn’t.
1. There’s a lot of time in the future to start ventures and its best to learn and experiment with interests at while at college. The point is, a venture narrows down your focus on something which quite possibly isn’t your passion and might actually leave you frustrated in the future.

2. Your grades could get screwed because you put effort on the venture, which quite possibly will fail, leaving you helpless with grades you don’t deserve. (for all of you who are right now thinking, grades don’t matter, trust me they do.)

No they can’t.
1. University provides a cocoon, protects you and keeps you away from the realities of life. Its tough to pull off ventures because you really don’t understand the real situation out there. Of course for a web venture, it is quite possible.

2. People won’t take you seriously enough. People won’t trust you enough.
People look at undergraduates as kids, their ventures as college projects. They doubt your commitment.

Yes they should.
1. Their project might just be the next breakthrough in the industry. If it is not monetized soon enough, it’ll be too late. Such opportunities come rare.

2. A lot of responsibilities get piled on after graduation. risk appetite suddenly becomes low when you are on your own. Best to start up at college, when you’ve got parents backing you, great friends to support you, professors available to provide free advice.

Yes they can.
1. The best ventures can be started up at college, because that is the place where smart minds meet, live together. A lot of web startups show this trend, Paul Graham puts this perfectly “It’s not what people learn in classes at MIT and Stanford that has made technology companies spring up around them. They could sing campfire songs in the classes so long as admissions worked the same.” I have a feeling its true for BITS-Pilani too.

2. Startups need the enthusiasm, blind optimism which only students can bring. Fresh ideas come from the unprejudiced mind. Out of the box thinking becomes quite tough when you are already been exposed to realities.

I’ve still not decided which is the answer but that hasn’t stopped me from experimenting with entrepreneurship or starting up.

You decide for yourself.

Abhishek

(Abhishek is a budding tech entrepreneur, and also blogs at A site a day. Abhishek can be contacted at abhishek@celbits.org -Ed)

—Heh, nice to hear somebody talk about me in third person.

—————-
Now playing: U2 – Beautiful Day [foobar2000 v0.9.4]
via FoxyTunes