First rule of first principle thinking, do not use first principle thinking when a mental model is available

Tag: India

Best Indian Founder

of 2018

or the entire last decade 2008–2018

Is Undoubtedly Lee Fixel of Tiger Global.

Every founder attempts to create value. It is not that hard. If money is handed out for a purchase, it is bound to create a consumer surplus. As Bill Gurley, legendary VC at Benchmark Capital says

To turn it into a business it is critical to capture some of that value back. Best founders are those that are good at capturing value after creating it. Capture that value for themselves, investors and employees.

Employees even in a typical valley based startup don’t make much money. As Hunter Walk, VC at Homebrew Capital says

Lee made two of his employees near billionaires and close to 200 others multi-millionaires.

When Lee first moved into India he was branded a casino capitalist. But thanks to him the entire venture capital industry that was being questioned for returns got two decades worth of lifeline to continue.

As per the research by Prof Thillai Rajan in 2018, “Mean returns of Indian PE-VC startups investment is 13.25% in the decade 2008–2018”. In the US these return average 15–20%.

In the previous decade, i.e 1997–2007, many reputed global VC firms that came to India bolted back due to inadequate returns. In the next decade till 2017, about $16b of investment by VC had been done in India. Only $4b had been recorded as exits. By orchestrating Walmart Flipkart acquisition in 2018 Lee added $17b to the tally of exits to take it to $21b.

Else the 13.25% return of the VC asset class may not have been possible.

For just that one reason he must be celebrated.

Even technology natives like Google, Microsoft, Intuit, Yahoo have a poor track record in integrating and digesting an acquisition. It will be harder for a non-digital incumbent like Walmart. It is anyone’s guess whether Flipkart will be an albatross on Doug McMilon’s (CEO of Walmart) neck. Chemistry between Walmart and Flipkart culture seems like water and oil, not something that is easy to mix.

But that is a story for another day.

A tremendous amount of wealth transferred into the hands of commoners who could have otherwise not imagined hitting such a jackpot.

For his stellar performance, we cherish Chris Gayle as our top IPL player. Similarly, Lee Fixel is our best Indian startup founder.

He showed how to capture value, spread wealth to startup employees and saved the entire VC Industry in India.

Disclaimer: I am in no way connected to Lee Fixel or Tiger Global. Have never met him. Neither did he influence any of our common friends to write this 🙂

Just admiration for someone who fueled a new reality.

Indian SaaS Drumbeat

Change is easy to miss, hard to get right.

Policymakers take pride in thinking that they create markets. Many believe that the 1992 World Bank report which called India as likely software superpower was responsible for the creation of $150bn IT services industry.

In emergent systems like markets, it is hard to say which inputs change the outcome. Internet was an important ingredient, the outsourcing industry was an unintended consequence of the internet. It made it possible for sending back office (R&D and Support) from US to distant parts in the world where it created efficiency.

Thomas Friedman, renowned New York Times journalist was quick to declare this in his book as World is Flat. He said “Several technological and political forces have converged and that has produced a web-enabled level playing field that allows for multiple forms of collaboration without regard to geography or distance, soon even language”

He was only half right. Ten years since his claim the Indian IT industry at $150 billion is only 10% of the $1.2 trillion US market.

What started with Internet will get completed with the cloud. Cloud enables to move front office i.e sales & marketing of software as well.

Business model type change is most potent.

As the world moves sales process from selling to assisted buying, front office need not be where the customer stays but where it is the most efficient to set it up. For the customer, there is no difference whether the software he buys is built, marketed from Alabama (US) or Alwarpet (Chennai). This decimates existing business models.

Business model changes are second-order effects, most fail to notice it initially. Leaders that do and act before others emerge as winners and those that do not perish.

Satya Nadella’s rallying phrase to lead Microsoft into the future is “Mobile First, Cloud First”. However after becoming the CEO, he did not hesitate to write off the big $8 billion Nokia acquisition while continuing to do big investments in the direction of cloud based business. LinkedIn at $22billion was one of the biggest acquisition for Microsoft in its entire history. Mobile is a big tectonic shift but do not create a business model change. Cloud on the other hand does.

Adobe was a leader in the PC application business. In 2007 its Rich Internet Application strategy was lead by a heavy client server led thinking. However, as recession-hit consumers stopped upgrading to their apps in 2011, they had to burn their boats to shift to an entirely cloud-based business. Fast forward seven years today Adobe & Shantanu Narayen serve as the ideal role model of a public company CEO that can navigate a business model change of cloud-based business.

New markets, technology changes are critical tailwinds to be in tune with however it is one that is related to business models that change fortune.

Change has global consequences

The business model change enabled by the cloud is called SaaS (Software as a service). It was earlier called as ASP — Application Service Provider a term coined by research firm IDC that meant software that can be rented

The first such software application that can be rented was built by Jostein Eikeland of Telecomputing in 1995. Like the pivotal moment of Wright brother’s first flight, no one noticed it. Not for several years until 1998. It is only in 2003 with the founding of Salesforce that SaaS found its way in business lexicon.

“It takes 30 years for a new idea to seep into the culture.” is a famous quote from Futurist, Stanford Professor Paul Saffo.

23 years since start SaaS has come far along, farther than how many trend watcher would have estimated. In 2018 roughly about one-fourth of software revenue is SaaS. At its current growth rate, it won’t be a surprise within a decade all software revenue is dominated by SaaS.

The world would be truly flat when more than half of that SaaS is from India.

When a helium-powered flight sporting a tagline #failsforce circles around San Francisco’s tallest building of Salesforce and creates a crack in it, it is quite telling on ‘Happy Feet’ of SaaS dance will play out.

When Mario plays Soccer

Can he become a Super Mario?

Everything about the future is so clearly visible when looked through the rearview mirror.

Wish I knew what influenced outcomes for a tech startup founder in India.

When you look back decade-long to sketch the picture from 2007 till now, leaving out the frenzy of funding peaks & disappointment three distinct picture emerge.

In all cases, the rules of the games for Indian founder are not apparent. The game itself is very different.


First in how consumer technology businesses are built, second how enterprise business evolves. And the third in how technology led acquisition happens.

Software is eating an unevenly distributed world of India

Wiliam Gibson, the famous science-fiction author has said, “The future is already here, it’s just not evenly distributed”

When you spread technology on the world, the thinnest layer gets cornered in emerging markets like India. Combine that with what Andy Rachleff, founding investor of Benchmark Capital has noted “Software is eating the world” it is easy to make sense of consumer tech in India.

It turns out that

Google for India is Google. Not Guruji as Sequoia had thought.

Facebook for India is Facebook, Not Minglebox, Sequoia’s second such bet.

WhatsApp for India is WhatsApp. Not Hike as Airtel had thought.

Jury is still out on whether Amazon for India will be Amazon. (Looking at the skeletons that are tumbling out of Walmart India’s closet, the last word on this may be by Amazon)

Also, the Jury is still out on whether Ola will be Uber of India. Only time can tell.

In a winner takes all market, only one rule exists. Become biggest & largest at any cost. Not just in that geography but globally.

If you are not #1 then you don’t exist.

You can exist for 2 years, maybe 5 years but after a decade only the last man standing residues in the mind.

Once a category is taken, it is better to go after a new one, AgriTech is the flavor of today. Or invent a new one like the mobile mediated ‘Handyman Services’

In all this as Bill Gross, founder of Idea Labs says, timing matters more than anything else.

TIming is the difference between IndiaPlaza & Flipkart.

Selling to Assisted Buying

There is a bigger story than cursory ones on Freshdesk & Zoho reveal.

In 2009 all SaaS revenue as a % of Enterprise Software globally was very small, less than 3%. In 2018 SaaS revenue is more than one-fourth of total Enterprise Software revenue. Given the rate at which SaaS is growing, it will not be a surprise if 90% of revenue of all global Enterprise revenue turns SaaS in the next decade.

This is happening because of an important shift, shift in how software purchase process happen. It has moved from selling to assisted buying.

This shift has provided a big edge that Zoho & Freshdesk leverage. If the product trial experience is good enough, price not too large you can close sales remotely sitting in any part of the world.

Sales acquires a new meaning here, it is not being the door to door roaming water filter salesman, but the sales assistant inside Levi’s jean showroom helping customers try out a fitting and gently nudging them to make a purchase.

In this type of sales, you don’t always be closing, you land quickly and always be upselling. Here the product has to take the lead on triggering emotions and do the initial sell by itself.

Enterprise software never had a winner takes all behavior. Many companies in a category can co-exist sustainably. Several Indian startups have therefore mushroomed in global SaaS

Fear meets greed on a treasure hunt journey

Only a handful of startups grow like a rocket ship to become some of the largest companies in the world.

Majority of them walk down the path of an acquisition. Whether planned or forced this entire process looks like dark art.

Walmart tried partnering with Airtel and Tata group independently to gain entry India and both failed, It felt the heat in the US with Amazon and China market was shut to outsiders. Getting into India was crucial in defining the new phase of the company their stake in the $100b+ market of global online retail.

Billions were at stake for Flipkart, smart late-stage investors pushed the right emotional buttons at Walmart to extract a huge strategic multiple.

In a much smaller case, AthenaHealth from Boston was heading for mobile-first world, their gap in mobile product offering led them to pay $60m in cash to Praxify in Pune. Or most recently Nutanix’s repositioning in the market from hardware box to SaaS company in the public market led them to make a spate of acquisition including the acquisition of Bangalore based Minjar.

In the startup land, a key thing that is missed is what happens in the terrain outside is more important than what happens inside in the making of the startup’s engine.

When a large technology company goes after the same future that a small startup is heading, a lot of emotions get triggered amongst all the players.

A heady concoction of fear and greed inside the large company trigger conditions for the acquisition of the startup to unfold.

This is mostly serendipity and sometimes engineered

A challenge for Indian founders is that even when aligned on the future direction conversations of merger and acquisition don’t happen.

This is because startups don’t come on the radar of the global corporations often enough.

Which explains the lackluster M&A ecosystem in India.

Therefore, it is important to know the play

As is the game, so is the play.

If playing in a winner takes all market, must find a way to be the biggest & largest not in just a geography but in the entire world. And Time it right.

In enterprise software, it is about nurturing a product led, inside sales DNA not the suitcase hogging salesman tribe of the yesteryears.

Finally, for technology-first business, with an acquisition as a likely outcome, it is creating the condition for coming in the radar of a strategic.

Not getting the game being played will see the Mario do a lot of activity.

Which may err into a foul and not becoming a SuperMario.

My 10000 hours in M&A and Indian startups

Many months ago I had read this wonderful tweet by Kanyi Maqubela‏, a young VC from Colloborative fund on 10,000 hours of his being a VC and I thought to myself that is good way to document one’s learning.

Last 18 months my stint was as a Fellow-In-Residence (M&A) at iSPIRT (startup think tank), I spent my time on a big hairy audacious goal of leveling the M&A ratio of Indian startups to that of the Israeli ecosystem. Given the current market coordination failure of cross border M&A I had to challenge many assumptions underlying an investment banking model and run several different experiments. As part of it co-hosted two edition of StartupBridge India conference at Stanford in Dec 2016 & 2017. While I am yet to become an expert on the topic of M&A, like Kanyi here are my 10,000 hour reflections.

First and foremost, folks involved in M&A like to call it an art and they try to complicate it perhaps so that they can make a profit from that complexity. Personally, I found it to be quite straightforward.

“M&A is the story of when fear meets greed on a treasure hunt journey.”

Few things that make sense now did not before

Big corporation cannot innovate, startup rarely crack distribution and grow into a big corporation.

Every corporation big or small wants to innovate, in a large corporation market rewards it for being execution focused which means that it sheds innovation muscle. For it despite a best-articulated strategy of horizon planning (H1, H2 & H3) for innovation, acquisition is the most successful H3 strategy for innovation. Cisco proves the rule, and maybe Apple is an exception.

Why boring sounding companies also get acquired

Yesterday technology incumbent acquires a today technology startup. Today technology incumbent acquires tomorrow technology startup.

There is a supply and demand mismatch of startups between India and Silicon Valley.

Silicon Valley corporations wants to acquire the latest fads and trend, say a cutting edge AI & Machine learning startup now. Indian startups on the other are most prevalent in building business & workflow apps and must, therefore, look beyond the valley.

On who decides and influences

Corporate development folks are like the eyes and ears, and they should have seen and heard about the startup. It is the heart (VP Engineering or Product) and mind (SVP, GM, CEO) that makes the decision.

Experts may know but the novice may not

Companies are bought, they are not sold

Buying a product is different from buying a company; it is much closer to the sale of Art. Value is in the eyes of the buyer, and different buyer means different price. Therefore, the price is always discovered through an auction

It is not scale-invariant

The dynamics of < $1m, $1–10m, $10–25, $25–100m, >$100m are all completely different. Experience and lessons from one do not translate well to another.

Some startups may never sell

Yes, every company in the world is up for sale at the right price. But there are the fisherman type entrepreneurs who as a matter of principle will never sell. Does it bode well for them, only time will tell.

Big Corporates are from Mars and Startups are from Venus, it is a colossal failure of communication.

Corporate describe their product, their sector, and the world they see using a map, and their strategic leverage is winning in that map while startup founders focus inside to describe the guts on the glory of their product with microscopic detail.

It is a people business

Companies do not buy other companies; it is people that buy from other people. Past relationship and the new strong connection all contribute way more than anything else.

Product brand is different from a Company brand.

The two are conflated again because startups like to talk about microscopic details while strategics like to describe the map

Investors have an end game; it is useful for entrepreneurs to have one too.

Entrepreneurs only focus on next fund raise and never think about their end game, but it is in their best interest to do so. Every investor in the 4th year & 7th year of fund brings up a pivot question for a startup inside her portfolio. Investors have a cycle of 10 year by which time they have start returning the money, in the 4th year they want know if a startup is candidate for IPO or more suitable for M&A. In the 7th year again if the startup did not do an IPO, they want to decide if they should mentally write it off for their fund returns. Entrepreneurs unaware of this can get adversely affected.

Lead is to a customer what PSP (Potential Strategic Partner) is to an acquirer

What a lead is to a customer, a potential strategic partner is to an acquirer. For the former, sales lifecycle may take two months; the latter takes two years. Thus one has treat this as a complex sales process with such long lead cycles.

You won’t get a marriage proposal when you are a terminally ill cancer patient.

Startups start a strategic partnership or acquisition conversation way late in their journey, with just a few months away from the end of their runway. It is exactly the worst time to go out in the market due to both signaling as well as weak negotiation leverage reasons.

When you have an offer, two is one, and one is none.

Just like in a fundraising situation, when you have an offer, the value gets determined through a reverse auction process. Startups must have multiple offers in hand.

It ain’t done unless it ain’t done.

Managing own psychology during the process is very critical. A combination of euphoric possibilities and the uncertainty almost grinds execution to still not just for the founder but the entire team. It is very important to put rhythm of making progress. It is at the time of a deal that the velocity of growth should be historically highest for high valuation of the deal.

My own biggest surprises.

Word ‘Exit’ is a misnomer

It is not an exit, but an entry for scale or growth. A startup can do well on solving problem & product, aligned with a strategic, it can solve distribution.

Most Corp Devs become VC’s

Corporate Development career seems to be the least rewarded in finding mispriced optionality. No wonder most people seem unfulfilled and hence find VC as the next logical career option as that allows them to set the incentive structure right for themselves.

Big old Indian corporates do not have technology FOMO

Indian corporates are not threatened by technology, nor do they have FOMO. At least not yet. It may be quite some time before ‘Dabur’ might act like ‘Gillette’ and cough up a billion dollar to sweep a new business model.

Indian products are world class in engineering and product

Indian Startup Product and engineering in sectors they operate are world class; they beat Silicon Valley and their Israel counterparts. In the last few years, they are beginning to catch up on marketing, positioning and packaging themselves well.

Balancing between fighting fires and strategic thinking is universal to startups.

Coaching startups on the importance of packaging is hard. A universal trait applies to SV/Israel startup, nothing specific to India.

Bad exit problem is poor entry problem

My biggest Aha has been that a bad exit problem is not just a structural issue but also a manifestation of bad entry, i.e., initial venture allocation thesis.

Things no one will talk about explicitly.


Importance and significance of geography in the discovery of strategic conversation.

Startups, investors have grossly underinvested in that. One of the biggest differences between Israel and India startups is the investment in Israel<>US bridge including efforts by the government. StartupBridgeIndia is some headway doing once a year match making, Israeli startups do this every month

It is indeed questionable that 2007 vintage funds from India have 20% IRR at the end of 2018. There are not enough M&A or no supportive public market.

Raising more funds reduce optionality for startups, and it removes meaningful exits for founders

A series A investor would typically expect 10X of the post funded valuation for an acquisition deal to be attractive, for series B it is 4–7x, for series C it is 2–4x.

Venture capitalism is anti-fragile, a VC may be not.

I am convinced that structurally, the system will take care of itself. As NN Taleb says Entrepreneurship is anti-fragile, but entrepreneurs are fragile. Similarly, venture capital is anti-fragile, but individual investors are fragile. It is not surprising that no Indian venture investor is on the global Midas List.

Most frustrating parts

Most startups handle inbound poorly, they underwhelm or overprice themselves leading to wasted cycles for corporates & startups and everyone involved. First-time folks initially stumble but learn after 3–4 failed discussions.

In every deal conversation there is an awkward situation where the board & investors incentive are aligned with the founder and the team, it is the founder who must step in to make the right decision for himself and the investors.

Indian regulation is most poorly optimized for exits and acquisition. Every founder may hire top lawyer their money can get, and it may still not help.

One must find a deal buddy, a recently exited entrepreneur who can advise on dealing with misaligned incentives and how a recent regulation issues must be resolved etc.

Finally four things any startup must think about

if M&A ever crosses their mind.


  • What is the map in which the startup & corporate is operating?
  • What is the narrative of the startup and the unique competitive leverage it possesses?
  • What Air Game will help the startup come on the radar of the Corporate/ Strategic?
  • Ground game — Who in the network can broker trust to kick off an initial conversation between strategics and startups to explore partnerships?

A useful book to read further is Magic Box Paradigm, a framework for startup acquisition

CoCreation — important keyword

The most critical tool that an entrepreneur has in his arsenal to change the trajectory and valuation of any deal is co-creation, yet it is poorly employed and understood.

After a startup has built a stable product via a well-assembled team, it is useful to invest in the strategic partnership.

In addition to the book linked here is a handy deck I created for startups to help think through the process of activating strategic partners

https://www.slideshare.net/rajan/activating-potential-strategic-partnerships

We wanted ‘Google from India’ instead we got …

I was meeting a classmate from college after many years who is now a senior engineer at the Mountainview office of Google. We were toasting his 10 year anniversary at Google and our conversation shifted to Indian startups.

Pretty soon his exasperated question to me was – “Where are the big startups that we have been talking about from India since ages. Where is India’s own Google or Facebook that we have been dreaming about ?”

“2007 to 2017 is good 10 year window to look at this. There has been one Flipkart which has grown exponentially but even that is yet to create liquidity for investors and thereafter pretty much everyone else are valuation fluffiness. For someone joining as an engineer at Google or Facebook in 2007 (10 years ago) was the wise career move to make” he quipped.


I said “ Peter Thiel asked simillarly of Silicon Valley for flying cars but got Twitter instead ” and that twitter has still helped overthrow governments potentially far more impactful then the imagined flying cars.

It is hard to predict when non linear change takes hold, one should not predict but be prepared for the inflection by having a view when it might come around. 4 years in startup & 5 years in a large corporate in trying to innovate for India & from India market has led me to a few observations that I shared with my friend.

I said “think of it as CAGROMOTA — CAtegroy, GROwth, MOat, TAm”

CAtegories of new market


Indeed very few new market categories got created in the last 10 years, i.e 2007–2017.

  • Broadly speaking Internet Commerce for India (Naukri, Makemytrip, Flipkart, Zomato, Matrimony, Ola, Naukri etc)
  • And Software Products for global market (Druva, Eka Software, Zoho, Freshworks, BrowserStack, Fusioncharts, Wingify & others)

Few categories that looked promising eventually were not — Digital & Mobile Payments, India focussed games, Social media, Mobile VAS, Portals, OnlineNews. There never was sufficient demand in digital games in India to make it an Industry that can compete with Bollywood. Confusion on who will regulate killed the mobile payments market in 2008 (a similar fate is looming for Fintech in 2017). Facebook for India is Facebook and not Minglebox.

Even there winning in an existing market category involves a different playbook than creating a new one (see market map). When creating a new category it is almost like a designing a new game, getting it included into olympics and playing to emerge a winner. In fact new market categories can’t be copied or created, they emerge.They emerge due to a combination of many reasons. A a shift in user behavior and demand that creates a strong pull in the market, combined with straight forward regulation environment for operation and global comparative advantage (i.e something unique to India)

In playing within an existing category one has to train for the unknown game and find unique strengths.

“Is it better to get Kabaddi added to Olympics or train to win in Iceskating”

Key to look for here is not a copy of silicon valley success, Google from India will not look like Google at all.

GROwth Rate

Technology Industry is expected to grow at 20%. Lets compare some key data in India.


Macro growth rate for India is stellar compared to any (other than China).


Anyone invested in the Indian stock market would have made 2X more compared to the US.


Some industry category had grown faster than expected baseline whilst others are yet to. It is hardly a surprise why few hedge funds have poured billions and chasing the winner in Internet commerce category.


Public market IRR in India comparable to private market IRR in US

Overall macro growth is great, some categories are amenable to non linear growth and some don’t , in some inflection point are yet to hit.

[graph data is sourced from various place, collated here]

MOat

Staying a market leader is as important as becoming one. Different business, market yield to different kind of moats. In India economies of scale through owning proprietary infrastructure & distribution has been a key source of advantage. Iterating business at the speed of the regulator is another one. [Agreed such fast change in regulation has also vaporized many moats]


Top 5 brands of India in 2007 are not the top brands of 2017, hardly any business in India gets value multiple through network effects. Brand stickiness, network effects have not been amongst the strong moats. Raising more capital than competitors has looked to be a a short term advantage but claws future options. Outdoing others in fund raising is hardly going to help preserve a business. Anyone doing so may not be a likely candidate (the race between Amazon and Flipkart seems to be illustrating that so far. )

TAm — Total Addressable Market

At 49 millions small business alongside 50 million Urban Indians and 250–350 India2 & India3 consumer market size, the TAM argument never fails to inspire. However of all the above discussed TAM seems to be the biggest source of disillusionment.

It is not the size of population but is when the market becomes serviceable it is useful to consider. That happens when an underlying infrastructure and access is available (mobile, internet, roads, payments). To repeat number of people is not equal to TAM, the infrastructure available to serve people with any service is what should be used to calculate TAM. 2009 was the turning point of pre flipkart era and post flipkart era while the number of people stayed the simillar.


Underlying infrastructure that makes a population size serviceable is a more appropriate lens for TAM.

In Nutshell

There is still a great macro, nice category specific growth rates, very different sources of moat and need for a better lens for TAM.

“It is the India thesis not the India theme”

A theme led approach will feel like moving in a blindfolded game. It will be initially exciting and if you did not get lucky soon frustrating later on. While with a thesis led approach it would be like sensing the terrain with a blind walking stick.

Instead of excitement and despair in broad theme based outlook having a unique view such as a thesis around CAGROMOTA may help find the Google that we are looking for.

Story of three Indian product entrepreneurs on a beach

[posted on 8 Jan 2017, migrated from ubedge.com]

I get to meet and hangout with many product entrepreneurs in India across a wide variety of spectrum (wannabe, early stage all the way up to category leader). I have been one and have crossed a few early stages myself, based on my experience I see 3 type of founders

The Surfer, Voyager & Fisherman

The Surfer

Surfer is someone who is riding a tide, has unique skills, most often flamboyant but certainly a great story teller. Some may call him lucky for the tide is responsible for his greatness and he may have been only there at the right place and time.

He however believes that he can read the wind & the wave and that he has his board in so much control that can swerve smoothly against the biggest tide.

Investors could be referred to as bystanders on the beach making bets on surf board, tide or surfer himself to win.

Press makes a celebrity of him for it becomes a sport worth paying attention to for the adrenaline kick that it can produce.

They however have the same fate that movie industry mete to its heros & heroines, i.e post their short lived hotness they are relegated to the archives of history.

Many yesteryear consumer internet and e-commerce stalwarts are good examples of this. We are yet to find our Rockstar/Shehenshah/Thalaiva heroes that are timeless in this category.

Voyager

Voyager is like the columbus, an italian in spain, a master storyteller as well. He is going for the glory and riches but also believes and leverages his experience of past expedition by a previous voyage.

He sets sail to find India but discovers America. He also finds other backers to to chase the dream.

After the Surfers, Voyager becomes a great story to write about so they get their share of press as well.

Good examples are engineers, product managers from other successful big product companies like Yahoo, Veritas, Symantec, Google, Microsoft (MNCs) & Zoho, Tally (Indian Companies) etc.

Fisherman

He is someone who also faces the vagaries of the sea but goes to catch fish. His work is not sexy and it may stink but feeds him and so many others. He may choose to fish where nobody is fishing or have to compete and jostle with other fishermen going after the same fish. His journey is a long one.

Story of a fisherman comes only when stories of other two types have been repeated to boredom. Many call this as the bootstrapped entrepreneur.

They are different but have few things in common. Each involves skills but given the odds has self doubt. Some play the game for 3–4 years, other spend decades.

Yet the

  • Surfer does not create the tide
  • Voyager can only envision his prized destination in a rear view mirror.
  • Fisher man does not create the fish.

Many first time entrepreneurs are confused on what persona they would like to choose or what choices are even available to them. As the startup ecosystem ebbs through greed and fear the god that founder look up to changes, in times of boom the surfer is the god, in times of gloom fisherman is the god. Also when one type is treated god the other type is berated.

Wish there was more understanding amongst them and about them to reduce the pain they go through. For contribution they do to society through society they all deserve salute.

Liquidity of Indian startups compared to US & Israel

[original post 3 Apr 2017, migrated from Ubedge.com]

Recently was having a conversation with a Private Equity friend and was trying to explain the challenge that has captured my imagination and full attention, ie exits for software product startups in India. He felt that the data about the exit structural deficit that I was trying to point out felt too bearish to be true. My counter argument was that my intent is not to sound bearish but instead be a realist, after all acknowledgement of a problem is first step to solving one. Post that conversation I thought should put this data out publicly so that through crowdsourcing can at the very least improve my understanding if it is off by wide margins.

VC vs Exit for US, Israel & India


VC vs Exit, deep dive on India


VC Software Products in India (in $m)


Exit (i.e M&A) Software Product in India(in $m)


Source iSPIRT M&A Report https://www.slideshare.net/ProductNation/india-technology-product-ma-industry-monitor-an-ispirt-signalhill-report?ref=http://startupbridgeindia.com/

VC vs Exit, deep dive on Israel


VC Software Product in Israel (in $m)


Exit (i.e M&A) Software Product in Israel (in $m)


Source IVC Report, http://www.ivc-online.com/Portals/0/RC/Survey/IVC_Q4-16%20Capital%20Raising_Survey-Final.pdf

Above data indicates that Israel was able to generate 1.8X of the money that went in while in India in the same period only 0.2X. The right comparison is exits from 2012–2016 with VC investments from 2005–2009, iSPIRT report does that comparison but results are even less encouraging.

Exits follow a power law, however in India it seems like a power law’s power law.

Not only is the volume of exit is challenge but also the structure, any ecosystem exits follow a typical power law. For every $1 bn exit, there are ten $100m deal, for every $100m there are hundred $10m deals.

Top 7 deals in India account for ~$2.5b of the $4b in exit. About 250 of 391 deals total a deal volume of $97m which means the size of an acqui hire i.e in long tail is about 0.5m, which is inadequate even for an angel investor. Lack of many $10–100m deal means there is a missing middle of the long tail.


Source iSPIRT M&A Report https://www.slideshare.net/ProductNation/india-technology-product-ma-industry-monitor-an-ispirt-signalhill-report?ref=http://startupbridgeindia.com/

Choosing right market can save upto 18 months of runway

[original post 20 Sep 2016, migrated from ubedge.com]

Starting point of a startup is an idea and it goes through a journey of product releases and pivots to reach its product market fit and further scale. Source of this idea is a brainstorming session or hot flavor of the season (FoodTech, Fintech etc). Sometimes it comes from past work experience of the founder. In rare cases it is rooted in an unsolved customer pain point.

For Indian software product startups when looked at through the lens of market segments a pattern seems to emerge that is hard to ignore.

Market Map

A 2 X 3 matrix


Parsing the market map

  1. Before 2009 India consumer was not a major open digital market. There were few online ticketing sites, many attempts in the e-commerce space that did not grow out in a big way. Telecom VAS a closed market existed only because of regulation gap around strong consumer privacy laws . In 2009 something happened along with the birth of Flipkart where consumers changed behavior. They started believing that they could trust doing online transactions and swiped their cards. It would be hard to attribute a causal reason of whether it was ‘Cash on Delivery’, critical mass of people on internet or myriad of other reasons. It is suffice to say that market behavior changed since then. Today there are countless new ideas being tried out because this market has opened up.
  2. India SMB market is yet to witness its Flipkart moment. I have been a close observer on two industry (read multiple organizations collaborating efforts) attempts to wrench open this and closely involved in my last role in leading multiple experiment in creating this market. While I am very bullish about this market but the fact of the matter is that this market is yet to open up. Just like how consumers shifted mindset about transacting online, small business need to change their buying ‘tailored shirt’ mindset to buying ‘branded shirt’ mindset for this market to explode. Open API based GST system in India may cause to be a major reason of change here.
  3. If India consumer has already exploded and India SMB is around the corner, India Enterprise is yet to germinate. There are handful few startups that have been able to sell to Indian CIO, they are exceptions than the rule.
  4. In the Global consumer market there is hardly any precedence of a startup from India i.e. equal to a Facebook or Snapchat. Not that this may not happen, odds are low. This is because it is very hard to understand global culture nuance when based in India. Risk capital available to try out radical business models are not present. There are handful instances where this is being attempted such as Zomato, Hike but the jury is still out.
  5. Indian startups are rocking the Global SMB market, strategic inflection point that has made this possible is that small business are searching for solution to their problems online. When solution is possible to be delivered online through Saas, the purchase consideration is based on the experience of solution (try and buy) and not based on the trusting the salesman who delivers the software CD. Given this dynamic it does not matter if the solution was built in Alabama or Alwarpet in Chennai. Comparative cost advantage of doing desk based selling from India makes it possible for price points unimaginable in other parts of the world . This is in turn opens many low end markets that have been earlier priced out. Companies that are trend setter here are Zoho, Freshdesk, Wingify, KissFlow, Kayako, ChargeBee, Hotelogix and many others.
  6. There is also good precedence of traction for the Global Enterprise with more than handful examples. The pattern here has been to prove product with pilot customers in India and scale it faster with global market selling. This involves migration of feet on street sales team globally, iflex has been the Zoho equivalent grand daddy to set the precedence here but recent examples are Druva, Eka and newer folks like Innovaccer, Unbxd are following suit.
  7. There are startup ideas that are tech components and may sell into a value chain into one of these market and not directly, for example a developer toolchain. The effect of traction in the market has same implication for them.
  8. The above map is not going to be static map and is bound to change. Certainly past is not an indicator of future however history of technology has taught that path dependency plays a huge role in shaping of markets. Thus realization of this map has allowed few startups have change their gear in reaching product — market fit or scale. Also this map helps understand that playbook for winning a market is a different than a playbook for creating a market.

To quote Marc Andreessen

When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.

What are the market maps that you are seeing ?

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