Diwali cleaning for the startup ecosystem
A belated Happy Diwali and Happy New Year to everyone reading this!
Since each of us rigorously cleans our houses and offices for Diwali, I thought of a few things that I would like to see cleansed from the Indian startup ecosystem: investment bankers, ‘advisors’ and dumb ideas.
- FEE, fi, fo, fum. I smell the blood of an entrepreneur.
If an entrepreneur hires an investment banker at the seed stage, that’s a red flag. First, is the idea THAT mundane or the entrepreneur’s communication skills so poor that she cannot directly convince investors? Second, how much of the funding is the investment banker pocketing? One of the largest side effects of getting an investment banker involved at the seed stage is the founders’ inflated expectation of the valuation — the higher the valuation, the greater the I-banker’s fee. We regularly receive deals from investment banks where product-market fit hasn’t been established. We’ve also received deals from an investment bank where the team comprises 20-something year olds with no experience. By partnering with such investment banks, the gullible entrepreneur doesn’t realize that he/she is about to get milked.
2. It is a tale. Told by an idiot, full of sound and fury. Signifying nothing.
It is so easy to become an influencer on social media — crank out a few life lessons and boost your post for maximum audience reach. Those who have not personally invested their money in startups are spewing advice and touting themselves as mentors. As a novice entrepreneur, how do you distinguish the faff from quality advice? While Peter Thiel’s fellowship promotes dropouts to pursue entrepreneurship, what advice do ‘dropouts’ expect to get on a reality TV show that is looking to boost TRPs (and not the startup)?
3. Chalo startup startup khelte hai.
We receive ~700–1,000 deals for evaluation each year, but only invest in 10–15. Many of the startups we evaluate border on the ludicrous. I came across a startup that was selling vests/ undershirts(yes, ganjis) with zipper pockets, which was looking to raise venture capital. Did I mention they had a patent for man’s greatest invention to fight sweat? Some ideas sound SO great, like beautiful sandcastles in the air; until we realize that we are being sold just that — an idea. I met a software enthusiast who was planning to start a hedge fund, but couldn’t recall the name of the person he was going to hire as a hedge fund manager. How can you trust someone like this with your money? We appreciate entrepreneurs that have put in thought, research and their own money to startup — it shows skin in the game. However, before you start up, ask yourself whether you are doing this for the glamour of securing funding or to build a sustainable business.
I hope that by Diwali 2018, we will see some maturity in the ecosystem.