A #Throwback Open Letter to Investors
Preface: I had some time between jobs to think about this and these were some theories I formed in my little Wantrepreneur head. Also, this is outdated because it was written to be published and never did (and only talks about Q1 of 2016).
“Dear Investor Sahab,
I think I understand.
Well, I am trying to understand.
First, let us do some math!
India has more than 19,000 technology-enabled startups so far. We had about 220 “active” investors in 2014 who jumped up to 490 by 2015 (over a 150% hike; without a doubt, the largest seen in the history of the Indian startup scene). Within 2015 8 startups made it into the “Unicorn” club (which as we know are folks with more than a Billion dollars in their kitty).
In 2015 India also saw 9 billion dollars worth of funding which was more than the post-recession phase (the second worst recession since the post-war Great Depression of the 1930s) more than 2010 up until 2014 put together! India now is the third largest entrepreneurial hub in the world, third year running!
Which makes me wonder:
Are Entrepreneurs from Mars and Investors from Venus?
We (the non-investors of any kind) will always wonder what goes on in the mind of an Investor.
Though, the truth remains that Investors need Entrepreneurs just as much as Entrepreneurs need funding. This complex relationship is definitely as underrated as it gets. Major concerns Entrepreneurs face once an Investor is on board is their constant meddling, loaded conversations across the boardroom table, several “I told you so’s” much like a real-life relationship.
The truth is investors need their entrepreneurs to be successful and more often than not get rather aggressive about it.
Don’t burst my Bubble?
With a 150%+ increase in “active” Angel Investors in just 2015, a large sense of positive animal spirits in Keynesian terms was noticed in India. Angel’s saw larger returns to their many failed investments of the past, other high worth individuals saw investment opportunity and put on the halo too.
In 2016 the inertia from 2015 (with startups getting funded every 8 hours) may have continued briefly with Angels. However, the fall was harsh and deep.
By March 2016 exit-starved investors started to put up a “Perform or Perish” sign outside their doors (the pump value was $1.15 billion which was 24% lower than the quarter before).
Was this a bubble burst? One can’t tell.
The Startups that made it #FTW was oddly legacy stamped startups like BigBasket, Shopclues, CarTrade, Lenskart and Snapdeal. The Tracxn list went on to say, Q2 saw (calls for another blog post don’t you think?)
many macroeconomic factors playing a part like the Valley investments slowing down for a while now, losses caused by several enthu-cutlet startups in bulk, super blurry exits or just an overall slowdown in China?
Let’s do that Wave!
At every point in time during the “Big entrepreneurial revolution” in India we have noticed a large accumulation of similar or “copycat startups” which as the name suggests are doing something so similar to each other that they have been referred to as the “Amazon” of India, the “Uber” of India or the “Airbnb” of India as in fact complements.
Theory suggests that investors in India prefer proven models. Entrepreneurs always complain about being asked “who is your comparable globally?” during a pitch, causing investors to walk away when told you are the first of your kind. They want your solution to be exactly the SAME but hyper localised.
Creative Destruction or not, has innovation been replaced by money making jugaad? Making Schumpeter turn in his grave repeatedly. Have we defeated the very basis of Entrepreneurship all together in our attempt to be spoken about in the press and profitable?. Where small and big startups are following in the steps of the other’s creative ideas even when it comes to marketing campaigns and not proactive enough to think of one of their own.
What is in it for the customer/user? Are investors starting to use their many startups just as chess pieces on a checkerboard hoping one of them would be king or queen and recover many tiny lost investments with one checkmate exit/acquisition etc.?
Lay it on the line
Twitter fires its entire Zipdial engineering team, Flipkart fires 800 employees, TaxiForSure shuts down within the Ola outfit and the year is not over yet! Large severance package or not this can be pretty traumatic. Riddle me this? What is riskier today to start your own startup or to work in one. Employees skilled enough to meet the high bar of hiring for most of the aforementioned startups are out of jobs.
Kundalini (Portfolio) Matching
I have always wondered why investors in India follow a trend with their investment portfolios. Is BigBasket to Grofers, Roposo to Wooplr, Furlenco to Rentomojo, ShopClues to Fashionara, Swiggy to Deliveroo what famous, successful funds and let’s pull a Harry Potter here and say “He who should not be named” to each other?
Take That ‘Exit’
No doubt that it is an Entrepreneurial Circus out there for almost half a decade now! This year has seen seven companies listed on stock exchanges, QuickHeal, TeamLease and Infibeam in the first quarter itself. While globally LinkedIn gets taken over by Microsoft, India sees Jabong, Hiree, TinyOwl, CaratLane, GoJavas, FabFurnish, CommonFloor get adopted by Quikr, Myntra, Snapdeal, Runnr etc.
Investors and Entrepreneurs often complain about “Gaps in Understanding”. Many Entrepreneurs often wish VC’s had been entrepreneurs before just because they assume VC’s do not get or relate to what they are saying. However, VC’s feel exactly the same way, they are afraid Entrepreneurs sometimes just miss the bigger picture and do not realise their risk is higher than the Entrepreneur’s. However, the best investors are/have been entrepreneurs in the past.
Maybe, because It takes one to know one?
Another interesting twist is the new set of SEBI rules on exits, the period of profitability, disclosure norms, exit policy for VC’s and Angels, minimum locking period of founders etc. will also impact exits in a smoother way.
“It is important that startups, too, see ‘exit’, which would take the form of these companies being listed, allowing the original private investors to cash in on the initial investment, and plough it back into other similar ventures” stated the Economic Survey of 2015–16.
Maybe we should stop treating “exits” as a divorce paper signed when a couple starts dating and just as an exit to get to a destination on the highway. How realistic is that though?
Looking at the Anti-Portfolio of Bessemer it is clear exits are potential game changers for any rookie founder with big dreams.
So, what’s the scene? -
Clearly, it has been an interesting year for the startup space in India. Yesterday’s Entrepre-stud is no more as cool and trendy. We could look at this positively and say 2016 has been a clean up rather than a slowdown. Then there is StartUp India (a viral hashtag of sorts) that will and has? facilitated young entrepreneurs to shun complaining aunties and embrace but again another risk post engineering college and take the plunge!
Simultaneously, startup incubators and co-working spaces have ramped up one of the four major factors of production, Land (which in millennial economics comprises of wifi and a desk, maybe even some free coffee). These hubs are said to have grown from 80 in 2014 to 110 in 2015 and are up by another 40% in cities outside of Bengaluru, Delhi and Mumbai alone, this year.
Personally, as a young 20-something non-techie, I have been advised to back away from the startup scene for now. That leaves me in such a heart vs. brain (a.k.a wallet) situation.
With Love & Paralysing Fear,
(Every young Indian Wantrepreneur that has ever existed!)
P.S — I promise this has been proofread by a real-life investor in my networks.”