Idea – Rocket Science + Ears = Good Start-Up

|August 2, 2016 0
And yes, subtract big-headed-ness too, advises a lady VC

Pratima H

BANGALORE, INDIA: Who could have thought in the post-Great Depression days in the USA that the likes of Digital Equipment Corporation (DEC) and wealth from Rockefellers, Wallenbergs, Vanderbilts and Warburgs would someday lead to a full-blossomed industry in itself – In countries like India and based on something that’s all about ‘betting on the right idea’!

This betting, mind you, is far stretched from gambling or shopping or jaywalking. The stakes, the involvement and the outcomes are pretty much on the top-storey of a skyscraper here. No matter what phase the Venture Capital (VC) industry is perched on, sooner or later, it all spins back to the core idea again.

Numbers have shown it and numbers continue to show it. If VC climbed up as high a $63.3 billion in the US in 2015, and showed impressive buckets like the $9 billion in India (with as many as eight Indian startups donning the unicorn hat with a valuation of over $1 billion dollars), or the average deal size of $21 million; there were wisps of a change close on the heels of the tide.

If you thought that all is bound northwards when the number of deals were jumping from 185 in 2005 to 1,047 in 2015; there was something inevitable lurking beneath the effervescence. Today, start-ups are being put in a spot with expectations of watching the expansion lever closely, meeting performance milestones, and finally aligning actual business growth rates with sky-rocketing valuations.

The first three months of this year have registered a palpable dip (about 35 per cent) in VC investments and even though some industry people call this the ‘new normal’, there are new questions peeping out about Series C transactions suffering most of the fractures in this fall; the bubble running its course and the survival of real idea amidst the ‘make-an-app-be-a-start-up’ swarms.

Zooming back to an overall topography, there are also debates flurrying about on Angel rounds, simplified documentation and the unusual dilemma of too much capital.

When we speak to Bharati Jacob, co-founder, Seedfund; she distills her experience and candour of 27 years in venture investing, marketing and financial services across Seedfund, Infinity Ventures and Lazard India, to untangle these and other issues that are hovering around the industry.

Having been integral to early-stage investment stories like Indiagames (sold to tomonline) and India Bulls (listing in India) earlier and later on as a lead partner in investments like Redbus (sold to Nasper, South Africa), Edusports, Vaatsalya, Jeeves Consumer services, Sportskeeda, Axisrooms (organizing hotel inventory) etc., she brings to the table her own formula for sifting ideas that turn her nose on.

Here’s what she has been observing and noting, and more importantly, what makes ‘adaptability’ one of the most singular aspects differentiating start-ups that grow from the ones that merely start.

How does the space look to you today? Anything that the last one or two years have really shaken up? Any concerns?

The sheer number of entrepreneurs in India has been rising and it has gone on to become a viable career option. The canvas has grown wider in terms of quality of ideas and thought-process. We have also seen some successful exits. I would say the whole ecosystem is growing in a positive manner. India, I guess, has to be about volume and not value. The money-racing that apes Silicon Valley is not a good streak.

What lies beneath all those hot headlines that are full of funding numbers in our valley?

I would say that a lot of them are more than just juicy numbers. So many of them are passionate and really committed. They are beyond the headlines.

But does it bother VCs when we see some entrepreneurs confusing technology with a business model? Just because an app can be made for anything today, should not mean that it’s an idea worth betting on?

Yes, that’s a concern. We often forget that behind anything tech-hot, there’s a lot of back-end that matters. Making an app is definitely not equivalent to making a company. That’s where mentors come in and inject the much-need sanity into this space.

We do not need to blindly ape what works in the US: Bharati Jacob

We do not need to blindly ape what works in the US: Bharati Jacob

What would catch your nose when looking for a good idea? What’s your evaluation recipe?

The way we evaluate depends a lot on interactions and conversations – interestingly. Some markets are easy to understand and some are not but the passion and hold that the idea exudes cannot be mistaken. One has to look for a team’s perseverance and passion. That’s why we seek long-term goals and have conversations to understand them better. If they are good at listening to the market, they are already different. There is no rocket science in creating a company. Diligence still works and so does the ability to grasp what’s not working right and correcting oneself in time.

So adaptation works?

Yes, you should believe in your idea but do not be big-headed about it. If I could advise something it would be this – Change as the market changes or wants you to. Do not be too engrossed with your solution. Be engrossed with solving the problem out there.

Can VCs in an Angel mode sustain as the new trend?

Yes, new trends are emerging. Specially last year when Series A and B investments were dwindling and there was an inclination for more angel investors. At each stage, the need and evaluation are different.

Any thoughts on Series Seed Documents, the open source legal project that attempts to simplify VC documentation and which is getting encouragement from the likes of Marc Andreessen?

I won’t have too much to comment here. I don’t think seed funding is too complicated in India. We need to follow certain procedures and fiduciary responsibilities which reflect in documentation. But it’s not too complex.

Are start-ups prone to face an unusual problem- that of too much capital or inadequate risk assessment or diligence? A new paradox of sorts?

Yes and No. The paucity of capital has turned into excess of capital in many spots and that can work for some and not for others. There are a lot of people willing to take a chance. More capital also encourages more good ideas and entrepreneurs. If this ends up as a chase of me-too ideas, then it’s worrisome. Everything that works in the US may not work in India. We have to look at the uniqueness of customers here which reflects in their problems, and should hence, reflect in the solutions too.

Do you find some trends hot enough to bet on for future? Like IoT or AI?

Yes, IoT, bots etc. are hot but we don’t bet on segments but on solutions to problems. It could therefore be a sector that does not even exist today. But it could be an idea worth the thought.

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