sorry folks. have i really been that busy? perhaps, but inexcusable nonetheless. i’m going to make it a point to try and blog at least twice a week. few followers i may have, but they humble me with requests to stay regular. i shall try my best.
so, let’s start a quick discussion on the topic – vcs in india – what are they really looking for in early-stage startups? allow me to hypothesize: vcs will invest in businesses where the nodes from company to cash are few. i can elucidate quickly by giving stark examples.
online travel: user comes to yetanotheronlinetravelportal.com, finds information, clicks on a button, company makes money then and there. a vc will fund that – and i would venture to guess that vcs will fund another 1-2 online travel players this year.
ad networks: publishers (consumer facing websites like ours) come to nothingnewadnetwork.com with nothing to lose, and thus offer their inventory to them and any other network claiming to make publishers big bucks! advertisers come to ad networks looking to advertise, and pay the networks to place their ads across their network of publishers. ad network makes money then and there. vc likes, vc drools…
using this hypothesis, i would bet that even below-average-to-average e-commerce startups (again, user clicks, company makes money) will get funded this year.
no knock on these particular verticals whatsoever – we all know that online travel, ad networks, e-commerce, etc. are much needed and extremely convenient ways of transacting and doing business. the market is evolving in india, including early-stage capital deployment. vcs will have different definitions of risk, and varying risk appetites, but showing them a clear, unobstructed, non-convoluted path to money is a sure-fire way of increasing your chances of getting funded.
your thoughts?
“a clear, unobstructed, non-convoluted path to money” sounds like a damn good bet to me… you find this surprising?
that’s just the point. it sounds damn good to me too – and i am not an informed, intelligent, risk-analyzing investor – i’m a normal dude. i would expect vcs to be in the business of ’stretching’, and some do – but not most. so yes, i do find this somewhat surprising.
I agree who wouldn’t give money to someone who’s making money!
What baffles me is the number of companies who get funded even without a revenue model. There are many of these “web 2.0″ companies across the globe with billions of page views but they can’t make a dollar and they cant get acquired…so what do they do? Raise more money…I dont get it.
krishna, i think what we’re witnessing (and this is more prevalent in the west and in more mature internet markets like china) is the very basic vc theory of placing 10 bets, knowing that perhaps only 1 will work. there are some very public examples, a la youtube, of businesses that had solved the traction problem, but had not attacked the monetization issue yet. twitter is the flavour of this year with respect to similar dynamics – insane traction and buzz, a seemingly great paper valuation, but not revenue-generating.
Let me ask this: what would you invest in? An article in the WSJ cited lack of skilled labor as an obstacle to india’s growth… If I were an investor in India, I would fund the basics – construction, infrastructure, vocational institutions, etc. That’s where the large near-term growth is. If companies like Yelp aren’t nearing profitability in mature markets like the US, I can understand why investors would shun similar businesses in fledgling markets like India & China.
here is what i think – if i were publicizing myself to be a true risk-taking early stage venture capital company, i would raise a small amount of money – $10MM (small for a fund). i would invest in incredibly early/idea-stage startups, but i would invest it in the smartest guys and the best/most talented teams i could find (subjective, of course). i would be highly industry agnostic, but invest in businesses that i understand. i would invest somewhere in the neighborhood of $1MM per team/idea i would fund. that would be my strategy.
yelp may or may not be nearing profitability today, but they have a cult following and have created a sub-culture of internet users, at least in the bay area. if someone thinks that is worth something, they will ultimately extract value from that, either through revenues or through an acquiror.
if i was a VC, i would probably fund startups that were doing the spadework in a niche space for the big guys.
eg: myspace got acquired by news corp
any big offline media company looking to enhance their portfolio to the net would consider buying myspace as they suddenly get a toehold into the “new media” generation.
news corp can now go to their advertisers and say, hey we can run your campaign on tv as well as on the net now.
thats a big deal.