Fighting Fraud Thru a Cashless Society

Photo by Flickr user Weldon Kennedy

Emerging markets often leapfrog technologies. For much of Independent India, it was very difficult to get a fixed-line phone. They were expensive and the wait  could be as long as five years. In the 1990’s came the mobile revolution and people across India were able to get a communication device for a relatively small amount of money and they could take the device with them everywhere. Most importantly, they didn’t have to wait years, but only a few hours for the phone to start working.

When it comes to the adoption of non-cash payments, India is in a similar position. Cash has been the preferred source of making and receiving payments since Independence in 1947. Credit cards still have very low penetration across the country. While debit cards have slightly more penetration, mobile wallets (a method of storing credit/debit cards and cash on a mobile phone) have seen quick and widespread adoption. By some estimates, there were 19.9 million credit cards across India in 2014. PayTM and MobiKwik, two of the largest mobile wallet providers in the country, claim to have 20 and 12 million active users respectively.  It’s pretty evident that India is fertile ground for cashless transactions, but also has plenty of room to grow.

With the recent developments in government, essential steps for promoting the use of electronic payments, including withdrawal of surcharges, service charges, convenience fees on cards and digital payments are soon to be rolled out across the country. While the adoption rate of mobile, card-based, and online transactions is currently lower than many other countries, payments via online platforms still accounted for 14 percent of all spending in India last year.

India, with most other emerging markets, faces the challenge of regulating transactions and removing illegal “black money” from the system. A recent study has India ranked fourth in the world for illicit money outflows with an astounding $51 billion leaving the country per year between 2004-2013 alone. Yesterday, Prime Minister Modi took a bold step in curbing the use of “black money” by changing the status of the ₹ 500 and ₹ 1,000 notes as no longer legal tender. This could have short-term implications on GDP since cash purchases still made up a large chunk of the Indian economy. The Indian government will eventually introduce new notes in addition to the ₹ 2,000 that was just launched.

These changes are going to create a significant amount of intended strain on the country’s parallel “black” economy but it’s a blessing for Indian startups and new age, digital first, financial services solutions. It also helps advance the government’s policy of financial inclusion by bringing the unbanked into the financial system.

The Solution to the Black Economy: Going Cashless

Cashless transactions with the right security measures in place would remove customer reliance on underground markets (also known as the “parallel economy”). At the moment, high transaction fees, time to complete a transaction and potential security problems are hindering the popularity of cashless transactions, but legislative progress on both fronts does suggest a positive outlook moving forward.

Enabling people to make inexpensive and easy payments using a phone or a fingerprint is convenient both for buyers and sellers and offers tighter security. This ultimately limits fraud and decreases the circulation of capital in the shadow economy, which, in turn, will lead to more tax revenue.

Shining a light on the parallel economy is something that has challenged governments all over the world for ages, even in established Western countries. In Italy, these underground activities are believed to make up 21% of the economy.

The Indian government understands that a cashless society will make it easier to curb the illicit outflow of capital and is taking steps to encourage technology solutions that scale with the size of the Indian economy.

Trust in a Transaction: Know Your Customer (“KYC”)

Knowing the parties in a transaction has always been difficult but in the digital age, a whole new level of uncertainty and potential for fraud exists. It’s part of the reason banks make customers jump through hoops for seemingly minor and mundane information to authenticate identity.

The ongoing work by the Unique Identification Authority of India to collect biometric data and issue all residents a universal ID number (called the Aadhaar) is unprecedented and early results are promising. The program has continued to grow rapidly over the last seven years with recent enrollment passing one billion citizens. However, the infrastructure needed to effectively implement Aadhaar throughout the country still needs workaccess to localized bank branches and ATMs, for example, is not readily accessible to millions – yet. Though the program is still in the early stages of implementation, it represents a major leap towards a financial infrastructure with strong safeguards in place.

The tweet above by Sanjay is indicative of how Aadhaar is going to change the way verification of parties in a transaction (“eKYC”) and transactions themselves take place for more than a billion people. The largest mobile wallet in India, PayTM, has reduced paper based KYC to 1%.

In order for cashless transactions to catch on, mobile-to-mobile payments also need to be streamlined. Last year the National Payments Corporation of India launched the United Payment Interface (UPI) to make mobile-to-mobile payments easier. The system allows for the quick transfer of funds across different banks with the use of a single identifierremoving the need to exchange sensitive personal information during financial transactions. 

All you need to do is download a UPI enabled app and let the fun begin. Startups like Instamojo have been pushing the limits of how digital payments can be made or received for years. Now, with the policy finally catching up, they can make it even simpler to send money or receive payments with nothing more than a cell phone.

Transparency and Portability

The Aadhaar number is a good step in bringing a scalable identification system to an incredibly diverse population of more than a billion people. However, coupled with blockchain technology, solutions providing more financial transparency to the entire country can easily be developed. With blockchain, an open ledger of all transactions could be recorded in a secure and transparent network linked to the legacy banking system.

With a blockchain, customers could have account number portability when moving between banks. That portability is something that politicians in India are already calling for. Imagine, switching banks or brokerage accounts to a new service provider and taking your account number with you. Potentially, not having to deal with changing routing numbers or providing your employer with new banking information ever again.

NASDAQ is currently testing blockchain technologies in a trial program. Last year, nine of the world’s biggest banks announced a partnership to create a blockchain framework that could be used globally.

The Future

With all of these developments on the horizon, disruptive technologies and solutions around payments, financial inclusion, remittance, public market investing and broader financial services are going to be boundless. As India adapts and implements the proper security measures and makes bold policy decisions, digital transactions will continue to become accessible, easier, less expensive, and, hence, more frequent.

Customers will have peace of mind about their accounts being protected thanks to biometric security. Business professionals will also find comfort in knowing that blockchain technology records all transactions and protects them from fraudulent activity.

Arguably the biggest winner of all will be the Indian government. With such a system in place, it could greatly reduce its much-derided bureaucracy. The government will also be closer to it’s goals of banking the unbanked, stamping out corruption and black market activities while simultaneously increasing revenues and GDP (by adding in cash transactions that were previously not being captured by official mechanisms).

While India still faces some complex challenges, the country is certainly heading in the right direction with regard to a more sustainable cashless society. If history is any indication, India will, in fact, fully embrace the shift just as it did with mobile a decade ago, though, not without some teething pains.

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What’s For Dinner? The Foodpocalypse.

apocalyptic-374208_1280

The trouble that some Indian startups are facing is being touted as the harbinger of a coming apocalypse. What happened at TinyOwl in Pune with employees holding the founders hostage was an embarrassment to all of us.

Dazo shutting down. Zomato laying off employees. Foodpanda, well, just Foodpanda. These are normal occurrences at startups. Most of them are, in any case. Some things are hard to comment on without knowing details.

6 months ago, almost all of the bloggers and reporters were writing about how foodtech is the second coming of the Indian startup economy and how VCs are falling over themselves trying to get into as many deals as possible. Today, those same folks are pontificating on “the bubble” and the coming apocalypse.

I recently read a post on Quartz about how the demise of food delivery will result in the end of the Indian startups. It’s difficult to comprehend the reasoning behind a small sector setting off a domino effect of collapses across startups.

One small, and I mean TINY, sub-sector does not a bubble make. Contrary to what people would like to think, food/grocery delivery is a very very small part of the much larger Indian startup world. PayTM is going after everything from m-commerce to taxi booking payments on Uber to hotel bookings to hyperlocal to movie tickets. Flipkart, Snapdeal (though far from startups any longer) have changed the way Indians fundamentally think about purchasing products. Freshdesk, FusionCharts, Wingify and many others are going after global markets and are seen as serious threats to incumbents. Even some of our Indian companies are changing the way people think about hiring, education, commerce, gaming and finance. Companies like CultureAlley and OnlineTyari are taking language learning and test preparation to the masses at affordable prices thru the only device they need – a smartphone. Consider how Kraftly is giving cottage industries where men, women, and even children are making baked goods or clothing or art at home and able to easily reach and transact with customers not only across India but overseas as well or how SwitchMe is making refinancing your home loan quick, painless and cost effective.

My point is that the Indian startup scene is far broader and diverse than this one small sector. The food and grocery delivery vertical has been overfunded. Some of the companies closing rounds forced me to scratch my head and ask, “what am I not getting?” That’s Ok. You know why, there are amazing entrepreneurs and developers, and designers and financial wizards building solid businesses. And guess what, it’s not going to stop. What else isn’t going to stop? The funding of great companies but also of companies that aren’t run very well.

Would I invest in Zomato today? Definitely. Deepinder and the team don’t give up. They will make the hard decisions when required and they will continue to push the limits of what’s expected from them and at the same time, force the rest of us to compete better.

Would I invest in a pure food or grocery delivery business that picks up veggies from the local mandi or from the 3 restaurants in my neighborhood and deliver it to me? Not likely, though, I have invested in ChalDal in Dhaka. I would definitely consider investing in entrepreneurs that understand warehousing, logistics and supply chain to provide grocery delivery via distributed warehouses in a city. Or a food company that understands how to manage large centralized kitchens, and has an expertise in logistics. Oh wait. Didn’t the Harvard Business Review write about a cooperative that does this? In India.

So all of you talking about the rot in startupland, keep doing what you’re doing. You will get your clicks and likes and shares and eyeballs with sensationalist headlines but all you’re really doing is scaring a young dreamer’s parents into not letting them work at a startup or start a business or get married because they aren’t working at Microsoft, Infosys or TCS. Once the cycle completes, you can begin again. This time writing about how those parents are unfair and ruining their child’s chances of starting a multi-billion dollar startup. Please, just ask yourselves, how any of this helps anyone.

One has to let loose a lot of arrows before learning to shoot and hitting the target. Even after learning to shoot, we will still miss. Often.

At 500 Startups, we’re not going to slow down our investing in India. In fact, I love all this talk of doom and gloom. Why? It’s going to send wannabe founders, angels (who figured they can make more money investing in startups than real-estate) and the glory seekers running for the hills. This means less noise, serious founders pushing the limits of creative destruction because they will have to do more with less, and investors, in it for the long haul, getting access to great founders building real companies.

Cover photo from https://pixabay.com/en/apocalyptic-war-danger-apocalypse-374208/

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Building Facebook for India is a Waste of Time

Photo by Pankaj Jain. All Rights Reserved.This post originally appeared on CitizenTekk.

In a country of almost 1.3 billion people, mid-20th century infrastructure, rampant corruption, over 400 million people below the international poverty line, roughly another 400 million people who are considered middle class and one of the youngest populations on the planet building the next Facebook isn’t exciting. What is exciting? Solving problems for over 800 million people who don’t have access to smartphones, tablets or computers. The real opportunities for smart, savvy entrepreneurs is to solve the problems plaguing them on a daily basis. There really is no shortage or problems, big or small.

A SMS based service that brings “mandi” (market) prices directly to a farmer allows the farmer to know exactly how much his produce will get him at a market in Mumbai, Delhi, Indore, Kolkata, etc. In 2009, Thompson Reuters was making over a million dollars a year by providing the service to farmers in only three states in India. In many cases, information about current market prices has made farmers better able to negotiate fair prices with middlemen, sometimes tripling the amount of money that goes to the farmer.

Every hear of “star dialing”? Chances are that if you live in the US, you haven’t. In India, on my mobile phone, I can dial *123# and I will get my current balance pop up on an iPhone just as easily as a Nokia 1100 feature phone. The best part is that “star dialing” doesn’t cost the caller anything. No call ever gets terminated. Well, can you imagine building a banking solution on top of this for people who don’t have access to a bank? Eko Financial, based in New Delhi, has done exactly that. For millions of people who don’t have access to a bank or millions who need to send money back home to their family in a small village can do so quickly and easily by going to a local bodega (we call them “kirana” stores in India) and give cash to the store owner who enters a sequence of numbers to authenticate with the service and transmit the cash to the destination account. All of this is done in minutes and payments can be tiny or relatively large.

Imagine you lived in a rural area with no terrestrial Internet connection, no 3G, no 2G, nothing. You had a mobile phone to communicate with the world via voice and SMS. Now imagine you could search the web simply by sending an SMS to 55444 or you can find the Rotten Tomatoes ratings for a movie playing over the air. You can join IRC style chat rooms simply by using SMS. Innoz let’s you do all of these things and a lot more. It’s bringing the power of the Web and applications to people who would never have access to them. The reality is people living in remote, rural parts of India can now connect with people in cities over IRC style chat rooms, find out the seven day forecast, and even get the best price for a TV from EBay simply by sending a text message.

These are just a few examples of mobile applications that people have built in India over SMS. Add in smartphone apps that alert civic authorities to sewage problems, garbage piled up on the side of the road, illegal construction, unsafe working conditions, etc. and you have a tech savvy urban population that can use technology to improve their quality of life. The opportunity in India isn’t in building another social network or e-commerce site that sells printed kurtis online. The poor across India are hard-pressed to get access to basic resources. The middle class is very aspirational and though price sensitive, the household savings rate as a percentage of GDP fell to 7.8%, the lowest in 20 years, according to a report in Times of India. This means middle class Indians are spending and it’s been increasing.

Today, it’s possible to get a basic smartphone in India for INR 4,500 or less than USD 85. The Aakash tablet, was an ambitious project to produce a basic Internet device that can be used anywhere a mobile phone can at USD 50 subsidized to USD 35. A good deal of controversy surrounded the Aakash tablet. However, the push from the Indian government as well as manufacturers towards more affordable smartphones and tablets will create massive opportunities for entrepreneurs to provide solutions to everyday problems along with education, entertainment, sports, content, and other utilities. All going after hundreds of millions of people who are getting access to technology for the first time.

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Geeks on a Plane India 2013: Big Opportunities, Optimistic Investors, and a Government that’s Finally Waking Up

Gateway of IndiaThis post originally appeared on the 500 Startups blog

Geeks on a Plane is a 10-12 day trip to various parts of the world with 20-25 “Geeks” (entrepreneurs, techies, designers, angels, VCs, mentors). The trips are planned and run by 500 Startups and have been going on for a few years now. The first Geeks on a Plan (GOAP) to India was in December 2011. That’s when I first met Dave, Paul, Christen, George, Anu, Samir, and a bunch of other really awesome geeks. Fast forward 14 months and I got a chance to be a “geek” on the February 2013 GOAP India trip.

GOAP India 2013 also had some really awesome people on the trip as well as hosts across India. Here are some of the things that I learned from these people during our visit to Bangalore, Mumbai and Delhi with Geeks on a Plane.

India: A Land of Contradictions

The poor are all over India. It’s still one of the poorest countries in the world. However, the rich are obscenely rich. Driving a $200,000 car is no big deal in a city like Mumbai. On your way to a swanky hotel where you’ll pay $900 for a single malt, you may drive by open sewage, dirt piled up on the side of the road for impending construction, barking stray dogs in packs, etc. However, you will also pass by massive skyscrapers, gorgeous temples, educational institutes galore, and many people hustling to make a buck. You can feel the buzz in the air and the excitement of young people who see multiple opportunities all around them.

I didn’t witness these contradictions being any more pronounced than they have in the past. Instead, I saw young people that are hopeful and welcoming of bright future for their country, their families, and themselves. As risk averse as their parents are, more and more people are willing to take significant risks to enact change and get rich while trying. For example, at Startup Weekend Bangalore, we saw many ideas pitched, of which, two of which stood out in my mind.

  • Ghati, to enable safe and clear passage of ambulances.
  • Garbage-busters, which uses mobile phones to alert civil authorities of garbage that hasn’t been cleared.

Two years ago, very few people would have considered quitting their jobs to pursue ideas that will make life better for people while at the same time, having a real chance at making money. Instead, most of them wanted to build the “Twitter of India” or the “Facebook of India”. More and more Indians are cognizant of the problems surrounding them in their daily lives and they are taking the first steps at solving them.

Great Raw Entrepreneurial and Tech Talent

Flipkart
There’s no question that India is full of geeks with great raw entrepreneurial and tech talent. Look at the number of Indian engineers in the Valley, doctors and Wall Street quants that flourished in the US. In India, having their chidren go into the “IT” industry has been the hope of many middle class Indian parents since the 90’s. That usually meant working at Infosys, Wipro, TCS, HCL, etc. Then came along PWC, E&Y, Accenture, Goldman Sachs, JP Morgan, Dell, Microsoft, Google, etc. Today we have Facebook and LinkedIn as well as hundreds of other great US tech product companies. Most tech entrepreneurs in India prior to 2005 built their fabulous businesses selling services to companies big and small around the world. These successful tech entrepreneurs built businesses to be envied and made India the outsourcing capital of the world.

What they didn’t do was build an ecosystem that fostered entrepreneurship or creative thinking.

ZipDial

All that started changing sometime in 2010. Some amazing companies have been built in the last few years by incredible people (some of the companies go back to 2006/2007) – Druvaa, Slideshare, FusionCharts, InterviewStreet, ZipDial, Flipkart, SnapDeal, InMobi, Innoz, ZoHo, Freshdesk, Wigify and Komli Media.

Some of these companies have exited. Some are incredibly cash rich. Some are growing like a weed and continue to raise larger amounts of growth capital.

Beyond some of the marquee names above, quite a few amazing founders are building great companies. A few are InVenture, WebEngage, UberLabs (gazeMetrix), Ketto, InstaMojo, ChargeBee, and Practo.

Founders’ Communication & Confidence Need to Improve

Rajat, Kavin, Aloke at 91 Springboard
Most first time founders in India still lack confidence and it shows in their pitch and their communication style. Paul has mentioned this before in his Observations on India and he also talks about gaining confidence. I continue to see this being a problem and a tremendous opportunity for founders. The founders that can communicate the most effectively, will have a much better chance at selling to their customers, their investors, and prospective co-founders, employees, mentors/advisors and importantly, in India, to their families. The good news is that in the last 7 years I’ve been here, I’ve seen pitches and communication styles get better. Although the ecosystem is still nascent, it’s maturing and giving young entrepreneurs the shot in the arm they need.

Investors are Optimistic

The Bombay Stock Exchange (BSE)
Investors across India that I met during GOAP continue to remain bullish on the long-term opportunity. Ecommerce, education, travel, personal finance, Universal ID (UID), family tech, rural tech and, of course, tech built in India for a global market are some of the broader themes that investors expressed significant interest in. Sorry folks, “social media” just wasn’t at the top of anyone’s list.

However, as bullish as investors are, most of them still aren’t very founder friendly. Some of the deal terms being offered are still quite onerous. Doing an investment in tranches is another favorite past time of Indian investors. Most founders still complain of angels behaving like series A VCs and VCs behaving more like private equity shops.

The bright side is that a few founders I met with and spoke with during GOAP, mentioned two VCs by name who work more like startup founders than VCs. They make decisions quickly. They present terms that are fair. They tell founders when and how much they should raise to minimize dilution. They make themselves available by not hanging out in their ivory towers. You might say that two VC firms in a country of 1.2+ billion people is statistically insignificant. However, if you said that, you would be wrong. It’s quite significant. VCs running their funds like real startup founders is a massive mindshift and their success will only inspire more to do the same (or lose deal flow).

Investors are also Cautious

Geeks on a Plane at the BSE
During some of the investor events at GOAP, I spoke to investors about things that concerned them. Investors are a little bearish about the short-term. Macro-economic conditions, the lack of exits, corruption in the government, the bureaucracy, rising costs all play an important part in dampening the spirits of investors. However, these also present considerable opportunities for daring entrepreneurs. Investors realize this and continue to hunt for deal where they can deploy funds in India.

The Indian Government is Finally Waking Up

During our trip, the Indian Government announced its budget. Though, not a big deal in most western countries, in India, the budget makes or breaks economic sentiment for the year. No one was terribly excited or distraught over this year’s budget. However, there were a few things added that raised the hopes of startups and early stage investors.

  • Preferential tax treatment for angels when investing together or “pooling” their capital and registering with the government.
  • Corporations are required to spend 2% of their income on CSR (Corporate Social Responsibility) investments or donations. Incubators at government or recognized universities qualify for claiming the 2% spend.
  • Startups can potentially find some liquidity by listing on the SME exchange. The BSE (Bombay Stock Exchange) runs one and had 11 companies listed as of December 2012.

A much more detailed analysis of the budget and some opinions can be found on VCCircle.

For more information on Geeks on a Plane and when they are heading to your region, check out the website and also some of the videos from GOAP South America Summer 2011, GOAP Asia 2011 and GOAP India 2011.


Geeks on a Plane India 2013

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10 Things to Consider Before Approaching a VC

A lot of very very smart, experienced investors have put similar information out there over the last few years. If you’ve read it before, consider this a reminder. If you haven’t read it before then consider this a starting point. This post shouldn’t be seen as a comprehensive list. It’s more of a response to various pitches I’ve been getting from multiple sources over the last month.

“Understand the investor’s mandate, fund size, investment reqs. Pitch the right investors and build releationships with others” – TJ Sassani, Founder of Zozi.

  • Research

  • Before going out and trying to approach investors, take the time to create a spreadsheet of the various investors you want to approach. This will be your scrappy CRM for managing your investor pipeline. Some of the columns in your spreadsheet could be:

    1. Why you want them to be investors
    2. Can you get an intro to the investor from someone that the investor knows and trusts
    3. Have they invested in your market in the past
    4. At what stage do they typically make investments
    5. What is the fund size
    6. What is their typical check size
    7. What criteria do they use in determining if you’re a fit for them

    Once you’ve built this matrix (and customized it according to your needs), filter out the investors who don’t invest in your market or don’t invest at the stage you are at. Then look at the other criteria and keep filtering. Once you’re down to a list of investors that have an investment thesis that your company would fit into, begin your approach. You may want to consider speaking with the investor that is least likely to invest in your company first. Pitch them and get feedback. Incorporate that feedback into your pitch. Become awesome (if you aren’t already) at your pitch each time you pitch someone new and move up the ladder. The investor you want most to be in your current round should be the last one that you pitch to so that you’ve received enough feedback to make your pitch really awesome.

  • Connecting with Other Founders

  • This is something that you should consider doing as part of your research. Try to connect with founders that have raised money from some of the VCs in your pipeline. Connect with them, meet with them if possible and discuss very specific questions that will give you some insight into the VC and if there is a fit with you, your company, the stage at which your company is at, specifics that you would like the VC to help with and what the VC can help with. Finding what companies a VC has invested in is usually not that difficult. A good place to start for recent investments is AngelList.

  • Understanding a VCs Motivation and Economics

  • VCs typically invest in many many companies. Out of the investments they make, the majority don’t yield positive outcomes (check out this report by the Kauffman Foundation). Hence, most VCs need to invest in companies that are going after large opportunies, have balanced teams, focus on execution and have a higher probability of a large positive outcome to help offset some of their losses. There are many reports/blogs/articles and books that talk about the economics behind VC funds and I would urge founders to read as many of these as possible before approaching VCs. If you haven’t read this post by Mark Suster yet, you should.

  • Market Opportunity

  • One of the most important things that founders need to think about and understand is the fact that investors, generally, need founders to go after large markets. If the market you’re targeting is Rs. 500 Crore and it’s not growing rapidly, then opportunity isn’t large enough to go for venture funding. Even if your business winds up controlling 80-90% of a Rs. 500 Cr market, the market is still too small and wouldn’t yield a large enough return for the VC. For example, after dilution, if the investor winds up holding 10% of your company, in the best case, it would probably not be worth more than Rs. 100 Crore. Something like this would make a great lifestyle business, however. So think about your market carefully before deciding to raise venture funding.

  • Ideas Vs. Products with Traction

  • Ideas are a dime a dozen. They don’t matter. What matters is execution and traction. If you’re looking for funding at the idea stage, you had better have strong successes in the past. Most investors (VCs and angels) won’t invest in ideas. They want to see that you’ve built something and that you have some measurable traction and possibly, some defensible intellectual property that’s worth something. If you have a revenue stream, even a small one, already in place, it adds significantly to your chances of getting investors interested.

    If you’re at the idea stage, talk to as many people as will listen about your idea and get feedback. Learn as much as you possibly can during this time and don’t worry about someone stealing your idea. Chances are, people have thought of similar ideas, they just haven’t done anything with their ideas. Don’t be that guy. Go build your idea.

  • Investments in Your Vertical

  • It’s important that you spend time understanding if the VC you’re approaching has done investments in your vertical. For example, e-commerce is a very broad vertical. It may be sufficient to determine that VC X has invested in e-commerce companies in the past hence, your e-commerce business selling gourmet chocolate online fits in to their investment thesis. However, to be really prepared before approaching them, you may want to research if they have invested in online food ordering or other food and beverage related businesses before. It can only help if they have.

  • Investments at Your Stage

  • Making sure there is a fit in the life cycle of your startup and what VC X typically invests in is critical. For example, if you just launched your prototype, have 1000 users on board and are looking to raise 50 lakhs in funding, you probably shouldn’t approach a VC who does much later stage and larger deals. At your stage, you are probably better off approaching an accelerator program.

    At the same though, you shouldn’t shy away from connecting with and building relationships with investors that may be a better fit for later stages in the lifecycle of your startup. Everyone is busy so don’t despair if an investor declines to “have coffee” with you. Keep trying.

  • Get a Refferal

  • I can’t stress this enough and I’m sure you’ve heard and read about this multiple times. Read it again. Get a referral to the VC(s) that you’re targeting. What does this mean? Well, it means that you need to start thinking very early on about some of the VCs that you want to approach. Find out who do you know that knows them – founders, mentors and/or advisors in some of their portfolio companies, angel investors that co-invest with them, etc. Start building relationships with these folks early on. Don’t expect to meet someone once or twice and ask them to make an introduction to a busy VC. It doesn’t work like that. If you ask someone for a premature introduction, you will most likely turn that person off and they may be unwilling to help you in the future.

  • Your Pitch Deck

  • Assume all of the other items above have worked out well and you’re ready to start connecting with the VCs in your pipeline. Sending an email detailing what your business is and who your team is, etc. is not a good way to start the relationship. Remember, you’re not the only person the VC is speaking/meeting with. Most VCs are extremely strapped for time. After getting the introduction, send over a deck with some very simple but impactful slides. If you’re going to send over 20 or 30 slides, don’t expect it to get even a glance. Start with Guy Kawasaki’s 10/20/30 Rule and after that, take a look at The Triple Play of Presenting and Dave McClure’s 10 tips for the perfect investment pitch.

    I would make a slight modification to this. If you have any traction, e.g. number of users, number of downloads, revenue, etc., then you should start the first slide with this data. If I open a deck and I see some meaningful (though early) traction, I’m more inclined to go thru the rest of the deck to see what other pleasant surprises are contained in the deck. Move the “Problem” slide to the second slot and the “Solution” slide to the third position. Move the “Team” slide to the second to last, right before the “Money” slide. Rip out the projections slide for some early investors but keep it in for other later stage investors unless you have some traction on the revenue side and can make actual projections. Most early stage projections are completely useless so let’s not event waste time on them.

  • AngelList

  • If you aren’t using AngelList, you’re losing out on an incredibly valuable resource for connecting with investors. I’ve done a few talks in New Delhi/NCR about the importance of AngelList for Indian startups and I think many Indian founders are beginning to see the importance. Though it’s a chicken and the egg problem with regards to Indian founders and Indian investors on AngelList, the one thing that you can be certain of, is that many many US investors are on AngelList and they are watching India closely. The boundaries and borders are coming down. More and more US based investors are getting active in India (we’re one of them) and AngelList gives you a direct line to them. Long story short, before contacting an investor, make sure you have a properly filled out AngelList profile ready to go. Include your AngelList profile, Twitter and Facebook in investor communications. It helps them to get to know you and see what’s happening.

So what do you think about these tips? Any more to add?

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