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Early-Stage Startup Deal Terms in India 2020

There was a recent thread on Twitter about how even in 2020 angels and VCs in India continue to put ridiculously onerous terms into early-stage deals.

I recently invested in an Indian startup that closed a pre-series A round and the documents were more than 100 pages. When I was at 500 Startups, with the help of BMR Legal, we modified the 500 Startups KISS Agreement for India and open sourced the documents in the hopes that it would simplify early-stage documentation and reduce the amount of time to close a deal and the cost of doing early-stage deals in India, much like Series Seed docs and the SAFE have done in the US.

Here’s a presentation I gave in January 2020 at CIE-IIIT Hyderabad on some of the deal terms in India to watch out for. Unfortunately, there’s no video of the actual presentation I gave so I recorded a voice over for you.

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If there are additional terms you have questions about or terms you’ve come across that are onerous, please leave a comment on the YouTube video and I will respond. Hopefully, other founders will benefit from it as well.

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Twelve Years of Indian Startups – Part II

After landing in India, I realized the bureaucracy was going to make it really difficult to get started. I won’t bore you with the details but it took me eight months from the day I landed in India to having all of the required papers in place in order to setup a Private Limited company (or corporation). I’m sure the process is much easier today to set up a company but it is definitely not easy to shutdown a company in India.

The view from my balcony

Once I got the company registered, I started looking to hire a few people. I used headhunters, job boards, and, of course, asking people I had been meeting in Delhi. I tried pretty much everything under the sun that I could think of. I hired two interns, one of which was the younger brother of another founder I had met. A few weeks went by and I hired my first full-time hire.

To be honest, though my long-term vision for a reverse auction platform serving the labor force in India was something clear, I had no idea what the magnitude of the problem was and the kind of people I needed to hire. I thought I needed developers so that’s what I tried to hire before anything else.

I interviewed anyone that was desperate enough to to work at a startup (in 2007 working at a startup was definitely not where the cool kids were). Finally, I found another developer who was a Microsoft dev and didn’t quite have the technical background in LAMP technologies. I made a bunch of mistakes in the interview. I should have asked more in-depth technical questions but, instead, I was satisfied with theoretical answers to my questions. I wound up letting this developer go on their first day, partly because of my own mistakes in interviewing and hiring and, in part, because the developer only had theoretical knowledge and wouldn’t be able to contribute to building the product for a long time.

A few months later (probably around April 2008), I was out of town for a funeral. The two interns were working on an important piece of the project. Unexpectedly, I got an email that they were both quitting. Together. Effective immediately.

Most interns didn’t get paid in India back then. I was paying them from day one and relative to what other recent college graduates were getting paid, these college students were getting paid very well. Needless to say, I was furious and shocked at the lack of professionalism by these two interns. They quit right in the middle of an important deadline with an email while I was out of town. I have the email they sent me and my response. Perhaps I will redact some of the emails and share them.

At this stage, I was completely and utterly dejected. I had no idea what I was doing. I was beaten down and there wasn’t a day that went by where I didn’t want to throw in the towel and head back home, to New York City.

I Kinda felt like this truck…or what was left of it.

I still had enough money left to continue bootstrapping this small company, so I continued to push ahead (completely uncertain in which direction I was actually going). The same acquaintance whose younger brother bailed on me was working out of small incubator in Okhla, Delhi. I went to check it out and see if I can get some space. I moved in with my sole developer. I was more confused than ever about how to build out a team that could build the product I needed. I dusted off the cobwebs and started teaching myself PHP while looking for a designer to join us. Eventually, I found a designer and hired him. He wasn’t too thrilled about using Gimp instead of Photoshop but I wanted to see what he could do before spending the money for a product no one else knew how to use. I never really got the chance to find out. After multiple absences during his first week of work (on one instance, his mother called to tell me he wasn’t feeling well), I had to fire him as well.

I’m a little hazy on the time lines now but somewhere around the middle of 2008, I got involved with organizing BarCamp Delhi and that eventually led me to co-founding the HeadStart Network and launching Startup Saturday Delhi. My initial reason for getting involved was to broaden my network and find good people to hire. Also, around this time, I met two people from IAN (Indian Angel Network). They both wanted me to come and pitch IAN but I wasn’t ready to raise money. I viewed raising money from outsiders as something I should do only after I figure out the basics of building this business.

I can’t find any screenshots but we did a soft launch of Semblr in August of 2009. It was a rough and rocky road getting there but we got there. Building a two sided market was much harder than I thought. I quickly found that not having background checks in India was going to be a problem and scaling the process of doing “police verifications” across the city was going to cost a lot of money.

By December, I was almost out of money and I decided to start doing some services to generate a little cash to pay my employees (I had hired a few folks again). That didn’t work out so well. Our first client didn’t pay me for the work we did and instead, hired away my employee that was working with them.

That was pretty much the end of Teknatus Solutions. More or less, that day, I decided to shut it down. I told my last employee (also my first full-time hire) that I would help him find another job but I was done. He was the last person to walk out of the office and turn off the lights. I still try to see him whenever I’m in the same city.

Running a startup in India was an incredibly difficult and it forced me to reexamine a lot of what I had learned about doing business and running operations over the previous 10-15 years. It was more importantly, extremely adventurous, exciting, and educational experience. I wouldn’t trade it in for anything. I learned a lot more about doing business in India than I ever would have in a MBA program or at a job. The experiences gave me a lot to digest and learn about myself which I may not have had the chance to learn had I not taken the leap. The opportunity for introspection that “failing” in a startup gave me has been invaluable but most of all, the people I met and the relationships I built over the last twelve years is something I will always cherish.

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Twelve Years of Indian Startups – Part I

March 11th 2019 marked the twelfth anniversary of the day I landed in New Delhi with my family with the intention of starting a company. It was a complicated, difficult, enlightening, fun journey and I thought it would be nice to share some details of how I decided to move to India, the challenges I faced, the failures I dealt with and all of the different adventures I had over the last twelve years.

I had been pretty lucky having gotten a job at JP Morgan & Co right out of college and two years later, landing a highly coveted job at Long-Term Capital Management which then turned into being one of the founding employees at GlobeOp Financial Services (a fintech startup that wasn’t called that in 1999, which went public in 2007 and was eventually acquired by SS&C in 2007).

After leaving GlobeOp in late 2004, a friend of mine from high school and I started working on our first tech startup. It was a social network before social networks or social media became a thing. My friend and I both weren’t developers but we started coding away furiously in Perl to get the first version of the application out the door. Unfortunately, we never actually launched the network. With LinkedIn and Facebook gaining ground rapidly, we really weren’t sure how just the two of us could keep up. We both wound up getting new jobs but continued working on this idea at nights and on weekends.

Trust me, this is incredibly embarrassing ( a la Reid Hoffman) but here are some screens circa 2005:

I think we finally stopped all further development of the project around the end of 2005 but we open sourced all of the code. While working on this project, I developed an insatiable appetite for all things tech entrepreneurship. Unfortunately, there wasn’t much happening in NYC in 2005. I became an avid listener of Podcasts in 2005 and 2006 (specifically tech podcasts like John Furrier’s PodTech.net and Greg Gallant’s Venture Voice). Between TechCrunch and these podcasts, I had the entrepreneurial itch – again. I just needed to figure out how to scratch that itch. 

I began thinking of my problem. I loved listening to podcasts about tech entrepreneurship. However, this was before Apple Podcasts, Soundcloud, Spotify, Google Podcasts, etc. The only way to find podcasts was using Google. Unfortunately, Google didn’t index and make audio very searchable.

The Problem: Podcasts are hard to find

The Solution: Offer podcasters a service which will transcribe their podcasts for them and allow them to post the text on their blog/website with the podcast audio in an RSS feed.

I left the job I was at in middle of 2006 and started working on learning about the transcription industry. I found out that medical transcription was a huge business and a lot of it was run out of India. I started investigating and talking to companies that ran transcription businesses as well as offshore “development” shops that I could work with to build out an MVP for a marketplace. The solution above would be a reverse auction platform where podcasters can specify the length of their audio and put out an amount they would be ready to pay to have that transcribed. Transcribers in India, the Philippines and other places would be notified of these projects and could come in and bid on them. Payment would be helped in escrow by us and upon completion of a project, payment would be released to the transcriber and of course, both sides could rate the other (much like eLance, upwork, etc.)

As I started talking to these offshore development shops, I began realizing that most of them were a couple of friends moonlighting. I tried out a couple of them with very small work and was thoroughly annoyed but not surprised when things weren’t done. Notice, I never said I spoke to any actual podcasters.

I decided to take a trip to India in late 2006 and meet some dev shops in person as well as attend some conferences. The first entrepreneur in India I met was Amit Ranjan, author of Webyantra and co-founder of Uzanto (which eventually became Slideshare). I went to TieCon Delhi and a few other conferences but one thing really stuck out while I was in India. Every one of my relatives kept complaining about how they couldn’t find domestic help – a nanny, a cleaning person, a cook, a chauffeur, etc. I didn’t really know anyone in India other than relatives but as I was meeting people I started asking more questions about domestic help. I started seeing a pattern. It’s hard to find good help. It’s hard to retain help. It’s a word of mouth business, e.g. your cousin can ask their driver if he knows of a good driver and he will send someone to you (of course, your cousin’s driver will get a cut for helping him get a job).

It’s hard to find digital pictures from the pre-iPhone/smartphone days

I thought, this whole situation really could lend itself to a reverse auction platform so instead of focusing on transcribing podcasts, why not create impact by helping people to get jobs. With this idea and this alone, I convinced my wife that we should move to India and I should start a business to do exactly this.

More to come in Part II

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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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Startup Weekend India – The First Six Months

The first round of Startup Weekend events in India came to a close in March. Startup Weekend Delhi was held at the American Center from March 4th till March 6th 2011 and Startup Weekend Bangalore was held from March 11th till March 13th 2011 at Microsoft’s Signature building.

September 2nd 2011 marked the beginning of the next round of Startup Weekend events across India. Startup Weekend Hyderabad was held at ISB from the 2nd – 4th of September. This was the first SW held in Hyderabad and we honestly didn’t know what to expect. We had only sold 25 tickets in the first 2 months that ticket sales were open. In the last three days before the Friday night pitches, we sold over 50 additional tickets.

I’ve seen lots and lots of “me too” ideas and quite a few “ho-hum” ideas. There are some decent ideas with very little depth prior to SW. Startup events in India need to be about team formation, experience building and experimentation. Between these three events, Startup Weekend has kicked off 39 teams of entrepreneurs, techies, designers, and business people. Granted, out of these 39 teams, probably not even four will survive more than a year but that’s not the point. The point is that these 175 or so people, will be better entrepreneurs the next time around.

I believe these three events did something that no other event in India has done so far. It showed people that they CAN execute their ideas in a very short span of time. With complete strangers, in most cases, they can put together a business case and build a prototype to showcase to potential investors.

In a few cases, teams from Startup Weekend in India have had discussions with investors directly as a result of Startup Weekend. One of the biggest pain points for many entrepreneurs in India has been funding and Startup Weekend in India has helped ease this pain point in a small but important way.

Startup Weekend has also shown investors that entrepreneurs, techies, designers can do some really interesting things in a short period of time if all the ingredients are there. It’s created potential deal flow for early stage investors starved for invest-able ideas teams. Already, Startup Weekend clones are popping up across India.

The confidence and the energy that people have displayed at Startup Weekend in Delhi, Bangalore and Hyderabad has been quite contagious. Techies were pushed to deliver minimum viable products and marketers and business people were forced to come up with viable plans in a very short time span. In just a weekend, many people were able to successfully deliver business cases and prototypes. Having done so has shown them that they CAN, in fact, put together teams of the right people and deliver. Being able to find co-founders that can execute has given people the confidence needed to take their ideas from Startup Weekend and pursue them.

Another very important factor was the presence of great mentors that spent considerable amounts of time with the business, techie and design members of each team, helping them develop various aspects of their ideas and the technology being employed. Many of the mentors present have exhibited interest in helping future teams in the same way. Even some panelists have shown interest in being mentors and working with the various teams throughout the next Startup Weekends in India. However, some mentors and panelists have also been disappointed by the lack of depth in the ideas.

I have found that for entrepreneurs in India finding the right co-founders and having mentors to help guide them through the various pitfalls that they continually faced is a continuous problem. Of course, funding issues are an issue everywhere but in India, it’s far more pronounced. To me, the idea of getting the right people with similar mindsets and mentors, serial entrepreneurs with significant experience in a room with raw ideas and oodles of enthusiasm was what people in India have been missing. Bringing all these components together, mixing them up, laying down some rules and bending a whole lot of others has given people who had very little chance of execution or success an opportunity to try their ideas in a safe and risk-free environment. In essence, the Startup Weekend philosophy is helping Indians try out ideas without quitting their day jobs, find people who buy into their ideas, and have people around to immediately guide them in their execution.

Personally, Startup Weekend has given me an opportunity to return to India and give back something that I’m very passionate and excited about – entrepreneurship. The opportunity to help entrepreneurs, both young and old, realize that they can and should take a chance on themselves and their ideas is a great feeling. Instead of just telling them that they should, Startup Weekend has given me a chance to show them that they can. If my contribution to the Indian entrepreneurial ecosystem can help create even one startup out of each event, I believe I’ve given back more than I could have hoped for.

India is a difficult place to understand, with all of its contradictions, it’s rapid modernization, it’s pathetic infrastructure, it’s volatile stock market, it’s real-estate market that defies all logic, it’s incredible wealth and it’s dire poverty. However, India has been a land of entrepreneurs with it’s small businesses, it’s kinara stores, it’s newly minted multi-national corporations. In the last twenty years, much of the entrepreneurial spirit that’s in India’s blood has been lost. Mostly because better opportunities to make money presented themselves with the IT, ITES, call center and other service businesses. However, I believe a new generation of entrepreneurs is emerging. India is draining entrepreneurial and engineering talent from other parts of the world. It’s not just Indians or people of Indian origin coming to India, it’s the Chinese, the Koreans, the Japanese, the British, the Americans, the French, the Germans, the Italians and everyone else in between who are contributing to a new entrepreneurial culture.

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