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With all the speculation about Bitcoin and an exciting 2013 behind us, I thought that a list of predictions for 2014 would be a good way to start this year. These predictions are based on growth patterns of similar networks, the traction in various ecosystem activities last year, and my conversations with various Bitcoin enthusiasts. So here are my Top 10 predictions for Bitcoin 2014.
1. More than $100M of venture capital will flow into Bitcoin start-ups.
This pool of capital will be distributed across local/global exchange start-ups (e.g. BTC China*), merchant-related services (e.g. Bitpay), wallet services (e.g. Coinbase) and a host of other innovative start-ups. A large chunk of the capital is likely to flow into startups which have emerged winners in their respective segment with majority market share. Building exchange liquidity and merchant network is tough. Hence, these businesses are likely to command high valuations as well. That being said, there would be plenty of money available for start-ups trying to solve a plethora of other challenges (e.g. private insurance, security), that exist with Bitcoin growth and adoption today.
2. Mining ‘will not’ be dead
A lot of press notes and individual viewpoints state that mining is dead, as we are already in the petahash domain and are restricted by Moore’s law from a technological stand point. I believed this until I heard Butterfly Labs and HighBitcoin talk about how enterprises can potential adopt mining. With transactions and transaction fees rising, it would be highly profitable for large enterprises to have data centers with mining equipment to process daily transactions. Medium enterprises, who cannot invest in capital expenditure, would resort to cloud-based mining. Finally, small enterprises would have to pay transaction fees, to the network. These fees would still be lower than those paid to Visa and Mastercard. In conclusion, we can potentially witness investment from large and medium enterprises in mining farms as early as the end of 2014.
3. There will be less than 5 alt-coins (out of the 50+ in existence) that will survive 2014
The open source nature of the Bitcoin protocol led to the advent of over 50+ alt-coins, most of which are blatant rip-offs with a tweak or two here and there. These can be divided into three categories
- Coins which are Ponzi schemes, where the sole purpose of the inventor is to drive the price of the alt-coin up and them dump
- Coins which can be mined easily and can have potentially more liquidity than Bitcoin
- Coins, which are based on a fundamental innovation and can result in specific adoption or security led use cases.
In my opinion, only the category 3 ones would survive. PPC coin, which has introduced a proof-of-stake system in addition to proof-of-work, is one such coin. It is on my list of survivors. It is also important to note that presently, other than Bitcoin, no other alt-coin has shown the potential for a growth in its acceptance network among merchants or companies. This is likely to remain true for 2014 as well.
4. Bitcoin community will solve problems including that of ‘anonymity’
One of the key roadblocks for governments and financial institutions to start participating in Bitcoins is the anonymous nature of transactions. This has led regulators to believe that Bitcoin can potentially be used for money laundering, terrorist support etc. The good news that we have a very active Bitcoin community globally, which is constantly evolving the protocol. Hence, my prediction that in an effort to make Bitcoin more accepted, this community will come out with a solution to ‘anonymity’ that regulators can live with. One of the ways is it being done today is by forcing exchanges, wallet services and other Bitcoin companies to have KYC practices similar to those of financial institutions. As a side thought – Internet was and is still used for porn. That does not make it ‘not useful’!
5. US, China and other global forces will not be at the forefront of Bitcoin adoption
Fincen, PBOC and RBI’s reaction to Bitcoin in US, China and India points to one single conclusion – we are not going to let a ‘controlled’ and ‘vast’ financial system adopt a decentralized crypto-currency, which can be anonymous and used for illegal activities…as yet. Countries which have had a history of currency issues and have not had effective monetary policies are the ones who will be at the forefront of Bitcoin adoption. With China out of the mix currently, one can look at Argentina, Cyprus and others to lead. These may be smaller as a proportion of the global base. However they are likely to have much more local penetration and most importantly more government support or less government intervention – whichever way you want to look at it. That being said, successful internet and mobile companies in the US/Europe are the ones, who are most likely to offer digital goods in Bitcoins. Zynga just announced their experiment. I would not be surprised if Spotify, Netflix etc are next.
6. Indian ecosystem will be slow to evolve; limited to speculators and mining pools
The Indian Bitcoin start-up ecosystem today is limited to less than ten startups, including exchanges such as Unocoin, wallet services such as Zuckup, mining pools such as Coinmonk and some other ideas – compared to hundreds of them in each US and China. There is little evidence today to ascertain whether any of these startups are going to create a home market or serve an international market. In fact on the contrary, the Indian market is likely to be served by global Bitcoin companies. For instance, Itbit, a Singapore based exchange has already started targeting Indian consumers. Global services have demonstrated the capability to be credible especially when it comes to convenience and security by solving complex algorithmic problems. This also makes them more defensible in the long run (e.g. Coinbase’s splitting of private keys to prevent theft) and poses a big challenge for Indian Bitcoin start-ups. There is an active Bitcoin community in India (about 15-20 people), which is trying hard to create awareness among consumers and regulators. I sincerely hope to see at least one world-class Bitcoin startup come out of India.
7. The use of Bitcoin will evolve beyond ‘store of value’ or ‘transactions’
The underlying Bitcoin protocol makes itself applicable beyond the use cases of ‘store of value’ and ‘payments’. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and maybe even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map that there are almost no startups, which solely use the protocol without using the ‘coin’ or the ‘currency’ as a function. 2014 will be the first year to see some of these.
8. The ‘browser’ of Bitcoin will come this year
The Netscape browser made the Internet happen. ‘Something’ will make Bitcoin happen. It is still very difficult for the average ‘Joe’ to understand, acquire, store and use Bitcoins. Though Coinbase and several others are working on innovative security algorithms and making it easy to store Bitcoins digitally, it is still not enough to make Bitcoin mainstream. Hence, what a ‘browser’ did to the Internet, a product or technology innovation will do it to Bitcoin in 2014. This will make the transition to Bitcoins frictionless. Kryptokit and Eric Voorhees’ Coinapult are promising startups in this direction. Encouragingly, all the building blocks for that to happen – like mobile penetration, cryptography algos etc are already in place.
9. The price of Bitcoin is likely to range between $4000-5000 by the end of 2014
Well, though some people will argue otherwise, price is not the most important thing about Bitcoin. But given the interest and its volatility, it does deserve a place in this blog post. Speculators have predicted Bitcoin to go upto $100, 000; some say the maximum it can reach is $1300. Though, am sure that there is some underlying basis for these predictions; here is the one for mine. Bitcoin’s price is a function of supply and demand. While the supply is predictive, the demand is less so. However, the increase in the demand of Bitcoin can be compared to networks such as Facebook and Twitter, which have followed a ‘S’ curve of adoption. All such networks typically take 6-8 years to plateau out with year 4-5 being the steepest. Though Bitcoin was invested 4 years ago, I would say that 2013 was its 2nd real year. Given the nature of the ‘S’ curve, the price increase in 2014 is likely to be 3-4 times more than the one this year. Hence, the $4000-$5000 range, where the Bitcoin price is likely to settle down in 2014.
10. Last but not the least – Satoshi nakamoto will be Time’s Person of the Year 2014.
Please read about him here.
* Investments of Lightspeed Venture Partners
[Published in Mint on May 30, 2013. Here is the link to an abbreviated version of the article on LiveMint.]
[Credit: Laurynas Mereckas]
Building a startup into a successful high-impact company is not easy – it is hard no matter where in the world the founding team may be located or which geography is targeted.
It is even harder in India, despite the macro outlook almost always looking rosy – 1+ billion people, strong economic growth, emerging market/BRIC, technical expertise, many underserved needs etc.
Many of India’s successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time. Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands. Erstwhile startups that have created a successful brand include Cafe Coffee Day, Dr Lal’s Pathlabs, Flipkart, Indian Energy Exchange (B2B), Indigo Airlines, Infosys (B2B), InMobi (B2B), Justdial, Makemytrip, Naukri (B2B), one97 and Snapdeal.
Here are some of these environmental challenges that I see many startups facing here. These are almost never explicitly discussed. Perhaps this is because it’s like the air – it is just self-evident and it is hard to solve for these.
Many of the successful companies we talk about today in India took 10+ years to get to escape velocity and impact. Why? India-focused startups have to change buyer behavior and/or create infrastructure (eg Flipkart’s several thousand people in logistics, Meru Cabs’ owned & operated taxi fleet, One97′s PayTM mobile payments infrastructure), as opposed to purely focusing on better/faster/cheaper solutions. As a result, I generally see linear organic growth in companies targeting the Indian market. There are some companies that have overcome this by creating low-friction offline models e.g. Dr. Lal Pathlabs with low-capex collection centers, and micro-finance businesses with repetitive hassle-free loans to the bottom of the pyramid.
Some other sources of friction include:
- the need for offline presence (even for mainly digital companies).
- difficulties in payment collection from consumers and businesses.
- gatekeepers that have optimized for self-preservation/cashflow.
- government-driven paperwork for compliance & set-up and regulatory uncertainty.
A series of small markets
Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed. This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes. For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup’s growth.
Some examples of overcoming this challenge include:
- spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
- expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
- building or piloting in India and transplanting to the US (eg Zoho)
- aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlex, Subex).
- attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).
While many startups choose to access existing categories abroad (eg smartphone apps), many Indian startups have successfully created India-specific categories, including inbound marketing (Justdial, Zipdial), B2B marketplace (Indiamart, Indian Energy Exchange), assisted services (OneAssist, Onward Mobility, Suvidhaa), MVAS (OnMobile, IMIMobile), entertainment services (Dhingana) and transport aggregation (Redbus, Ola Cabs).
Lack of trust
Lack of trust is endemic in India, whether you are driving through the streets (and perhaps Delhi is an extreme example of lack of trust!) or negotiating with corporate partners. Examples include:
- (some) people misrepresent themselves materially without any consequences (eg overselling).
- (some) founders focus on control at the expense of value creation.
- potential buyers have a hard time parting with payment details or paying for off-the-shelf software.
- (some) people negotiate all the corner cases in extreme detail, to the point where the law of diminishing returns kicks in pretty strongly.
- trust gap between regulators, law enforcement and business.
- trust gap between promoters (aka founders) and investors and potential misalignment on timelines and strategy.
- (some) government and companies focus on protecting themselves from the 1% of customers who are gaming the system at the expense of the 99% remaining customers.
Relationships, not contracts, govern deals. Many brands in India are created from execution reliability at scale rather than product differentiation. Brands in India are disproportionately more valuable as they represent a trusted provider of products or services – think about the enduring value of the Tata brand in multiple unrelated categories. As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US.
Hard to find strategic talent
Almost every entrepreneur and investor I speak with has this issue. This is not easily solvable – the only potential solution is to focus on A+ people right from the founding team onwards and never compromise on that front, even if it means slower roll-outs. Zoho and InMobi are often cited for building great teams.
Strategic talent is hard to find, including executives, product managers, product marketeers and design experts. We find ourselves scouring large established companies in India for executives and many times find these executives short on ability to take career risk and lower startup-level compensation in exchange for equity. We look abroad sometimes to import talent. One other friction point tends to be lack of middle management willing (or empowered) to take their own initiative and a cultural bias for say:do ratio > 1 (interesting quote by an anonymous founder) which generally means that execution requires a lot of hand-holding.
The smaller pool of founder/co-founder and risk-taking startup employees results in lots of churn and inordinately long hiring cycles, although this is changing fast at a cultural level in India. It is also quite stunning how many times people who have signed employment contracts do not show up on their first day of work.
Not enough experienced mentors
India has an early (but fast-growing) eco-system for new venture creation. I see successful founders giving back to the founder community in a big way through investments, mentorship and driving industry hygiene.
However, there aren’t enough successful founders yet to cater to the much larger group of new founders who need help. Without the perspective provided by aligned mentors, many founders are finding it tough to pivot or accelerate.
I am optimistic on this front, as many experienced and competent mentors have stepped forward over the last two years. In my opinion, this is one of the reasons driving the creation of many of the incubators and accelerators in India which are centered around these hard-to-find mentors.
Constricted access to capital
This has been an issue in India for a long time and is probably why there is a higher focus here on companies to get to cash-flow breakeven fast or to trade-off growth for cash-flow. It is not surprising that the early successes in Indian ventures have mostly come from services-oriented business (e.g. outsourcing, BPO) or offline consumer businesses that grew organically for a while.
Many would point to investors being over-cautious and risk-averse. I think that the environmental factors mentioned above are the causal factor for investor cautiousness and not vice versa. I would argue that the $1.1B in 2011 and $762M in 2012 (source: Venture Intelligence) that went into venture in India was perhaps more than the market could absorb efficiently. Capital is abundant in the growth stage, once product-market fit and/or profitability has been achieved, and hard to come by in the development stage (ie pre-revenue and/or pre-traction stage).
Indian startups have developed a unique set of growth strategies to overcome the challenges mentioned above. I will write about these different growth strategies (and perhaps deep-dive into some of the challenges) in subsequent posts. I am hopeful and excited about companies in India that are overcoming these challenges.
Thanks to the brain trust, who provided feedback and contributed ideas, including Bhawna Agarwal, Kunal Bahl, Raj Chinai, Ashwin Damera, Pranay Gupta, Ravi Gururaj, Ravindra Krishnappa, Sasha Mirchandani, Kavin Mittal, Suchi Mukherjee, Pallav Nadhani, Hitesh Oberoi, Janhavi Parikh, Avinash Raghava, Amit Ranjan, Rajesh Sawhney, Vijay Shekhar Sharma, Amit Somani and my colleagues here at Lightspeed Ventures Maninder Gulati, Apoorva Pandhi, Anshoo Sharma and Bejul Somaia.
Please note that three companies mentioned in this article – Dhingana, OneAssist and Indian Energy Exchange – are Lightspeed portfolio companies.
Lightspeed India MD Bejul Somaia was interviewed by Paramita Chatterjee of the Economic Times newspaper about Lightspeed India’s experience with incubating both OneAssist and LimeRoad. Here’s the link to the article.
We are actively looking to incubate companies in these spaces, as well as back established companies and startups in these areas.
Our experience has been very positive:
“We were involved in incubating two companies in the last 12 months – OneAssist and LimeRoad – and have been very pleased with the results so far. Being able to work closely with teams during the incubation period really helps set the right foundation and strategy for the business. The incubation approach is very time-intensive, with no certainty of a successful outcome. But we will build on our positive experience by catalysing new companies in an organised manner.”
What sectors are Lightspeed looking to invest in?
“Education technology, financial technology, healthcare services, internet, mobile, software and software-as-a-service.”
[Also published on Yourstory.in]
Earlier this week, I was invited to mentor the GSF Accelerator’s startups on Pitching & Investors Decks. I thought I’d summarize what I said there.
I certainly don’t claim any special knowledge on what makes for a good first investor presentation. There have been many books and blogs written about this. However, I’ve seen hundreds of investors pitches over the past several years of coaching CEOs on IPO roadshows, raising capital as a founder and listening to pitches as an investor. Heck, I’ve even been involved with investing in the leading presentation sharing company - Slideshare - which has helped accelerate a trend toward storytelling in presentations.
The first meeting is not about getting investors to agree to invest (although perhaps it is when you are looking at angel/micro-VC funding). The key is to start to develop the relationship and get them excited enough and intrigued enough to want to dive in deeper in a subsequent meeting.
You can greatly improve the odds of having a productive first meeting by telling a compelling story in a concise and hard-hitting manner. Make it personal. Hit the main high points first to generate and assess interest. Then provide backup to your claims to cement the story.
Click here to see the 4 key slides (on Slideshare) that you need to nail.
After these four slides, stop and assess your audience by asking them what they think, their key concerns etc. You should then be adept enough to address these concerns as you continue with the familiar series of slides on traction, product overview/roadmap/differentation, market sizing, business model, go-to-market, financial projections and funding requirement & milestones. Finish by showing the Investment Highlights slide again and summarizing the key points. Leave this slide up while you go through any final Q&A with the investors.
Some other guidelines and pet peeves:
- The point of the slide should be the title of the slide e.g. don’t say “Team” as the title of the slide. Instead, say “Extensive Team Experience in Adtech” if you are doing an Adtech startup.
- The meeting is not about reading out the presentation, it’s about your conversation and engagement with the investors, with the presentation as support material.
- No more than 2 minutes per slide. I’ve seen 30 minutes spent just on the first slide where the whole pitch is given with that one slide.
- You should be able to run through the presentation by yourself in less than 30 minutes.
- Place yourself between the investors and the projected or laptop-based deck. Otherwise you’ll have the tennis match effect of spectators swiveling back and forth between the presentation deck and you.
- Don’t leave the meeting without asking investors: “What do you think?”, “What are your main concerns?”, “What did you like specifically?”
- Know what your investors have invested in or said about your space before you meet them. The Web is your friend.
- Please don’t take the slide deck I’ve embedded above as an example of the colors, fonts or layout that you should use.
Yesterday, we formally announced that Lightspeed and Sequoia invested in OneAssist, a company that creates and markets assistance and protection-oriented membership plans for consumers. OneAssist was incubated and founded in the Lightspeed offices during 2011 by Gagan Maini and Subrat Pani. We’ve known Gagan for almost five years and frequently traded views on business ideas and opportunities in the payments, loyalty and concierge space. Gagan and Subrat have known each other since the late-90s, when they worked together at the SBI-GE cards joint venture. They have each built new businesses from scratch inside larger companies – Gagan most recently started the Indian operations for CPP and Subrat built the credit cards business at Kotak – and we’re excited to back them in building a new company in this white space.
The thesis behind OneAssist is that consumers increasingly value peace of mind, convenience and assistance with respect to certain events that can disrupt or interrupt our everyday lives (such as the loss of a phone or wallet, health emergencies etc.). This is driven by: (i) increasing time scarcity – especially in double income households, (ii) a cultural preference for ‘assistance’ (witness services such as Naukri’s ‘assisted’ online job postings, where sales reps hand-hold employers through the job posting process, JustDial’s assisted directory service, IRCTC’s agent channel for booking online tickets etc), and (iii) an emerging orientation towards protecting oneself from unforeseen future events (health insurance didn’t meaningfully exist 10 years ago and is a 13,000 Cr industry now). And perhaps more anecdotally, a growing sense of taking responsibility for oneself and one’s family.
We believe there is a large opportunity to create a branded, consumer-oriented assistance and protection platform across multiple segments. The initial use cases OneAssist will support are the loss (or theft) of a wallet (including cards, driving license, PAN card etc) and the loss (or theft) of a mobile phone. In each case, the company takes on the chore of cancelling credit/debit cards (or remotely wiping and locking a phone), protecting against misuse of cards and/or data, providing emergency assistance (such as providing a replacement handset with data fully backed-up), and replacing essential identity documents such as a driving license or PAN card. Each product also offers certain group insurance benefits to protect against financial loss. Plans are priced at Rs 1,000 to 2000 per annum depending on the chosen package plan, which equates to just about Rupees 3-5 a day.
In addition to marketing directly to consumers, the company would also market their products through affinity partners (such as banks, telcos, retail, etc) and corporates who have large customer or employee bases and can offer such products as very relevant value added service or benefits for a fee.
This business model is notoriously difficult to execute against given the importance of delivering against the promise in ‘moments of truth’, the myriad of supply-chain partnerships and capabilities that must be developed and coordinated, the direct and partner-driven sales and marketing capabilities that must be built to achieve scale and the customer engagement strategies that must be deployed to ensure high customer satisfaction and loyalty. We believe that Gagan and Subrat are the best entrepreneurs to take on this challenge and wish them and their team the very best as they embark upon this adventure.
[Published on Yourstory.in]
So, how long will it take to get a term sheet?
This is a question that most entrepreneurs appropriately want to know. While there is no one size fits all answer to this question, the focus of this post is to ask what I think is an equally important question for all entrepreneurs – what does a term sheet really mean?
The reason this is important is because all term sheets are not equal. Some firms issue term sheets early in their investment and diligence process (Firm A), while others issue them at the end of their process (Firm B). While Firm A will be able to issue a term sheet more quickly than Firm B, there is likely to be a higher risk that the deal does not close as most of the detailed diligence is yet to be done. Conversely, while Firm B might take longer to issue the term sheet, if/when when they do so, they will likely have a very high likelihood of completing the investment, thus providing the entrepreneur with a higher certainty of close.
Since most term sheets contain exclusivity clauses that restrict the entrepreneur’s ability to speak to other firms and evaluate other financing options, wouldn’t you rather accept a term sheet that has a higher probability of close, even if this takes a little longer? So next time you ask an investor how long it takes to get a term sheet, be sure to also ask what level of commitment their term sheet represents.