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limeroadbookThis morning, LimeRoad announced $15M in new financing to further their mission of building a social discovery and buying platform in the lifestyle vertical.  This is a significant raise for a young company and provides additional validation of their differentiated approach to addressing the large and growing online buying opportunity in India. For those that aren’t familiar with the company, LimeRoad aggregates lifestyle products from a network of brands and stores and provides its community of users tools to create and curate lifestyle content as well as to easily discover and buy unique and delightful products.

Here are some brief thoughts on why we originally invested in Limeroad and have continued to support the company in subsequent financings:

  1. A truly exceptional team that refuses to take short-cuts and instead focuses on finding scalable, long-term solutions to difficult problems.  Suchi and Prashant have been deeply involved in architecting and building consumer products of significant scale at companies like Skype, eBay and Facebook and bring similar aspirations to LimeRoad, along with an understanding of what it takes.  Every time there is a choice between an ‘easy fix’ or finding a less obvious, long-term solution to a core challenge, they choose the latter, even though that inevitably means stepping into the unknown and facing a higher probability of (short-term) failure.  It takes guts to choose the path less traveled, but we believe that this path maximizes the likelihood of substantial value creation.
  2. An early and intense focus on achieving product market fit. Here are some charts on user growth, supply growth, community activity (scrapbook creation) and marketing expense. We like it when growth and engagement charts are up and to the right while marketing is flat.  It tells us that something is working without significant external stimulation (or discounting). (Footnote 1)
    limeroad
  3. A belief that differentiation will be increasingly driven by front-end experience.  Fast shipping, real-time visibility into inventory and responsive customer service are now table-stakes, not a strategy to differentiate.  Pricing-led ‘differentiation’ (heavy discounting) is a questionable long-term strategy and can become a dangerous addiction for management teams who ignore quality of growth.  Instead, we believe that visual and social experiences that enable discovery and delight (especially relevant in the lifestyle category) will define the next wave of market-leading online companies.
  4. Visual and social experiences are perfect for mobile.  We all know what’s happening on mobile but the question is which types of businesses will benefit more than others.  We believe that products that are inherently social and visual will benefit disproportionately from smartphone growth.  LimeRoad sits squarely in this category.
  5. A large profit pool. At the end of the day, valuable companies must all have attractive economic characteristics and the margin pool in the online lifestyle category is perhaps the most attractive in Indian online commerce.

There is a lot more work to be done – and problems to be solved – but the LimeRoad team has already disproved many accepted notions in the world of Indian e-commerce – for example that it is not possible to grow without offering heavy discounts or that Indian users aren’t savvy enough to embrace deeper social activities like scrapbooking, curating collections or sharing.  We expect them to disprove many more and wish them all the best in the next phase of their journey.

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Footnote 1: In order to preserve confidentiality of company data, absolute scale is not provided in the graphs above. Base scale is sufficiently large that the above data is a representative indication of product-market fit, in our opinion.

india_rupee

I think there is a lot of potential and hope, especially now, for founders to start online (only) services businesses. Indian consumers seem to be opening up to paying for online B2C services, where purchase and most fulfillment is online. This trend is a natural outcome of India’s increasing online population (>125M now) and familiarity with online as a channel (20M bought online in last 12 months, 7M of which were non-travel). Barring a few exceptions noted below, this space has historically been challenging but I hope to see that changing in future.

Successful examples of existing online services in India include matrimony (Shaadi and Bharat Matrimony) and also aggregators across categories like travel (rail, air, bus), movies and mobile phone recharge. While the aggregator segment has been more successful because of direct linkage to offline services, it is relatively less interesting (and more capital intensive) because of low absolute margin per transaction and dependence on offline delivery for scaling versus a service which is purely digital in nature.

Subject to a large potential paying consumer base being available, pure online services are fundamentally very attractive to entrepreneurs and investors because of:

  • High capital efficiency (high gross margins).
  • Become disproportionately valuable (given B2C/branded nature).
  • Ability to grow quickly, since they are not constrained by offline buildout (not applicable everywhere).

Here are a few examples below in categories where we are anecdotaly seeing early growth in new online consumer services:

  • Financial Services: Previously, the web was used primarily for lead generation.  Now, certain types of insurance (Auto, Life, Travel) that are delivered end-to-end online are gaining traction.

It is still early days for these trends – but I hope that the growth continues. If you know of other online categories or businesses which are getting traction, I would love to learn about them – please add to the comments section below.

PS: While mobile operator value-added services (MVAS) is a great example of online services, in my opinion, these services have not really been B2C.  As a result, I am not including MVAS in the list above.  My list also does not include businesses which collect revenue from offline vendors (e.g. Zomato) or have large offline delivery responsibility (e.g. goods ecommerce).

oneassist_logo timthumbLightspeed 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.”

 

(Source: Dilbert)

[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.

[Also published on Startup Weekend Delhi]

Founders start companies for many reasons.  They want to build something useful. They have identified a specific pain point in their personal or professional lives and the status quo causes them pain. They have analytically spotted a specific business opportunity.  They are inventing something that is a leap forward in their industry or disruptive in general.  Or perhaps, they see everybody else doing the same thing and want to jump on the bandwagon!

No matter how small or big the initial idea is at startup, the best founders step back and ask themselves what the high-impact success scenario is for them and what the purpose and vision of their project is.

Yet, why is it that, time after time, many founders fail to communicate this high-impact scenario and sense of purpose and vision?   Time after time, the first words uttered  by founders to the press or investors or recruits is what they did in the past month or the recent milestones that they have hit or the numerical goal they have in mind.  I believe these things are necessary, but not sufficient, to drive a company to high-impact greatness.

Having been a founder myself, I know that the day-in and day-out focus on getting things actually done (considerably higher friction in India than in many other countries) is all-consuming (and appropriate). Yet I think it falls on the founders and management team to have a deep sense of purpose and vision and communicate that to the whole company, through words and through translation into what-does-it-mean-for-me for their team. And I believe this translates into better decision-making and execution through your startup.

My goal with this post is not to drive you to spend a bunch of time creating vague marketing-speak vision statements like “Invent” or “The best technology services provider in the world” or “The largest ___ in the country.” My goal is to drive you to think through your high-impact scenario and actively drive toward it with a vengeance.

So, consider the questions below early during the life of your startup and perhaps weave the answers into your execution as well as the (hopefully reality-based!) story you communicate to your stakeholders, whether they be the press or investors or recruits or regulators or others:

  • What is the purpose of my startup and how does this connect to the impact I want to have?
  • If my startup achieves its purpose and vision, how will my industry or people’s lives have been meaningfully impacted?
  • How do I work backwards from this purpose and vision to instantiate a specific execution plan?
  • Why is my team the best team to deliver on this vision? If not the best team, how do I build this purpose-focused team?

Here are some purpose/vision statements that resonated with me. And lest you think that these are just purposes dreamed up after the companies had succeeded, please think otherwise. These companies had this in mind from day one.

  • LinkedIn

“Our mission is to connect the world’s professionals to make them more productive and successful…  Our solutions are designed to enable professionals to achieve higher levels of performance and professional success and enable enterprises and professional organizations to find and connect with the world’s best talent.” ~ LinkedIn Annual Report

  • Indian Energy Exchange (a Lightspeed portfolio company):

“We envision an India where the quality of life of the common citizen, rural or urban, is not compromised as a result of power shortages. We indeed envision a power-surplus India and a concomitant healthy competition in the electricity market for the ultimate benefit of the consumer, domestic and industrial… We will help accomplish the above vision by providing the nation with – and enhancing the utility of – our robust, scalable, and customizable electronic trading system with integrated solutions for trading, clearing, risk management, surveillance and counter-party trade guarantee.” ~ IEX website

  • Square:

“Several years ago, PayPal pioneered a new method of person-to-person transactions. Square takes this to a new level of personal accountability by enabling card present transactions with known payers. This is the next step in the cashless society.” ~ Jack Dorsey speaking

Gagan Maini and Subrat Pani, founders of Lightspeed-backed OneAssist, as well as Lightspeed’s Bejul Somaia, were interviewed on CNBC’s Awaaz Entrepreneur program in September 2012.  Here’s the video!

[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.

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