India's startup landscape is truly booming thanks to the abundant supply of capital. However, many entrepreneurs and investors are over-awed by the glamour associated with a startup and fail to understand the intricacies of building a successful company. This euphoria takes them on a roller-coaster ride that is centered around unrealistic expectations. Entrepreneurs must stay grounded and ensure that they have the backing of family, friends, mentors and advisers from the outset.
A well-oiled ecosystem for entrepreneurs
In the last 3-5 years, there has been accelerated development of the entrepreneurial ecosystem globally thanks to increased interest from angel investors, venture capitalists, mentors, support organisations and heightened media attention.
Each element of this ecosystem, which used to work in silos earlier, now functions in unison. The average age of entrepreneurs has gone down. Today, many more people plunge into startups straight out of college. Startups such as Ola and Flipkart have shown that it is possible to build a billion-dollar company without having years of experience.
The fear of failure and the stigma associated with working at a startup firm has largely vanished. Young entrepreneurs are open to take risks. They are willing to start, fail and start again. The social acceptance of entrepreneurship has really gone up. Lastly, thanks to various incubation services and the availability of cloud-based infrastructure, the cost of starting a business has come down drastically. Though manpower costs have increased over the years, other kinds of startup expenditure have come down.
Don't get carried away by the blitz
The bad news is that there is a rise in the number of folks who are unfamiliar with the risks of joining the startup ecosystem but are still entering the fray. Many think that power point presentations and paper plans alone can help in creating a successful startup, which is untrue. Several angel investors do not understand what it takes to build a company. Thought I don’t call it a problem, all the excitement leads to unrealistic expectations, which wasn't the case ten years ago.
A lot of entrepreneurs get carried away by their idea and don’t do enough homework. They are so passionate that they get emotional and refrain from using logic or analytics. I am forced to tell many entrepreneurs to come back to me with a detailed business plan. Secondly, they get carried away by the glamour of entrepreneurship because of all the media attention. They underestimate the hard work, time and capital required to build a company. I follow the rule of three - whatever the entrepreneur presents, it will normally take three times the capital, three times the effort and three times the time.
Indian consumers are hungry for brands as there is a paucity of quality services here. Several large pain points are waiting to be solved and there is a huge opportunity to build valuable companies. My investment decisions are fundamentally based on sectors. We we do not go in for niche sectors. At GrowthStory, we focus on food, clothing, housing, healthcare and education . Secondly, what matters is the team steering the startup. We know that less than five per cent of all startups succeed. Hence, it’s important to have a good team that is persistent and able to beat all odds. If the sector is large and the team is good, the idea doesn’t matter. The idea can evolve.
Questions for an entrepreneur
I generally ask three key questions to budding entrepreneurs. Firstly, why do you think this is a large opportunity to build a billion dollar company? The mantra should be to aim big, so that even if you fail, you will fail spectacular. Secondly, why do you think you will win in this sector? I would like to know what is the secret sauce that will make the startup click. Thirdly, do the promoters have the patience and perseverance to build a large, successful company? Entrepreneurship is a marathon and not a sprint. You have to give it your all.
How much to dilute?
A very pertinent question with no direct answer. In principle, its ideal to dilute less than 30 per cent at the angel funding level. Having said that, some businesses don’t require continues funding and such firms could look at over 30 per cent dilution at the outset. However, if a prototype building effort calls for 30 per cent dilution, followed by another 30 per cent dilution to begin operations, then that's clearly avoidable. So, the quantum of dilution depends on the total capital, number of capital raising rounds expected and time requirement. If you don’t require too much capital and you have a immediate outlook for cash flows and profitability, then 30 per cent dilution for seed funding is fine.
I don’t think absolute work-life balance is possible, I believe in work-life integration which is doable with a good support system. Each entrepreneur has to get the mix right on the basis of his personality and background. Entrepreneurship takes away 110 per cent of a person's life. You must be prepared to give up everything to make it happen. If you don’t have the mental and physical stamina, best is to stay away. Entrepreneurs must be surrounded by a strong support system of family, friends, mentors and advisers. Secondly, simplify your life. Identify your biggest problem areas or sources of stress, and try to remove them. If you think your business requires special technical skills, induct a technical person as co-founder. If the business requires a lot of capital, ensure that you have enough money before you start itself.
Is this a bubble?
Successful startups- be it Uber, Ola, Flipkart or BigBasket- are solving pertinent problems and are doing real transactions. It’s not like the dotcom bubble where investors/companies went behind page views and eyeballs. People prefer to do almost everything online these days and these startups are milking the opportunity. Human evolution and behavior changes are irreversible- they never go back in time!
K Ganesh is a serial entrepreneur turned investor. He and wife Meena are partner at GrowthStory.in, a startup factory that invests in technology startups. The couple were also behind education-cum-consumer internet services firm TutorVista Global Pvt Ltd, which was sold to UK-based Pearson Plc in a $213 million deal. Growthstory's portfolio companies include online grocery retailer BigBasket, online jewellery store Bluestone, in-home healthcare services Portea Medical, online fixed furniture marketplace HomeLane and internet-first restaurant Freshmenu among others.
As told to our Principal Correspondent Binu Paul.