We have all been through this grind haven't we? Get a brainwave one day that then becomes a brain-worm - you just can't stop thinking about it for weeks on end! You are convinced this could be THE next big business idea! Until that is, the realities of taking the idea to production start sinking in! 😏
How am I going to fund this project? How will I reach my target market? How do I compete against powerful and well funded competition?
The first problem for most middle-class folks like us is Funding for our Idea - we don't really have the advantage of having a Trust Fund setup by Pappa do we? Banks are an option but not always - the product could have a lead time of upto 2 years before it even hits the market and EMIs become due immediately! It is an even bigger challenge to do this as a Refugee/new Immigrant in the US - since we lack the "Social Capital" or access to Networks we can tap into!
This is where Venture Capital firms/Angel Investors come in! But there is very little awareness of how the whole scene works and a lot of misinformation! I won't claim to be an expert but this blogpost is going to be about just that - sharing my experience about funding our business ideas!
My first experience dealing with VCs was in India back in 2010. A couple of folks from Ludhiana / Gurgaon I had met on my 2009 Ladakh trip were pursuing a business idea they got on that trip - a Travel portal for Small Home-stays with *curated travel experiences*! Good business ideas always come on Ladakh trips eh?! 😅 They wanted me to be their CTO - responsible for building the IT infrastructure that would support the venture!
Back then I was developing IT solutions for US clients as an independent consultant - mainly for the Real Estate domain, and had just ventured into the very profitable but rather *boring* side-hustle of developing BI Dashboards and Integrations for small commuter Airlines. This new idea seemed VERY promising! And it was - the core business idea had merit if we were able to get it off the ground! Spoiler alert - we weren't!
The first issue was to fund the initial project. The IT part of the project would cost atleast ₹30 lakhs and with other expenses, we would need atleast another 10-15 just to get the prototype out! That was way more money than anyone of us had to invest at that point! It was at this point that someone suggested meeting VCs/Angel Investors so we started pursuing that.
We had all heard of VCs till then but none of us actually had any experience dealing with them! The lead partner came from a family that ran a chain of small Textile/Sweet shops in Tier-2 Punjab towns, The second partner, his school mate, worked in ICICI bank corporate while I had a IT Product Management background! We were COMPLETELY clueless about dealing with what was to follow! Coordinating was becoming a problem and after commuting almost weekly between Bangalore and Gurgaon for a while, I temporarily moved to Delhi for a year to get this venture off the ground! We were naive little kids working on an idea - we were so excited!
We were at first pitching to Angel Investment groups when we started getting calls from VC funds- these guys are well-networked and all of them talk to each other. We were unsure of quite what to do at that point! We would make presentations to ANY Champu fund that approached us! Fair warning - there are lots of "Champu funds" in Delhi NCR region investing funds on behalf of political/gunda families! After some discussion (and arguments), That was one group we had all agreed to stay away from - we would NOT seek investments from politician/gunda linked entities.
3 of the more serious players actually came back with what are called "Terms sheets" - still remember the day we got the first of these! 😅 Reading that Term Sheet made us realise just how f***ing unprepared we were! Long story short, in the end we ended up with 3 terms sheets - 2x from VC funds and 1x from an Angel group.
One of the VC Terms Sheets was totally unacceptable! We tried to counter, but none of us were lawyers and those guys had a SOLID legal team behind them! Boy!! Was that a fun experience!! Dealing with those scummy Lawyers was like getting a prostrate exam from a pervy Doc without Lube or Gloves! 🙄 They were totally unwilling to back off on their terms. Looking back on that whole experience, we were so Naive and Unprepared! 🙄
In the end we decided to go with the Angel Fund as they were giving us a better valuation, and when the VC fund found out, they negotiated to take a cut off the Angels. As I said, these guys all talk to each other - it's like an exclusive "Big Boys Club"! 🙄 I may be paranoid, but I seriously think these guys all work in concert with each other! So anyway in the end, the VC fund took half and the Angels took the other half and Both pushed us to increase the size of the Funding. I was reluctant but I was essentially outvoted at this point and since we had better valuation terms now, we finally went ahead with it!
The prospect of getting 4x the money we actually needed kinda blinded us all! We could now get proper offices with ACs instead of working out of a dingy setup! I can laugh about it now, but My partners were even planning to both get Audis - apparently that was a thing in the Delhi in 2013! 😅 We were all blinded and tbh, getting distracted from our goal!
The one good thing about VC being involved - they held regular meetings that IMO atleast helped keep the focus! They did competition and market analysis etc on a level that I hadn't thought about before! Huge learnings for me there! They also got me to meet up with Industry folks - those introductions were all very useful! I certainly think so even though my partners were getting annoyed with all the *interference*!
This is where things started to go wrong! The partners started to have fights with the Fund folks and later with each other! For a South Indian, watching these North Indian folks fight from the sidelines can be an unnerving experience! We don't really do that in a professional setup na?
I was on good terms with the Fund folks - and this started making my partners doubt me! 🙄 I didn't initially mind the *interference* as I said, but when they started getting into Product discussions and got one of their Pappus to sit in on Design and Code Review meetings, I started resenting them too! I am a hardcore Product Girl well versed with Processes! Process is my middle name! I really didn't need a 2₹ "Scrum Master" telling me how to do my job!
Long story short - it all went to hell after that! The Fund guys took our product and it basically was over! 10 years later I don't think they are where we should have been in the market- that product has evolved into something else already! They tried to get me back on the project but by then I had moved back to Bangalore and moved on with my life with important learnings!
Years later, as a Refugee rebuilding my life in a new country, I found myself looking towards VCs/Angels again to fund my *new* product idea - an advanced AI Report Writer for the Real Estate Mortgages market. Not really new - It is actually revisiting an Idea that came to me on another Ladakh road-trip in 2014! ☺️
I started building the prototype in .NET 4.8 Framework with a development team based in Philippines but long term idea is to eventually move to an Angular based framework deployed on Lower cost servers. Some screen shots of the application under development.
There are other challenges getting funding as a Refugee/New Immigrant in the US. We simply do not have access to the kind of Social Capital or networks needed to get the required funds! And having to keep working on other projects to pay the bills means work on the Product itself is painfully slow! 😞
To summarize, what are the things you need to remember when approaching VC/Angel groups? Listing some of my key learnings over the years in no particular order!
1. Keep up on your *Network Game*! VCs/Angels are strong on that! Build up a solid network both among the VCs as well as your industry groups. Retain contacts with old employers and teams you worked with! It's important!
2. Have a strong idea about what kind of Company you want to build. Not talking about the product here but the work culture and ethos of the company you are building. To put it bluntly - do you really want to build a "Lala company"? You have to make compromises when seeking funding, but Anything that goes against the core vision should be a deal breaker IMO.
3. Don't let the VCs dangling money seduce you away from your core idea or vision! That happened to us!
4. Take only what you need and stick to it. Our conservative, Malayalee upbringing kind of trains us for that na? I am not sure if all VCs do it but some do - they try to convince you to take MORE in each round than you actually need. Get your numbers in place as to how much you need and then stick to that no matter what the temptation!
5.VCs invest in Teams. You will need a team that inspires professional confidence. In North India, they have this thing of dressing nattily, carrying iPhones and setting up glitzy offices etc to do that. I don't believe in that fully. It is good but not what I am saying! A small office setup is fine IMO, but your Team should inspire confidence! That is the most important thing IMO! What is the image you are presenting to the world? A professional team that is capable of doing the job - both on the management side as well right down to the Programmers.
6. Related - think seriously about the Partners you are bringing onboard the project. It is important that all partners share common values and ideas as to what we are doing and why we are doing. Having rational people onboard the team is very important!
7. How do you plan to use the money? Do the numbers in detail - no matter how much time this takes! Important to plan all the expenses out to figure out the *Burn* - we can go very wrong with that! Advertising, Recruiting, Salaries, Delivery costs - it can all add up! Do the numbers before hand and have it ready for the VCs. They come prepared! You should be too!
8. Research into your VC/Angel. They are doing a thorough Background check on you so why shouldn't you? Our VC even flew to the US to meet my old boss in person! We have to be similarly thorough!
Is the VC really focussed on your domain? Some VCs are focussed on a particular area like Real Estate, Hospitality, Healthcare etc. There are advantages of getting one from your specific area. In today's era, it also helps to do a thorough vetting of the source of the funds especially in India. Is the VC managing money for a politician or political group? Or a Mafia group? Trust me that happens! It's ok if you are comfortable handling those dynamics! But take your time to think about it!
9. Do your numbers and keep them updated. Your pitch has to be backed up with solid numbers. Don't be like the Exit Poll walas in India! If you’re telling them you expect 2200 subscribers @ $92/mo in 12 months, you need to be able to show how you arrived at that forecast! Very easy to destroy all your credibility in this business! Make sure you have the real metrics in place for all claims you are making.
Also, when it comes to VCs, they will want different data depending on your industry. Look into *Comparables* - Research a competitor and identify the key elements on which they are measured. If you are doing something in Real Estate, pulling numbers of successful online Cosmetic Companies isn’t going to work, and you’ll most certainly miss crucial elements you need to deliver on! This could make or break the deal for you!
10. Don't throw unnecessary technical jargon. This is a common fault with technie nerds like us. Honestly, these guys don't care about all that!
These guys don't care about Linux servers or Angular and how you are going to make that work! They only care about the numbers - Ashtey! They care about how much money they are going to have to spend and what returns are going to be!
11. It helps to approach the VCs from a position of strength. It greatly improves your negotiating power if you have a working v1.0 prototype, not just the skeleton ready when negotiating! I know- not always possible! But it greatly improves your bargaining position in the negotiations if you have a substantial physical product that you can show case!
12. Focus is very important! You need to give the Prototype 100%! Balancing multiple work assignments while trying to build your prototype does NOT work. It always comes up short and takes 3x as long! If not longer! Can't do justice to either! You NEED to take a sabbatical to do it well!
It's challenging, but it can be done! For eg, if your monthly expenses including Rent, Utilities,, Groceries, Insurance, Car Lease etc is US $4000, then you will need $20000. 5 months is more than enough to develop v1.0/Prototype for a typical IT product! You can begin the prelim pitch to VCs/Angels when your prototype is 80% done!
Final point - Get a Lawyer. One of the biggest learnings for me dealing with VCs was that those guys come fully prepared. Dealing with them is one thing - but you have also have to deal with the Scummy Lawyers that always accompany them - the kind who throw $10 words at 10ç gyan!🙄 Not an experience to look forward to - TRUST ME! No matter how much we prepare we are going to come up short! We cannot deal with them because we are simply not wired to do that! Atleast I am not!
Get a lawyer fellow on your team - the scummier the better - and stick him/her on them! Let the Lawyers then figure it out among themselves while we do the real work! 😏
Most important thing - Have tons of Fun! We are building something fantastic here but which scummy lawyer made the rule that we can't have fun while doing that?
PS: I am taking a 5 month sabbatical to build a prototype for my AI Report Writer product. You can support me by clicking on the link below:
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