Thinks 53

What comes after smartphones? by Benedict Evans. “We’ve spent the last few decades getting to the point that we can now give everyone on earth a cheap, reliable, easy-to-use pocket computer with access to a global information network. But so far, though over 4bn people have one of these things, we’ve only just scratched the surface of what we can do with them…now the innovation comes from everything else that happens around them.”

Build a Personal Monopoly: by David Perell. “The ultimate goal of writing online is to build a Personal Monopoly. It’s your unique intersection of skills, interests, and personality traits where you can be known as the best thinker on a topic and open yourself up to the serendipity that makes writing online so special.”

The victory of the peripheral? by Santosh Desai. “The government’s iron grip on the media and its ability to push through any narrative no matter how far-fetched has given it is a sense of invincibility that becomes a source of frustration when it has to deal with international criticism...The net result is that the peripheral issues are what is taking up our time and attention.”

My Proficorn Way (Part 73)

To Raise or Not

As I look back to my IndiaWorld journey a quarter century later, I realise that my inability to raise capital created my eventual success. Had I raised either startup or growth capital, I would have expanded too fast too quickly – which could have been fatal in those days because the market was just not large enough. What investors want is high growth – followed by the next capital raise. That becomes a treadmill. Angel funding followed by Series A, B, C and so on. With each new fund raise, the entrepreneur’s stake diminishes. I have seen cap tables where the original entrepreneurs have a stake so small that the business is in effect owned by the investors and the once-entrepreneur is nothing more than an employee with limited decision-making powers.

While raising external capital is right when the business absolutely needs funds for growth, my belief is that most tech businesses are asset-light and thus do not need too much capital. While it is fashionable to become an entrepreneur in college, it must be recognised that the norm for most ventures is failure and not success. All experience is good so the earlier one gets it the better. But what the entrepreneur must ask  is: how can I maximise my chance of success? Creating a venture that is bound to fail is not the best way. (Of course, there are exceptions to every rule. There are many stories of college dropouts who have built successful ventures. That does not make my point invalid – it is just that 99.99% startups fail and entrepreneurs need to keep this mind. The job of an entrepreneur is not to take risk – it is to go to work daily to reduce the risk of failure.)

Entrepreneurship is not something just for 20-somethings, even though those are the stories we tend to hear. Age is irrelevant; the idea and execution is what matters for eventual success. Age is no bar for an entrepreneur. Experience working in other startups or mature companies can deepen one’s understanding of how to build a successful business. Also, the additional time spent working can create a pool of surplus capital which the entrepreneur can use for funding a new venture. This is exactly what I did – the 2 years I spent working at NYNEX gave me the necessary experience and $30,000 savings (in 1992) which I could use to start my entrepreneurial journey in India.

I am probably in a minority when I say that entrepreneurs should delay raising capital as much as possible – and ideally not even raise it. I have done it twice – IndiaWorld and then Netcore. While not raising capital in IndiaWorld was a mix of some luck and pluck, in Netcore it was much more of a conscious decision. I have talked to many VCs and PEs through Netcore’s 23 years – my ability to fund and our profits always give me the advantage in such conversations. While we may have grown faster with external capital, it would not have been without costs – either in operating freedom or stupid expansion decisions which I could later regret. As I look back, I tell myself and my team – we chose the path less taken. Only time will prove whether we made the right call or not. But we can all sleep easier with the belief that our destiny is very firmly in our control.

Thinks 52

The Shadow of England in India’s Farm Protests: by David Fickling and Andy Mukherjee in Business Week. “Faster urbanization and quicker economic growth await. But, first, New Delhi has to make agricultural reforms palatable to farmers.”

Machines Are Inventing New Math We’ve Never Seen: “A group of researchers from the Technion in Israel and Google in Tel Aviv presented an automated conjecturing system that they call the Ramanujan Machine, named after the mathematician Srinivasa Ramanujan, who developed thousands of innovative formulas in number theory with almost no formal training. The software system has already conjectured several original and important formulas for universal constants that show up in mathematics.”

David Brooks on the coming technology boom: Vaccines, geothermal energy, fusion, autonomous vehicles, AI, space exploration, new drugs.

My Proficorn Way (Part 72)

Growth Capital

Few ventures that make it past the initial months and years. Infant mortality in startups is very high. Contrary to the perception of every entrepreneur, most ventures fail. The longer a business survives, the greater are the chances for longer-term survival. Once a venture has made it past the early hurdles and gets a revenue stream going, the fear of death fades away and attention turns to the future. It is at this stage the entrepreneur faces another crucial decision: to raise growth capital or not.

I too faced a similar decision in 1998-99 when I was running IndiaWorld. We had good momentum in terms of traffic and ad revenues. But the Internet was hot and competition was intensifying. Capital (domestic and international) was more easily available. While I had some surpluses, it was not enough for me to expand the senior management team and spend on marketing as many of the other funded competitors were doing. Every time I saw a full page ad in a newspaper from another Internet player, I missed a beat.

I spent many months trying to raise capital. I travelled often to the US to meet potential investors. I even met some Indian investors. In all meetings, I would state my expected valuation upfront – so as to minimise the how-much-are-you-worth dance that took up a lot of time. And I kept increasing my valuation with every failed meeting! I also did not budge from my valuation. A few months before I sold IndiaWorld for Rs 499 crore, I had got a pre-money valuation of 17 crore. I was stuck at 17.5 crore. Neither of us moved to bridge the gap and the deal did not happen. Sometimes, luck favours the brave!

I could say No because I had money in the bank and the business was profitable. The portals we had built (our product) had a natural virality. I would tell my team: we can advertise and get people for the first time on our website, but after that it will only be the content and the user experience – and not additional ad spend – which will determine whether they returned. So we focused on the product. And a delighted audience spread the word and kept our traffic (and therefore ad revenues) growing. The pressure on me to do a deal to raise capital to fund losses was not there.

This is not to say that one should not talk to potential investors. These meetings are always useful. I would meet interested VCs regularly – in a meeting or two, I would understand the competitive landscape and some of the gaps in my business. This outside-in view and advice (for free) helped me strengthen IndiaWorld without diluting equity on unfavourable terms.

My recommendation to entrepreneurs is to delay raising any external capital as much as possible – and completely avoid it if you can. This will mean much greater thought needs to be applied on how to get the revenues quickly. If one wants to build an enduring business, this has to be solved – so might as well do it early. The best way to fund a business is by generating profits. Instead of spending half one’s time dealing with raising funds or reporting the health of the business, an entrepreneur is better off thinking about the business models and talking to customers.

Thinks 51

All Stories Are Wrong, but Some Are Useful: by Neil Kakkar. “Stories, not people, rule our world. We’re always telling ourselves a story about how the world works, and this makes stories very powerful.”

Best Stories Win: by Morgan Housel. “A truth that applies to many fields, which can frustrate some as much as it energizes others, is that the person who tells the most compelling story wins. Not who has the best idea, or the right answer. Just whoever tells a story that catches people’s attention and gets them to nod their heads.”

Adopt a short story a day: by Vinita Dawra Nangia. “Short stories convey unforgettable life lessons very effectively, focused and succinct as they are. At a time when we struggle with short attention spans and limited time, what better than a short piece of fiction? If well-written by a master storyteller, most short stories leave you thinking, with vignettes lingering in your mind and imagination for days after you finish one.”

My Proficorn Way (Part 71)

Startup Capital

Cash is the oxygen for a startup. Without cash, there is no venture, adventure, startup, entrepreneur. One of the entrepreneur’s early decisions is to decide how the initial capital is going to come. This is the decision that determines whether the startup will be a proficorn or not when it grows up.

When I started IndiaWorld in late 1994, the initial capital came from my savings in the US with some additional help from the family. Before IndiaWorld, there had been a couple other failed ventures which had consumed much of the capital. So, I had a very limited runway when I started IndiaWorld to turn profitable. At that time there was hardly any funding available for new companies from either angels or VCs. So, the choices were very limited to self, family and friends.

I had to go out in search of revenues almost immediately. Two streams helped me survive the initial months – subscription fees helped fund US expenses while website development took care of the Indian costs. It was later that advertising started coming in and that boosted the surpluses each month.

I got interest from a VC within a couple months of launch. But the deal never materialised. Through the five years of IndiaWorld this same story was repeated many times – many conversations but no deal. I was in no desperation to raise funds because we were generating profits each month by the end of the first year of operations. And thus was born a proficorn.

For entrepreneurs today there are many external sources of capital available. The question is: should one raise capital or not? If the business is capital intensive, then one has no choice. However, for many businesses not raising external capital can be an option. It forces a discipline on spending and drives the early push for revenues – both are good for the longer-term survivability of the venture. Besides, the search for external capital takes away a significant time of the entrepreneur – time which should really be spent building the business. Also, no capital comes in without giving up some freedom and control – again the entrepreneur can do without having to worry about MIS statements and monthly review meetings.

Risking one’s own hard-earned money is never easy. That’s why it is important to think through the worst case scenario and have clarity on how much capital one is willing to spend in building the venture. The reality in India is that most ventures are still self-funded – very few are able to raise startup capital. We only read about those who got the funding and not about those who did not. In software it is the entrepreneur’s time that is actually the investment; so it is much easier to get started.

In short: the entrepreneur’s early focus should be to stay away from external capital, put in one’s own money to get going, focus on building the product, and work on getting early revenues to fund the expansion. Success on these fronts is what will create a proficorn.

Thinks 50

How the parting of two market forces helped spur the equity rally: by Michael Mauboussin. “In 2020, companies with real options had a valuation boost for their current operations because of a fall in the cost of capital and a gain in their real options because of an increase in volatility…This might help explain some of the large stock price movements in the past year, particularly in the tech sector.”

Politico on the rise of email lists: “Renting, swapping and selling campaign email lists to new candidates and causes is a booming political business, but it comes with risks.”

The Future Will Be Decentralized: by Tyler Cown. “Why not, for example, put social media on blockchains and have efficient cryptocurrency micropayments to reward those who help maintain such mechanisms? Censoring postings on such a service would be as difficult as trying to overwrite a blockchain ledger, which is to say very difficult. (Indeed such postings would be a blockchain ledger, albeit in a more digestible form.) And instead of having to deal with the content rules of Twitter or WhatsApp, perhaps you could customize and build your own rules.”

India Awaits its Washington (Part 4)

The Indian Revolution

Over the past six months, I have written what can be thought of as the Revolution series.

I do not use the word “Revolution” lightly. It is exactly what India needs. A revolution results in a new political and economic system. We need both. We need a revolution to give ourselves freedom and prosperity. We need to take power away from Them – because They are simply the new Governor Generals of India. The British never gave Americans their freedom. The Indian Britishers will never do so either. That is why Revolution. Changing rulers by voting for a different symbol is not revolution.

We need to imagine a new India, a free India. An India where for one generation we set aside all that divides us to create prosperity for ourselves. An India where we trust ourselves and each other more than we trust government. An India where we do not self-censor what we speak, write and think. An India where They become our agents and not our masters. An India where Their power is limited and our freedom is not. An India which we can bequeath to our children pride and not a passport to a foreign land. An India where our surnames do not determine our admissions, jobs and benefits. An India where our farmers are freed to set up factories. An India where our entrepreneurs do not have to flip their startups to foreign lands. An India where proximity to Them does not determine business success. An India where we celebrate Lakshmi and bring her into every one of our homes.

How do we make this India a reality? How do we make a people believe they are free and understand what freedom really means? How can we muster the courage to rise against Them who control the levers of power to crush all dissent? The How is not easy or obvious. And yet, we must. Some amongst us have to rise. India doesn’t need another Father, what it needs is a Founder – one who can truly set us free. This is the Washington India awaits.

Thinks 49

India’s farm crisis is of the middle peasant, not the chhota kisan: by Harish Damarodan. “It is the rural middle class — which experienced a roughly four-decade spell of prosperity from the 1970s and now has its back to the wall — that’s at the forefront of the agitation against the farm reform laws.”

India needs empowered cities to nurture elected mayors for top political jobs: by Swaminathan S Anklesaria Aiyar. “India needs a political system enabling dozens of politicians to prove their capabilities as mayor of cities, some of which have populations of tens of millions, more than that of many nations.”

Hercule Poirot at 100: “A hundred years ago, Agatha Christie introduced British readers to a small man with an impeccably maintained moustache who, with the help of his “little grey cells”, was very good at solving crimes.”

India Awaits its Washington (Part 3)

Who Will Free Us?

A nation once rose as one to fight those who ruled from afar. It was a nation born out of revolution. It declared Independence and crafted a country forged in liberty, filled with optimism. It created a Constitution that put constraints on those in government and not the people. It believed that prosperity came as a consequence of free people being left to trade on their own. It limited government and not the ingenuity of the people. It was an experiment at that time – unlike anything the world had seen.

That nation was America. Its founding fathers – led by George Washington, and ably supported by James Madison, Alexander Hamilton, Benjamin Franklin, Thomas Jefferson and others – created a land of hope, a people who were truly free. Liberty meant something. They wrote new rules for their young nation that laid the foundation for the greatest prosperity machine the world has ever seen.

Amongst all of America’s leaders, Washington stands tall. As the first President, he safeguarded the Constitution. He fought for freedom and ensured it survived against all odds. The team he picked, the decisions he made — they made America. He made America.

India is at a similar moment in its history. The people need to first recognise that just a Constitution and democracy are no guarantors of freedom. If the people were not free before August 15, 1947, they surely cannot be considered free after that – because the rules have not changed. We can change the symbols of the political parties we vote for but that does not bring us any closer to freedom. Only when we the people realise that we are not free will anything change in India. They – the rulers – are a continuation of the long line of conquerors who have enslaved us. We have never really experienced freedom in India. August 15, 1947 is a date that has been used to continue the domination of few over many, of Them over us.

What we need is the Indian Revolution – a change in the political and economic system. India awaits its Washington, a leader who can truly lead the charge for liberty and lay the foundation for a free and prosperous India. Every past leader we trusted has chipped away at our freedom. They all had the opportunity to set free the people, but They did not. None of Them ever will. They benefit from the absoluteness of power to command and control a billion people.

We need a Washington who can make the Indian Revolution happen so we can truly experience not a mirage but the miracle of freedom, so we can live not under the law of the ruler but under a rule of law, so we do not plan poverty but perpetuate prosperity. When will India get its Washington? Who will free us and create a new united nation of Indians?