Greek Complexity

8 predictions for Asia’s startup scene in 2015

It’s that time of year when tech pundits everywhere emerge with prognoses for the year ahead. I’m jumping on the bandwagon too.

TL;DR

1. Early-stage valuations in India will continue to build towards a breaking point
2. Startup valuations in Singapore will continue rising unabated
3. Facebook will make its first big Asian acquisition
4. Google will continue to NOT make acquisitions in Asia
5. Sovereign investors will follow GIC’s and Temasek’s lead into funding late-stage tech firms
6. Large Chinese tech firms will invest outside their home market
7. Southeast Asia will see its first US$500 million tech startup exit
8. Japanese firms’ investment activity in Emerging Asia will remain steady

Let's get into the details.

1. Early-stage startup valuations in India will continue to build towards a breaking point.

India is currently seeing quite a bit of excitement in the early-stage funding scene. By “early-stage” I mean companies raising (much) less than US$5 million in financing in their last round. There are sound reasons for the excitement — accelerating growth in smartphone usage, positive developments on the government and policy front, increased availability of early-stage capital, and a lot else. Yet at the same time, it is fair to say that valuations may be getting a little ahead of themselves.

I think there is still some room for valuations to build further, driven mostly by capital chasing high-quality entrepreneurs in attractive market segments, a combination that still remains scarce today. That is the bull case.

The bear case is that valuations will over-shoot and the trend will break — and this is what I think will happen. All it will then take is for a couple of leading venture capitalists, who have a lot of available capital in comparison to the size of these small early-stage rounds, to take a breather. I anticipate that this will happen in the second half of the year. These bigger funds will then retreat to their original focus on growth-stage investments and leave the early-stage scene to specialists and smaller funds.

2. Startup valuations in Singapore will continue rising unabated.

Although Singapore is very small and hasn’t produced big successes on a consistent basis, government support in one form or another — grants, equity funding, smart promotion of Singapore to entrepreneurs and financiers outside Singapore, assisting Singapore-based firms with commercialization and internationalization, educational resources, and more — has resulted in Singapore punching well above its weight in terms of the number of early-stage ventures at the top of the funnel. Even more so than in India, early-stage startups in Singapore have lots of sources of capital to choose from (and not just from the government). This implies that any decent early-stage startup can raise initial rounds of funding on attractive terms.

There’s nothing to prevent more such startups being founded and many more will continue to be. However, it will remain true for the foreseeable future (not just in 2015) that the amount of early-stage capital available will easily dwarf the number of companies that can absorb that capital. This underpins my prediction.

Whether this story will eventually have a happy ending — and who will be its beneficiaries — is something to think about.

Note however that this is only about early-stage startups as I defined earlier. Among startups that are at series B and beyond, attractive companies will continue to raise money at appropriate valuations while others may find themselves plateauing or worse turning into zombies. At that stage, it is difficult to talk about valuations in broad-brush language.

3. Facebook will make its first big Asian acquisition.

Facebook has made many acquisitions in the US and a few elsewhere. In contrast, their deal activity in Asia has been subdued. In Emerging Asia (loosely defined as India plus Southeast Asia), Facebook has made only two acquisitions – an Indian startup called Little Eye Labs and Malaysian company Octazen.

This will change.

I think Facebook will make its first big acquisition in Emerging Asia in 2015, where I define “big” in this context as anything valued at over US$50 million.

My reasoning is straightforward. The two biggest countries in Emerging Asia are also two of Facebook’s most important markets: India and Indonesia. Facebook’s India userbase is set to surpass its US userbase in the near future. Indonesia is not far behind.

As to what Facebook might buy, I think it’s very unlikely Facebook will purchase a company purely to bulk up its userbase. Facebook’s traction is already so large and has such strong in-built network effects that it doesn’t make sense to do this. They bought Whatsapp not (only) because it had a large userbase — of which a big proportion is in India and Indonesia — but because it brought them exposure to a new, parallel area. The same is true of Instagram, Oculus Rift, Internet.org, Little Eye Labs, and so on.

So what might Facebook buy in Emerging Asia that operates in a parallel domain and warrants a good-sized cheque? Here we move away from prediction and towards speculation, but here are some ideas anyway:

• Technologies that enable Facebook to acquire, service, and retain new kinds of users – the types who don’t fit the profile of the typical Facebook user today. This is a stated mid and long-term ambition for Mark Zuckerberg (Internet.org being one manifestation of this goal) and Emerging Asia would be the ideal place to run a large-scale experiment that could be rolled out to the rest of the world if it succeeds.
• Companies that offer (access to) new kinds of content that Facebook doesn’t have familiarity with today. As an analogy: the biggest app stores in China aren’t Apple’s and Google’s official stores; they’re actually third-party marketplaces. People are trying the same thing in Indonesia and there’s no reason why the trend should stop with Indonesia. Facebook is already a platform in more ways than one and this could be a way for them to become an even more comprehensive cross-OS platform. It would have the added benefit of helping with user retention as they traded up from feature phones to smartphones or from low-end smartphones to higher-end devices.
• Infrastructure. As early as mid-2012, Facebook was far-sighted enough to invest in a submarine network cable in order to secure guaranteed capacity and the ability to better serve users in Emerging Asia. If I were them, I would look closely at doubling down on other similar bets.
• On the customer (B2B) side, smaller companies that have the distribution capability to sign up advertisers or tools to help those advertisers achieve their goals more easily.

4. Google will continue to not make acquisitions in Asia.

Google is perhaps the most global Silicon Valley company I can think of in terms of its userbase. Yet, most of its commercial focus has continued to remain the US and Europe. With the majority of its revenue still coming from its core search advertising business, Google doesn’t gain much by aggressively pursuing users, new technologies, or even advertisers in Emerging Asia. This isn’t to say that they will not grow their business organically in Emerging Asia; just that M&A dollars are far more easily justified in their home market. I’d love to be proven wrong with this prediction.

5. Sovereign investors will follow GIC’s and Temasek’s lead into funding late-stage tech firms.

Singapore’s two government-backed investment companies GIC and Temasek Holdings have raced ahead of their peers in terms of getting exposure to technology titans in the US, China, India and elsewhere, seemingly as a result of putting a formal programme in place rather than merely making opportunistic investments. Temasek-affiliated firms like Vertex Venture Holdings and Pavilion Capital have given Temasek further exposure to tomorrow’s potential titans. I don’t know of too many other sovereign investment firms that have done the same thing, barring the occasional one-off deal such as the Qatar Investment Authority’s recent investment in Uber. I think this will change this year, as other sovereign investors start to pursue large tech companies who continue to stay private well past the US$1 billion valuation mark.

6. Large Chinese tech firms will invest outside their home market.

Many Chinese tech companies are already quickly becoming household names outside China by virtue of organic expansion and some investment activity. We can expect investment and M&A activity by these large technology companies to substantially ramp up in 2015, and specifically in Emerging Asia and the US. The most active players will be ones like Alibaba, Tencent and Baidu, but several other less known players will also appear on the scene.

7. Southeast Asia will see its first US$500 million tech startup exit.

This is perhaps the one prediction I am least comfortable with. I am aware of Southeast Asian companies that have already reached this valuation level. What I am less sure of is whether they will achieve an exit this year.

8. Japanese firms’ investment activity in Emerging Asia will remain steady.

Over the past few years, Japanese investors have, for a variety of reasons — fall-out from Fukushima, contracting home market, desire to diversify away from China — looked at Emerging Asia as an attractive investment destination. Japanese firms generally make decisions in a careful and deliberate manner and thereafter tend to “stick with it” unless and until there are strong countervailing reasons to change course. Investments by Japanese firms in Vietnam, Indonesia, India and other countries in Emerging Asia have generally followed this pattern and I anticipate that this will continue in 2015.

The one exception to the steady-as-she-goes approach is SoftBank (of course), which has made big bang investments in Emerging Asia recently and is likely to follow these up with more such deals. A related investor is Visionnaire Ventures, a joint fund by Temasek Holdings and Taizo Son, brother of Softbank’s founder Masayoshi Son.

So there you have it.

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I focus in this post mostly on investment activity, not broader predictions about attractive new opportunities for startups and VCs because:

• such predictions are easier to evaluate within a defined period, and
• other trend predictions will either take longer than a year to play out or likely occur within a year but be so banal as to be meaningless.

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This piece first appeared on Tech in Asia. 

 

The next big opportunities from the next Silicon Valley

This piece first appeared on Ask(Your)VC.

That title isn't clickbait: I'll tell you upfront that I don't believe that there is any such thing as the Next Silicon Valley. Apples to apples comparisons across regions are mostly meaningless. Now that that's out of the way...

I was invited to speak on this topic at dmexco earlier this month, Europe's largest digital media conference and expo, with 30,000 attendees. The discussion was moderated by Terry Kawaja of Luma Partners and my co-panelists were Marvin Liao of 500 Startups and Stefan Gross-Selbeck of BCG Digital Ventures. The conference organisers have produced a slick recording of the session here.

Although I don't believe in notions like the Next Big Thing, I do strongly believe that there is globally unparalleled potential in what I term Emerging Asia.

South and South-East Asian countries are a few years behind Japan, Korea and China, and still have poor broadband coverage on the whole, low digital media spend, low incomes relative to the developed world, etc etc. Yet these same marketes contain in aggregate close to 2 billion of the world's people. Their median age is a mere 26 and the fastest growing demographic is aged 15-24. The top 5% wealthiest people in India have the same aspirations and spending power as the average Western consumer -- while also easily outweighing their Western compatriots in terms of sheer numbers.

People in Indonesia and Philippines are far and ahead the world's leaders in terms of time spent per day looking at screens. Not US users, not Koreans, not even the Japanese come close.

Attitudes to entrepreneurship are changing and no one bats an eyelid at the idea of launching a company in Emerging Asia that targets Western businesses as clients.

The number of VC firms actively seeking to make Series A and B investments in Emerging Asia of between $1 million and $10 million (i.e., well below Silicon Valley norms) is less than 30, possibly less than 20.

Singapore, although small and far wealthier than its neighbours, sits right in the centre of all this activity and is a natural hub for start-ups to set up regional HQs, access financing and, at a later stage, become a venue for exits.

Finally, not all of this is mere potential: over the past 6 or 7 years, we have seen about a dozen technology companies hit the magic billion-dollar valuation mark.

Isn't all this mind-boggling?

It's clear that these markets are massively attractive though not without their risks and obstacles. We discuss some of this in the video.

This is what a good day feels like

I'm travelling for work in India at the moment and just ended what was pretty much a perfect day. (This isn't so much an announcement to the world as it is a Note To Future Self.)

I flew from Bombay to Bangalore this morning for a day trip, which meant that I had to lurch out of bed at 4 am. That was the one and only thing about today that I would change.

Maybe.

The rest of it was just perfect.

My flight to Bangalore landed five minutes ahead of schedule.

I got through not one or two but six great meetings during the day, each with a smart, passionate and engaging entrepreneur. SIX! I learned a lot today. This is hands down the best part of my job.

There was even spare time in between meetings to make follow-up notes on each meeting and get other work done. I love it when things move to plan.

I met a friend quite by chance whom I haven't seen in ten years.

Old friends passed on some great news about the company they co-founded.

The drive back to the airport from Bangalore city took a mind-bogglingly short 50 minutes in peak hour. The drive is usually an uncomfortable, stop-start two-hour affair.

Checking in and getting through security at Bangalore airport took about seven minutes all in. Smooth as silk. Even with the airport undergoing a renovation, it's really a joy to get through now and even manages to look good. There, I said it.

The seat next to me on my return flight to Bombay the same evening was perhaps the only one on the plane that wasn't occupied. And to top it all off, the flight landed a full 40 minutes ahead of schedule.

Yes, my day lasted over 20 hours but tell me that isn't a good day!

Why do VCs hunt in packs?

Lots has been written about WhatsApp’s sale to Facebook back in February this year. Plenty has also been written about how this is perhaps one of the best returning investments ever made by a venture capital investor. After all, WhatsApp’s backers Sequoia Capital are estimated to have received proceeds of about $3.4 billion for an investment of about $60 million.

One point that has been remarked upon in a bit less detail is the fact that Sequoia was thesole VC to invest in WhatsApp. Rob Go of NextView Ventures seems to have been the first to talk about this at any great length. He wrote:

I can almost guarantee that if any other fund was an investor in this company, the cap table would look very different by the time they exited. Well done.

Very true. Well done indeed. (Not that Sequoia is waiting for the rest of the industry to pat them on the back.)

“For This I Took a Bath” by Beau Considine

Rob explains why this sort of situation is very rare. In summary: it takes guts.

It also requires having a lot of dry powder, a VC partner who is willing to stick their head out without social proof, and the ability to convince a genuinely successful entrepreneur that they don’t need a different investor at the table in their next round of financing.

Dan Primack of Fortune asked whether Sequoia’s phenomenal success as the lone WhatsApp investor meant the death of social proof. Dan feels that social proof “deserves to be on the run” but also hints that it is unlikely to go away. Why? Because being the sole investor requires conviction.

CB Insights dug into their database to see how many other large VC-backed tech exits in the US had just one institutional investor and found that just 7 out of the 100 largest exits fell into this category. (I unfortunately don’t know which companies these 7 are.) Their conclusion? Leaning in requires conviction.

Conviction. Guts. Is that the #1 factor?

In the US, yes.

That’s probably because the US financial markets are the deepest and most sophisticated in the world. Not only do start-ups have access to the world’s largest and oldest venture capital industry, they also have access to other forms of financing, such as from wealthy individuals, the government, venture debt providers, banks, hedge funds and several other financial entities. All this makes the market incredibly competitive. A consequence of this is that consistently generating outsized returns is very hard. This implies that if a fund does have access to a high-return investment opportunity and they have strong conviction about it, they quite rationally should take a shot at being the sole investor. If they don’t, someone else in their highly competitive marketplace will happily jump in.

How does this play out in India and South-East Asia? Quite differently.

Why India shouldn’t worry (too much) about startups leaving for Singapore

Over the past few years, there’s been a trend of Indian startups moving to Singapore. To be sure, this is only true of a tiny minority of startups but the trend has become noticeable enough that Quartz felt compelled to write a piece titled How India Can Keep Startups from Moving to Singapore.

Find your own path

Now, there are several flavours of “moving” to Singapore:

1. Legal presence only
2. Some operational presence
3. Senior management based in Singapore
4. Majority of company’s employees based in Singapore

As mentioned, the number of Indian startups actually making a move to Singapore remains small. Of this already small number, ones that fall under the 4th category above are an even tinier minority.

Some notable startups, not only from India, who’ve moved to Singapore from elsewhere:

• Flipkart
• Bubbly
• Viki
• Capillary Technologies
• Plus a major VC firm now has roughly 40 of its Indian portfolio companies domiciled in Singapore. However, most of these fall under the 1st category named above, i.e., they only have a legal domicile in Singapore, with no real operations.

Is all of this a ‘problem’ for India? In aggregate, I think not. In fact, for some startups, maintaining a presence in Singapore may actually be a positive. Here are some benefits that looking outside India can bring Indian startups:

A broader regional perspective
In my several years looking at startup investments not just in India but also across SE Asia, Australia and the US, I’ve noticed that Indian startups sometimes get “sucked in” to solving only problems in their own backyards and don’t realise that other countries outside India may be just as attractive places to operate in.

Ease of achieving exits
We’ve started started to see good-sized exits coming out of India in the past few years. However, for a country of the size of India, the number of exits is still smaller than it should be and the exit valuations achieved could be higher, if not for the fact that the legal and financial environment for IPO and M&A exits in India could be more favourable.

Singapore (and some other places) in contrast is a good place to be based in when a startup has achieved exit velocity. Some startups plan ahead and domicile in Singapore from early in their development. As more and more exits start to happen, a virtuous cycle of innovation and entrepreneurship in India can get going.

Access to a different set of customers
Enterprise-focused startups have often related to me sorrowfully that the typical Indian enterprise doesn’t like buying from startups and even if they do decide to go the startup route, there is a tendency to bargain for extreme discounts and favourable payment terms. For B2C customers, this is less of an issue. However, both B2B and B2C startups can benefit by at least examining the different market dynamics present in other countries, even if they ultimately decide not to expand outside India. Singapore offers one particular benefit in that a lot of major multinational corporations base their Asia headquarters in Singapore.

Spreading risk
Abrupt policy changes, corruption scandals, hot-cold investor sentiment and several other factors beyond one’s control result in heartache for entrepreneurs. Being present in more than one country while certainly adding a layer of operational complexity may help reduce one’s overall risk.

Access to complementary talent
Again this is a consequence simply of looking outside one’s own backyard. Someone who would bring a lot of value to your team may not be able to move to Bangalore but might be quite happy to be based in Singapore or another city elsewhere.

Improving operational metrics
As a consequence of some of the above factors, operational metrics like margins, days receivable, pricing structure and so on can change quite dramatically from business-as-usual levels.

Each of the above can have a pretty major impact on a startup’s path of development.

However, simply because the above benefits are available to startups in Singapore doesn’t mean that India doesn’t have complementary benefits of its own. It really isn’t one versus another.

Some other perceived benefits may not actually be true. For instance, Indian entrepreneurs sometimes assume that Singapore’s status as a global financial centre means that it’s easier to raise startup funding in Singapore than in India. Arguably, this isn’t really true. India has a far greater number of active VC firms and other sources of startup capital.

So should India worry when startups migrate to other shores? Mostly, the answer is no. If anything, this is something to be encouraged as Indian startups start to forge regional and then global identities as they grow and mature.

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The piece Why India shouldn’t worry about startups leaving for Singapore first appeared on e27.

White knights and soft landings

Photo credit: Jon Rawlinson

We need more soft landings in Singapore, India, and other markets in SE Asia for start-ups that fail to fulfil their initial promise. Why? So that more potential entrepreneurs and start-up employees will actually take the plunge.

I'm a little late to the party but I just realised that Brandscreen, an ad-tech company that went into administration at the end of 2013, was bought by a US ad-tech firm last month. I've been told that Brandscreen went through a raft of problems prior to its entering administration but I also know that they had some great assets in their staff, intellectual property and client roster.

It's a virtual certainty that none of Brandscreen's shareholders made a profit on the sale to Zenovia, but that's not the point. We need more of these fall-back options which will allow start-up founders and employees to dust themselves off and live to fight another day, whether that be at another start-up or at a larger organisation. Over time, prospective white knights will find that there are talented, motivated and cohesive teams, not just individuals, available to them.

Getting this started is the responsibility of everyone here -- senior entrepreneurs, investors, large tech companies, corporate executives, everyone. Ultimately, we will all benefit from increased start-up activity and greater market depth, so it's up to us to make it happen.

Let's do it.

Newness

I've recently started reading about a whole bunch of topics outside my own domain. I've always done this actually. I'm just doing it in a more measured and purposeful manner now. I don't quite read a book a week yet but I may get there at some point.

I don't need to force myself to read. I'm a naturally curious guy so reading a lot and reading on several varied subjects is easy. (I do need to occasionally stop myself from reading tiny snippets of articles that make one and only one point, and spend time instead on longer essays and books.) The actual subjects or styles of book I read aren't important as long as they're something new and are readable. Meaning, don't ask me to read Cosmopolitan magazine or something. Obviously, by reading new stuff, I learn about the subjects of those books. But, subtly different, I also find it helps me make connections in my head that I wouldn't otherwise have made. Juxtapose something written by Scott Adams (he of Dilbert fame) with something else written by Salman Rushdie and something else entirely different written by, say, a historian, and who knows where that will lead the mind?

And it's not just about learning things by reading. I love trying other new things. I have no intention of staying tucked away into the rabbit's fur. Whether it's learning to paraglide or cooking something I've never cooked before or talking to a stranger about their occupation, the magic is in the newness not in the medium or the subject itself.

Will this mean I will be an expert at any of this? Hardly. But that's not the point. The point is experiencing new things. It's about not falling into habits.

It's one reason I ride a motorcycle. (I have several other great reasons. Ask me.) In a car, you're in your own little world, insulated from the outside world. Sort of like listening to a muffled conversation. You know there's stuff going on outside and you can sort of hear it, but not really, and it's hard to participate. Not that you want to. On a motorcycle, you're IN the heart of it all. It's all around you. I don't mean that it's dangerous and therefore it challenges you. I also don't mean that a sufficiently experienced person can't safely ride a motorcycle in a sort of "auto-pilot" mode, just as you can in a car. I simply mean that all your stimuli are experienced in a much more raw, unmuffled manner than in a car.

I'll give you an even simpler, sillier example of what I mean by experiencing new things. For most of January and February this year, I couldn't ride my motorcycle (for a reason not germane to this post). That forced me to take the train or bus to wherever I wanted to go. Now I've obviously used public transport plenty often, just much less so in the last three or four years. What happened when I started to take the train again on a daily basis was that I saw and did things I otherwise wouldn't or couldn't. I did things I used to do and had fallen out of the habit of. I saw how, say, smartphones and more crowded trains had changed the commuting experience. I read while commuting. I watched other people. I observed how foot traffic moved and re-learned how incredibly annoying the public address system in Singapore's trains is. I did things other train commuters find banal because they do them every day. Although I missed riding my motorbike, I also found it genuinely stimulating to do something different for a change. All just from taking the train!

My Chinese teacher has a new student she told me about last week. This student is in her 40s and started learning Chinese from absolute zero. Now, when I first signed up with my teacher, I told her I just wanted to be able to have conversations and that I didn't care about reading and writing so much. This other student wanted to do it all. And the thing is, she's been raving to my teacher that learning to recognise Chinese characters and write them with the correct stroke order has helped her memory improve. Not just for learning the language. Episodic memory too. She's absolutely convinced of it. Her explanation is that she's now working her brain in ways she wasn't working it before -- and specifically it being Chinese means that she's had to learn a totally different writing system from the alphabet-based languages she already knows -- and this is helping her brain form connections in memory that wouldn't otherwise occur. Now, I have no idea about the neuroscientific basis for this claim and frankly I was sceptical when I first heard it. But thinking now about it more broadly, surely there must be some merit to the idea that challenging yourself to do new things could open up vistas of the mind that weren't visible before?

The thing is the mind also gets remarkably quickly used to whatever new situation it finds itself in. This is why, if you take a long road trip or an extended beach holiday, at some point you start to feel as if you've been doing it forever -- or at least I do. So if you really want to keep things fresh, you have to keep doing new things. Which, when I put it that way, sounds like more of a chore than it actually is. I relish it myself.

All this is great from a high-level, make-your-brain-more-adaptable standpoint. The interesting thing is that it's also great from a more practical standpoint. A superb example is of the guy who wanted to design a better sanitary pad for poor women and decided to actually wear a prototype himself to see what it was like. Not for a minute or two but for extended periods of time. Even when faced with ridicule. Even when his family and community ostracised him. This is how you figure out the answers to questions like, "How do people think?", "Why do people do certain things they way they do?" and "What do my customers need?" because you've put yourself in those people's shoes.

All of which are great skills for entrepreneurship and investing.

The passionate VC -- no, that's not an oxymoron

We've all heard about why it's important for entrepreneurs to be passionate about what they're doing. But passionate investors?

Mark Suster explains why entrepreneurs should seek out investors who share their passion. Investors who will go the extra mile and give your company more patient long-term support than would be rationally warranted.

I've written about this myself as part of larger topics here, here, here and here. I have fallen in love, as Mark says, with a few entrepreneurs in my time, and in all those interactions, there was always something special that went beyond just the numbers, and that relationship continues to this day.

At the same time, entrepreneurs in Asia should be wary of placing too much emphasis on this. Not because passion is somehow an unnecessary ingredient in Asia. Quite the contrary. Most Asian countries are difficult markets and you want every bit of support you can get.

The reason for my caution is that the number of VC firms in countries like India, Singapore, Australia, Indonesia and so on is at least one order of magnitude smaller than in the US. This necessarily means fewer potential investors who're going to be truly passionate about you. If your #1 criterion for picking an investor is someone who passionately believes in you and your mission, then I'm afraid you are going to find yourself restricted to a tiny handful of prospective investors, perhaps as few as 1 investor (or even none) depending on where you live. The investor who's passionately interested in, say, tackling market inefficiencies in the media industry (me!) may not be as passionate about the next Flappy Bird app. Some other investor may have exactly the opposite perspective.

A related reason is that many investors here are, as one entrepreneur disparagingly said to me, "Excel VCs". By which he meant, accountants, bankers and spreadsheet mavens. So let's say you've actually hit upon a VC firm that's made a few investments in your sector and seems to understand what makes your company tick. That still doesn't guarantee passion. This can be true across stages and across investor profiles -- it's not only the growth stage guys (Series C and beyond) as you might think. One reputed investor once said something to the effect, "Why should a successful entrepreneur with an exit to his name become an angel investor? Far easier and less risky to just invest in real estate."

Finally, VCs in this region are faced with a huge surfeit of investment opportunities in sectors as diverse as logistics, manufacturing, hospitality, healthcare, non-banking finance and so on, apart from tech. This means that they probably haven't decided what it is they are truly passionate about... mostly because they don't need to.

All of which means that when you do come across your dream match, grab the opportunity with both hands. Don't be shy.

Mark again:

I write this because I know how difficult it can be to find a potential investor and to decide with whom you’d like to try to work. You may not have a choice – many don’t. But if you do – or if you’re simply deciding which VCs to put in super-human effort to targeting as potential investors, I would encourage you to think about their core beliefs and interests.

Yes.

9 questions for start-ups to ask their investors -- and what not to bother with

First-time entrepreneurs who're out to raise their first or even subsequent rounds of funding don't always realise that they can (and should) do DD on their prospective investors, not just the other way around. Why don't they realise this?

The most obvious reason is the skewed balance of power. The entrepreneur wants money and the investor holds the purse strings. But is this really a skewed balance of power? It really depends on who the specific parties are. A strong entrepreneur who has a good investment opportunity to offer and several interested investors can certainly shift the balance back in his favour. (This has been most obvious in Silicon Valley in the recent past, where super-star entrepreneurs raise money at valuations unheard of in Asia.)

Another somewhat related reason for entrepreneurs' diffidence is the unwritten but widespread belief that investors are omniscient super-beings who are above question. That's one big reason why MBA grads, senior guys in operating roles, and even investment bankers clamour to move to investing roles. Nonsense. Just as there are good and crappy entrepreneurs, engineers, journalists and marketing professionals, there are good and crappy investors too.

Ok, so you're convinced. You know the value of doing your homework on your investors. What questions should you be thinking about?

1. Ask the investor straight out: what is your vision for my company? There is no right answer to this question, but the answer will tell you a lot about how this investor thinks, what her aspirations are for making this investment, whether she prefers to let you run the show on your own or sees herself getting involved, and so on. Whatever the answer may be, you will get some insight into how you will engage with each other in future. You can then decide whether there is congruence with your own expectations.
2. Do I enjoy engaging with the investor? Does this person provide supportive feedback that also challenges me? Does this person complement the skills I already have available within my company and board of direectors?
3. Who is doing the work of evaluating my company? Has the work been delegated to a junior employee? Or even an external consultant?
4. Who is the actual person going to be involved with my company after the investment?
5. Is the investor an employee of her firm or a partner with some influence and stake in her firm's success? This is less about the person's title than the responsibility given to her and her willingness and ability to assume these responsibilities.
6. What do others say about this investor? This is a broad question that can cover several areas such as personality, influence, level of involvement with portfolio companies, and so on. You have to be careful what you find out as your sample size of responses is likely to be small. Treat this as one input among many.
7. Does this firm have an eat-what-you-kill philosophy with individual investment partners responsible for their own successful or failed investments? Or are you likely to be working with more than one investment partner equally incentivised to make your company successful?
8. What are this firm's ongoing reporting requirements? Do you need to hire a finance person just to create investor reports?
9. Does this firm have a track record of making follow-on investments? If it does, do follow-ons typically happen in successful companies or in troubled ones?

The one question you don't see above is whether this investor has experience making investments in your specific sector. This is partly because, at least in the tech world, industry cycles move very quickly, and a five-year old investment may have little relevance to you today. More important, what matters more from your perspective is whether the investor has done her homework on your industry, has overseen investments in at least a few start-ups before yours and has evaluated at least several hundred firms in total. You're the expert in your industry sector, not your investor. The investor only (only!) needs to be good at helping you with the overall company-building process and everything that entails.

How often do employees of VC-backed startups get stock options?

A start-up employee (or perhaps an entrepreneur) asks this question:

How often do employees of VC-backed startups get stock options?

In India, this varies a fair bit. My usual suggestion to entrepreneurs I have worked with is to give options to all employees but I recognize that this may not always be feasible or even desirable. A few things to note about Indian startups:

• Indian startups tend to have a lot of employees. I have invested in companies based in India, Singapore, the US and Australia. For a given stage of development, Indian startups have much larger teams than companies in most other countries. So the likelihood that a given employee, especially a junior one, will receive a good-sized option grant is quite low.
• Even in companies where options are awarded to many or all employees, they are not always valued by staff, and often not even understood properly. I’ve been on the board of a company where employees complained that they “received only 10,000 options” whereas their friend in company XYZ received 10 times as many options, not realizing that this isn’t an apples-to-apples comparison. I have sometimes taken the effort to explain what stock options are and how they work, but it clearly remains a poorly understood topic.
• Some founders can be very frugal with dilution. “I’m paying them a salary so what more do they want?” is a common attitude and I often wouldn’t even consider it an unreasonable view. I have heard good arguments in favor of giving options only to senior staff.

If you’re an employee of a VC-backed startup and you do want stock options as part of your package, good for you. I would recommend you bring this up with your startup’s founders. A long-term-oriented founder should find your attitude refreshing and positive.

From my latest column at Yourstory.