Greek Complexity

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.

Why short-term fixes won't help with your long-term goals

Those who know me know that I have a visceral distaste for the concept of jugaad, which means "making do". Jugaad is usually spoken about in India in positive light -- often for good reasons -- but I think it's worth aiming higher. Read this and this for reasons why I think using jugaad as a guiding principle sets yourself up for mediocrity.

I'm not the only contrarian in this respect.

Amit Saberwal is a senior hotelier-turned-entrepreneur who has deep insights into the travel industry. In a blog post he wrote a few months ago, he gets into the guts of why optimizing for the short term can have a negative impact in the long term. Said differently, optimizing for local maxima can sometimes mean entirely missing the longer path to a global maximum.

Photo by Robin Benad

Specifically, Amit points out why hotels shouldn't pass on OTA commissions to online customers and shouldn't offer preferential prices to customers who call them directly even if this looks like the easiest way to compete.

An independent hotel is tough business to run. The lack of differentiation in the brand and product means that hoteliers have lower bargaining power with third party distributors.  I have been speaking to scores of hoteliers and one common operating procedure they employ is to simply increase the price of the hotel by the amount of commission they need to pay Online Travel Agents. 

Example if a hotel generally sells at US$100 and the market manager for Expedia insists on a 25% commission, they start selling the hotel online at USD 125 on all online channels, including their own websites.  They then track the Average Daily Rates AFTER paying commissions. Should any customers search on an OTA and call the property directly they promptly discount the rate by 10-15%.  It is a win-win situation for all in their mind - the customer gets a discount, the hotel gets revenue that is over and above  their Average Daily Rates and the OTA is cut out. 

Makes perfect sense? Except that this is a terrible idea!

Read the rest here to see what Amit recommends hotels do instead.

Stop Petting Strangers' Dogs

Snip: "Walking in San Francisco a while ago, I saw tied to a tree the cutest pit-bull puppy, fur as soft as Porsche-quality chamois and warm eyes that could melt a hole through a glacier. So I reached down to pet this dog. And then reached back fast, as its jaws closed millimeters from my fingertips."

More: http://ift.tt/1jx0dGS

This is an auto-generated post from my reading list.

Solar Roads Could Power An Entire Country

Snip: "A small US-based company called Solar Roadways are developing a solar road surface that, if installed nationwide, has the potential to produce more renewable energy than the entire country uses."

More: http://ift.tt/1jSPaGB

This is an auto-generated post from my reading list.

India’s new politics

Snip: "Driving home in the gathering darkness, Nandan Nilekani seems tired. His car crawls through Bangalore’s chaotic streets after a gruelling day of glad-handing, dense crowds and half-a-dozen speeches."

More: http://ift.tt/1pwZHfp

This is an auto-generated post from my reading list.

No, Tinder Is Not Worth $5 Billion

Snip: "Don’t believe those reports saying Tinder, the popular mobile dating app, is worth $5 billion."

More: http://ift.tt/1kCozjy

This is an auto-generated post from my reading list.

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.

The Crossroads of Should and Must

Snip: "There are two paths in life: Should and Must. We arrive at this crossroads over and over again. And each time, we get to choose. Over the past year I’ve chosen Must again and again. And it was petrifying. And at times it was dark. But I would never, ever, trade this past year for anything."

More: http://ift.tt/1hoFB2m

This is an auto-generated post from my reading list.

Add an infinite series of positive numbers... and get a negative number

No, really. Not a prank or a joke or mathematical sleight of hand. Look.

How can this be?

The proof was obvious the moment the guy wrote down the equations for S₁ and S₂ early into the video but that didn't prevent me from watching this through to the end and being mesmerised all the way.