Showing posts with label Start-up Capital. Show all posts
Showing posts with label Start-up Capital. Show all posts

Saturday, December 21, 2013

A suitably bootstrapped perspective

As someone who routinely wears boots under Levi’s 511s, I understand the sheer utility of those small loops called bootstraps - Sramana Mitra’s high focus on an entrepreneur bootstrapping the start-up in her book “Seed India -How To Navigate the Seed Capital Gap In India (Entrepreneur Journeys)” helped me appreciate the criticality of this aspect in the Indian venture funding context.

The book’s USP is its brevity and the matter-of-fact, blog-like style but what keeps your interest on is the verbatim reproduction of the interviews. Spurred by the author’s knowledgeable querying, the interviewed entrepreneurs come up with some honest reflections & very useful insights into their successful entrepreneurial journey. Some statements though come across as anachronistic, particularly when Sachin Bansal of Flipkart seemingly undermines the adaptation, penetration & potential of digital books and affordability of e-readers in India - the fact that I was reading this book on my Kindle Fire HD made the assertion even more ironic.

While it is a welcome trend that Indian start-up stories are getting written about, I once again can’t help but notice that the term ‘start-up’ is gradually getting equated with IT/ITES/ Cloud enterprise.  Most other enterprise categories such as biotech, green-tech are clearly missing out being written about as interesting case-studies since they can’t quite compete with a typical cloud based start-up which (can..) starts generating income within few months of existence – As Sramana did admit passingly, the logic of bootstrapping one’s business is a very different ball-game if the start-up product offering is physical (~biotech) as against being virtual (~SaaS)

Coming back to the book, I felt that what was perhaps intended to be showcased by the author but not quite articulated is an observation that ‘bootstrapping an early enterprise’ comes quite naturally to Indian entrepreneurs given the culturally ingrained reluctance to diluting ownership/ stake of a start-up business early on & the practical jugaad (in a fair sense) mind-set of sailing in two boats before hitching on to the one of choice.

Considering this being a cluster/ market dominated by such lean business ethos & relatively more fiscally-conservative entrepreneurial attitude which by default de-risk the investor’s moolah, one’d have expected India to be a hot destination for an alternate asset fund manager looking for a safe-harbour for her/ his precious dollars, but quite obviously it is not. Of course it is also apparent that there isn’t enough fish in the pond for any LP to develop a serious strategy betting on Indian start-up scene & perhaps the only way to make this ‘LP-friendly entrepreneurial ethic’ work in India’s favour at scale is to seed more & more promising enterprises, bootstrapped or otherwise.


Just wondering.... the Global LPs could be a lot more interested if the Indian VCs claim to be ‘Conservative’ rather than being ‘Contrarian’ in their choice of deals :-)

Monday, July 22, 2013

The start-up investing winds, they are a-Changing OR are they?

In his latest, 'SuperLP' Chris Douvos  writes about the fears of an impending VC apocalypse....., okay to start with, in silicon valley primarily triggered by the capital deployment in start-ups far outpacing funds raised by venture capital firms, essentially affecting that someone else is gaming the system rather than VCs themselves..

Given they appear only once in a blue moon, I couldn't really let go a SuperLP article without a comment... here goes what I posted on his article 'Scents in the Air'

My comment

Murali Apparaju

I am wondering if the issue with "capital raised by VC's increasingly falling short of capital invested into start-ups" is about true of all start-up hubs & not just Silicon-valley AND, that probably in general it’s true of all VC activity across the globe (tho' i do understand this data is of NVCA and for USA)

Out of the entities you mentioned, I see the following two as the key contributors to this skewed ratio;
1) CVC: The emerging aggression of CVCs whose enthusiasm to invest is in equal measure helped/ influenced by not having a limitation of capital to deploy AND by their necessity to shortening the product introduction cycle in face of an increasingly unproductive in-house innovation (think... a top-10 pharma major investing in start-up biotech with just one pre-clinical asset....)
2) Angel: The recent market regulatory changes indicate (JOBS et al) that the government is attempting to bring down the dependence of start-ups on the VC's - primarily by way of increasing the available angel base & encouraging HNWIs to risk their money a lot more freely than before.
Surely the above aspects do suggest why there's a scent of fear in the winds blowing through VC quarters.
I personally feel that these newer sources of capital need to establish their longevity & consistency before the start-ups can forget about serenading the VC for funds – particularly given that non-financial companies tend to be a lot more impatient with IRR cycle-times and HNWIs a lot more prone to gravitate towards less complex and shorter-term alternative investment options.
Essentially, IMHO what goes around comes around & VC as a source of start-up capital would remain a lot more relevant in the long-term

Friday, June 28, 2013

A start-up messed up at its foundation OUGHT TO be fixed!

The celebrated venture investment guru Peter Thiel postulated a law that says "a start-up messed up at its foundation cannot be fixed" - Bruce Booth attempted a commentary of this law in the context of Biotech ventures through his blog post titled 'Foundings Matter: Thiel’s Law Applied To Biotech' - While Bruce's application of Thiel's law is based on a tacit agreement of the postulation, I believe this can be argued differently, as indicated by some campus talk here...

Below is my comment against the article by Bruce Booth, wherein I agreed and disagreed with the author in two independent contexts....

My comment:
It bugs me no end just how little the VC & PE literati out there ever attempts to explain all those lurid, smart theories in the context of biotech enterprises instead of solely building case-studies out of super-achieving IT start-ups that brought-in bags of cash to the VCs very early into its life cycle. This peculiar penchant among the authors for avoidance of anything called biotech enterprise I feel is owing to a general investor impatience for acknowledging the veracity of any investment that can’t be cashed out profitably within 3-5 years & thereby not showcased as a text-book case of intelligent investing. While otherwise is a decently thought-provoking & stimulating book, “Venture Capitalists at Work: How VCs identify and build billion dollar successes” by Tarang Shah is one such recent addition to my list of disappointing treatise.

Peter Thiel too probably isn’t greatly different after all, since a lot of the wisdom he’s been postulating is validated only within the narrow context of IT start-ups - Your effort Bruce, at ‘pharmifying’ the ‘Thiel’s law’ is thus a very welcome diversion.

None of the mess-ups you listed right from ‘un-reproducible science’ to ‘inappropriate capitalization’ can be contested as inconsequential in any which way & together these six make a great check-list for the entrepreneur on how not to go wrong initially & for a full-fledged due diligence by the VC either at the initial funding or an informal, abbreviated review prior to subsequent funding rounds. I however am struggling a little bit to accept that the DNA can’t ever be repaired once messed up – isn't disruptive innovation, which inherently amounts to re-coding the DNA of the enterprise /or enterprise's innovation/ business model, an accepted strategy now?

In the June 2013 issue of HBR, Rita Gunther McGrath (Author of “The End of Competitive Advantage”) talks on how the current day enterprise scenario is all about moving away from the conventional ‘Sustainable competitive advantage’ model and instead moving towards “Transient competitive advantage’ – Biotechs' that operate within an ever evolving, dynamic clinical scenario I believe can’t really base their strategy on sustainable competitive advantage & have to necessarily adapt, quickly & efficiently to the transient competitive advantage model & this may necessitate periodic re-coding of the enterprise DNA - What I quote here is what pretty much you and others said earlier regarding the need of emergence of ‘lean-start-ups’.

So instead of trying overtly to ensure all loose ends are tied-up upfront (…including the phantom scenarios!) & showcase a supposedly fine-tuned enterprise DNA to the VCs, the start-up would do good to expand the scope of the business plan to incorporate a well thought through set of situation-appropriate pivots & an alternate disruptive innovation model or two.

My two Rappen*

*on a business trip in Switzerland at the time of posting this article

Wednesday, April 3, 2013

Series A crunch for start-ups rooted in progressive de-risking of VC model?

My comment on a peHUB blog post titled "What Series A Crunch? Why Some Startups Are Immune"


Keen insight John!

Interesting to note the theme of 'venture capital model being broken' is being evaluated from very different perspectives by different people – while I’d love to see the perspective of an LP on this, haven’t come across any till date…

Earlier in Feb 2013 when Drug Baron proposed Venture Capital 2.0 on his blog, I felt he placed the onus for this handicap on the VC firms themselves & hence proposed the need for a disruptive innovation of the venture model itself. I made a comment against this entry & posted the same on my blog under the title “What when the boundaries blur between VC & PE?

While my response was more from the angle of overt de-risking of VC funding being counter-productive to sustenance of early enterprise, I felt that in some fashion resonates with what you say here…., particularly when you quote Jim Andelman “these market dynamics combine to leave good companies unfunded”.

My comments incidentally remain ‘non-commented on’ on Drug baron’s blog :-)

Tuesday, March 5, 2013

What could VCs learn from the recent pharma deals involving biotechs with very early-assets?

My response on the blog post "Preclinical Biotech Structured Deals: Reflections on 2013′s Solid Start" by Bruce Booth - posted on 01/Mar/2013

The news of structured-deals/ buy-outs of ‘tight/ single-EARLY-asset’ biotechs both pleases & scares me… pleases, as I feel this will trigger a healthy change in the way start-ups choose their programs & scary because I (CRO/ CMO) will now start losing clients/ programs much before the conventional PIIA - read-on…..

While I totally agree with the points you’ve raised & the surmises made, I’d like to add the following;

  • This in some fashion is an endorsement of the importance of early venture seeding by the very same stakeholders that typically enable the high value exits for VCs, viz., the mid-sized/ big pharma companies.
  • As you say, there seems to be a promise of reward for innovative organizations that know their science – however I’m not sure if there’s any message about preference for a single asset/ tight set of assets, It is rather a niche focus/ platform & this aspect I’d think always mattered to the investors.
  • Do I also see some de-risking in the form of going in for companies who’s lead/ pipeline candidates are inherently safer (recombinant proteins; antimicrobials et al) & hence highly likely to breeze through Phase-I
  • Interestingly, though the indications are rare/ orphan, the therapies themselves seem to be more maintenance than curative & hence more attractive to the investing company
  • This lure of an early alliance/ deal may now encourage the new enterprises to come up with more compelling technologies rather than me-toos… & thus help put drug discovery enterprise model on a correction course
  • Is this the emerging new avatar of the CVC? - CVC 2.0? (Perdona, Baron.... :-))

Now, having seen a lot of my clients getting lapped up by mid/ big pharma & their programs either killed, shelved in favour of the larger companies competing pipeline, I would be a little cynical till I see the next instalment is released/ option executed.

Finally I would like to ask if there is a message in here for the VCs? – towards an opportunity, a need to structure the initial funding deals differently so that they could still keep an option to enhance their share whenever such early alliances crop-up eliminating  avenue of series-B funding?

Post Thought:

Quite a coincidence that I was just reading an article in HBR (Mar 2013) titled “How Competition Strengthens Start-ups” by Andrew Burke and Stephanie Hussels of Cranfield University.  The authors postulate that exposure to competition in the early stages of a firm’s life increases its long-term survival prospects – competition in this context including competing against a lean-funding scenario & hence learning to stay creative, efficient & productive – Since for all four companies here the early pressure is almost eliminated of by the reasonable/ comfortable funds received (upfront instalment OR buy-out), I was wondering if that makes these companies less long-term in light of the above study.

Of course I do understand that it’d be foolhardy to apply an academic study arbitrarily to any context, particularly in life sciences, where the author’s themselves have made a provision indirectly through their statement “Of course, early competition has a downside: Some new businesses fail before they have time to build up the immunity we describe” which sure sounds like the business of designing drugs.

Thursday, January 24, 2013

Is the LP bias against investment into life-sciences contra-logical?

17 January 2013

Early Stage Biotech Showing Positive Signs of Scaling Its Wall of Worry by Bruce Booth on Forbes

Despite the apparent consensus opinion at JPM that innovative new start-ups are continuing to attract capital, I wonder if in reality the venture funding, particularly from big-pharma CVCs, is mostly channeled into development/ acquisition of potential clinical candidates - THIS anomaly of an 'uncharacteristic aversion of domain biggies themselves towards investing into early innovation that'd feed their own pipelines' is WHAT I feel is the primary reason for a strong bias in the LP universe against investment into Life Sciences......