What’s the first step for founders?

What’s the first step for founders?

Startups
Most tech founders start their journey by writing a lot of code. However, many times it's better to begin with validating product need through a quick non-code/light-code exercise. E.g. if you're planning a marketplace, you might try to get a couple of transactions done by matchmaking supply-demand simply over email/offline. Or you might set up a single landing page to collect emails and try digital ads to figure out cost of customer discovery. Protecting the idea, big bang launch, stealth mode, wowing customer at first experience, etc are all fine ideas if you're very sure of who your customers are and what they want. But if the best response to "How do you know this is needed?" is on the lines of "We did a survey" or "Our friends told…
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What can one make of the early-stage funding implosion?

What can one make of the early-stage funding implosion?

Startups
There's consensus now that seed to pre-Series A funding environment isn't rebounding. In fact, 2017 has been worse than 2013/2012 globally, and trending back to 2014 levels for India. There are no indicators that next 6 months will be drastically different. It doesn't help that there's too much noise in every sector, including AI, fintech, SaaS, etc. which leads to higher burden of proof for startups. Moreover, every investor is currently distracted by shiny new objects of blockchain & crypto, due to strong bull runs there. So founders, continue to keep calm, be frugal, monetize earlier, & plan for the long haul. See trends here: Techcrunch, Crunchbase, Inc 42. Having said that, we at Globevestor think of this trend as an opportunity. We've deployed more capital and in more deals this year than 2016. And…
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Why do investors ask startup founders for stock vesting/ restrictions?

Why do investors ask startup founders for stock vesting/ restrictions?

Investing
A majority of founders today seem to be comfortable with stock vesting provisions in termsheets. However, still encounter a few (usually first-time) founders who see vesting as investor tactic to gain more control. Some feel they're being forced to 'earn' ownership in their own ventures. This interpretation of vesting is harmful. Investors invest in the mid-long term future potential of a startup, and the team sticking around to achieve its ambitions is key. A non-executive founder (w/o day-to-day role) is as good as dead equity. If a founder leaves, it's a big blow to the execution ability of a team. Vesting provisions are important to dis-incentivize founders from quitting. Especially when the going gets tough. Most of all, vesting is the single-most important measure of a founder's commitment to the…
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What termsheet clauses should founders & angels avoid?

What termsheet clauses should founders & angels avoid?

Investing
Of late, I've been in few discussions where investors proposed terms that honestly were counter-productive. Early investors often don't realize they set the stage for future. If they set bad terms, they'll get retained in future rounds & come back to pinch them. So here's a list of terms that angels & startups should strongly avoid: 1. Participatory liquidation preference: On liquidation event, investors get back the amount invested AND pro-rata of shareholding. Double dip. Skewed & misaligns founders/angels with later investors on exits. Fair is 1x non-participatory. 2. Full-ratchet anti-dilution: Means in a down round, investor isn't diluted - killing for a struggling startup. Should be broad-based weighted-average. 3. Milestone-based tranches or valuation: Promised investment is split in tranches based on milestones, or pre-money valuation now is linked to…
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What’s with this tranched investing?

What’s with this tranched investing?

Fundraising
I had another call today where co-investors batted for tranched investment to 'ensure financial discipline' in startup founders. I am strongly opposed to it. Either you trust in founders and invest, or don't. Put terms in agreement to ensure financial oversight. Hate milestones based investing. Things go wrong all the time. Putting founders under added stress of uncertainty on funds is useless. How will founders budget and plan spend? What if second tranche doesn't materialize? Then they risk being in constant fundraising mode. Investors will always profess 100% commitment. Then don't keep this sword dangling on the startup. You know what's commitment? No tranches. An incubator has this practice at seed stage. No disrespect, but that's not how you attract the best startups. Do your due diligence & then trust.…
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How much runway should you build during a fundraise?

How much runway should you build during a fundraise?

Fundraising
Early-stage startup founders must've often heard from investors/advisors to build runway for at least 18 months when fundraising. Yet, quite a few founders plan for much less. "We will raise Series A in 9-12 months" is a risky strategy, usually driven by an attempt to limit dilution. There is a simple back-calculation to justify a minimum 18 month runway. But before that, one simple advice: You shouldn't forever be in fundraising mode (always be pitching, but not always be needing money). Fundraising is a time sink and keeps founders from 100% focus on business. So when you fundraise, raise enough. Now, the back-calculation: 1. When you're in final paperwork stages of next fundraise, you should have at least 2 months of runway left in the bank. This is to protect…
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Should you have targets in investor agreements?

Startups
If you're an entrepreneur raising funds and the investor is keen to put in specific targets in your shareholder agreement & link it to valuation/ investment tranches, understand 3 things before you sign: 1. Get ready to be distracted This isn't super founder friendly behavior and builds uncertainty on your dilution/ funds availability. It will be distraction that'll keep from 100% focus on business even after fund closure. Question if the investor is right for you. 2. You're inviting conflicts and deviation from core What gets tracked gets done. The metrics in the agreement will become your topmost priority whether you think so initially or not. If you're not sure they're the right metrics, brace for conflicts with investors and co-founders. You might find yourself wavering from your core just…
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Tech sector is booming: 4 lesser-known ways to get recruited in it

Tech sector is booming: 4 lesser-known ways to get recruited in it

Startups
It's common knowledge that the technology sector is booming, almost globally. Tech companies continue to grow and create value at a pace previously unheard of. Today, 5 of the 10 most valuable public companies (by market cap) are from the tech sector (via Globevestor). One would expect this to get even more skewed in favor of tech over next few years. In 2016, while the tech sector in US employed only 4% of the total workforce, it created 10% of all new jobs (Source). So if you're a recent graduate or looking to switch jobs, I'd implore you to seriously explore getting into tech right now. I don't mean start learning to code, but take up a role that suits your skills, whether it's sales, marketing, operations or other, within the…
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Wrong reasons to start up: When not to take the entrepreneurial plunge?

Wrong reasons to start up: When not to take the entrepreneurial plunge?

Startups
You've thought about it over & over. You've spoken to family, friends & colleagues, and everyone's been supportive. You've got great potential and have displayed it in some way or the other in academics or job. People who matter believe in you. You're much better than most so-called founders these days. If they could do well, you'll do great. Media says this is the golden era of startups. Cost of starting a tech company is very little now. And of course, those who take no risk get no rewards. Everything points to only one fact - 'The time has come to bet on yourself. You should start your own company'. Right there. Stop. If you're at this place in life where you're almost going to take the entrepreneurial plunge, or have…
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Why Are Indian Founders Less Informed?

Why Are Indian Founders Less Informed?

Startups
I have had the chance to observe startup founders both in the Bay Area and in India over the past 2.5 years. While it's a small duration, it does seem to me that founders in India are relatively less aware about how startup investing actually works. By this I mean an understanding of the VC math, acceptable investment terms, exit paths, cap tables and other nuts and bolts that have nothing to do with technology stacks, target markets or business models. If you were to ask an average Joe (or Jai!) founder in India, who's yet to close a round, anything regarding investment terms beyond pre-money valuation and dilution, there's high chance that you'd draw a blank. I've found this true even with founders who've earlier worked at other startups. In contrast, a founder in the…
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