Rash, Brash and in it for
the Cash?
The audacity and haste of 20-something
founders can work wonders for their startups, although the danger is their
self-belief often borders on delusion
Saurabh Srivastava recounts a recent encounter
with a wannabe entrepreneur in his 20s who was looking for $1 million in
funding for his digital start up. The full-of-beans founder had valued his firm
at 10 times that amount. “Why $10 million,“ asked Srivastava, an entrepreneur
and angel investor. “He did not have a rationale.“
As Srivastava piled on the tough questions, the
startup kid wasn't too thrilled and blurted: “If you don't believe in my story,
I will go else where.“ Srivastava, an investor with close to two decades of
experi ence, recognised this breed of entrepreneur-in-a-hurry. “He wanted to
get rich but did not have the patience to wait and think through the idea.“
Srivastava didn't lose hope on the kid, though. He sat him down, and explained
to him the nuances of valuations, returns and investor expecta tions.
Eventually, he did invest, but not $1 million.
Dealing with impetuous young turks -or at least
the many who think they are tycoons in the making -is just another day at the
office for Srivastava. He recalls another rather brazen 20-something who was
building an app, but only for the iPhone. Srivas tava wasn't convinced about
the benefits of limiting the app to a niche segment. “No matter how much we
talked to him, he just wouldn't see the sense in developing one for Android,“
he recalls. The app was duly launched but wasn't financially viable.
Being young, restless and with the proverbial
fire in the belly is a prerequisite for any founder worth his business plan.
But youth also has its rough edges, as Housing.com CEO Rahul Yadav's impulsive
and vitriolic resignation earlier this week amply displayed. Hours after
declaring that he didn't consider his board members “intellectually capable
enough to have any sensible discussion anymore“, 26-year-old Yadav was back in
the saddle “after some frank and healthy discussions with the board“ and an
apology for his “unacceptable comments about the board members“. The only
difference now, though, was that whilst Yadav was still in the CEO saddle,
investor SoftBank would now hold the reins.
Those who have worked with Yadav swear by his
brilliance, energy and path-breaking ideas, and indeed that is why investors
scour the startup ecosystem for such young and audacious founders. “We like
their fresh approach and fearlessness. Their disruptive ideas bring so much
more to the table,“ says Neeraj Bhargava, chief executive, Zodius Capital, who
has entrepreneurs between 27 and 61 years in his portfolio.
Agrees Ashish Dhawan, cofounder, ChrysCapital:
“Coming straight from college, they have this extra aggressiveness and
cockiness. And it is a good thing. As an entrepreneur you must have infinite
self-belief to succeed.“
When Inexperience Meets Brashness
The problem, though, is that self-belief
sometimes borders on delusion. Serial entrepreneur and mentor K Ganesh
remembers angel investing in a digital startup roughly two years ago. As the
20-something completed the fund-raising, the business environment turned. The
startup had to evolve and pivot to new realities. “But the young entrepreneur
was so passionate about his business model that he wouldn't listen,“ Ganesh
recalls. Finally, after a year of burning cash, he sold the company for
virtually nothing. “In a dynamic environment, one has to have an open mind and
cut one's losses when things are not working,“ says Ganesh. And that isn't
always easy for inexperi enced entrepreneurs.
Ganesh points out that when they walk in,
they're usually receptive, and hang on to every bit of advice. “They lean on
you like a 10-year-old,“ says Ganesh.
But once the startup gets funded “they trans
form into confident, headstrong teenagers who think their mentors are
old-fashioned fuddy-duddies.“
Vani Kola, managing director at Kalaari Capital,
says she has raised two teenage kids and she sees parallels with young
founders.
“You can't keep them on a tight leash. You can't
hope to help them avoid every mistake even though you are well intentioned. But
you want the control and communication to avoid catastrophic mistakes,“ she
says.
Delhi-based Rajnish Kohli, who after work ing
with HCL and Fidelity has turned angel by investing in seven startups, says one
of the biggest friction points is that “despite their inexperience they are so
confident that they ignore a few fundamentals of the business like validating
their models“. In one of the digital startups where he is an investor, he
wanted the under-30 entrepreneur to validate his model by doing a pilot before
rolling it out. “He didn't think it was important and went ahead,“ he recalls.
Finally, he pitched it to a large Mumbai-based corporate client. The latter
wasn't impressed. “He was totally dejected. He realised the importance of
validation but by then it was too late,“ says Kohli, who sums up the problem
bluntly: “Easy money makes them lazy and crazy.“
Zodius' Bhargava says that the common perception
is that older and more experienced entrepreneurs are rigid. “That's not true.
When the chips are down, adaptability is easier with older people.“
He recalls one under-30 entrepreneur whose
startup Zodius had invested in recently not quite succeeding in tweaking the
business model; that became an imperative as the investors realised that the
initial business assumptions made weren't accurate and were hindering
viability. Zodius had little choice but to bring in a seasoned hand as chairman
to mentor the founder. “The chairman came on board but the two did not get
along,“ says Bhargava. The board eventually asked the entrepreneur to exit
while protecting his stake in the company.
When founding their startups, though, most young
entrepreneurs are almost always in a hurry. Srivastava once dealt with one who
was developing a device for the business-tobusiness market. “He also wanted to
develop one for the business-toconsumer market, simultaneously,“ he says.
Investors felt that the entrepreneur should tackle one thing at a time. It took
plenty of counselling and cajoling to get him to understand this.
Investors and mentors are figuring out ways to
get on the same page as young entrepreneurs.“There is a strong interdependency
and hence coexistence is essential,“ says Kola of Kalaari Capital.After all, if
the entrepreneur has a dream, the investor has his fiduciary obligations.
When entrepreneurs come straight out of college,
a bit of internal squabbling is par for the course. As an investor Ganesh feels
putting together a team where young entrepreneurs work alongside experienced
executives is becoming critical. “You do not want t o h ave a c o m p a ny w i
t h `1,500-crore valuation and so many employees run by immature people,“ says
Ganesh.
Sometimes, these conflicts may be constructive.
For example, most startups are venturing into uncharted territories. “There are
times when our advice may not be right and the entrepreneur may not be wrong,“
admits Srivastava.In such situations, when Srivastava is unsure, he advises
entrepreneurs to seek opinions from their counterparts in a similar space.
Younger Organisational DNA
The reality is that entrepreneurs are getting
younger and investors have little choice but to adapt. Helion Venture Partners
has seen the age of entrepreneurs over the last decade come down. “Earlier most
who came to us had 8-10 years of experience. Today, it is one-two years,“ says
Ashish Gupta, cofounder, Helion Venture Partners. So investors too have to
become “younger in their outlook“. It starts with getting comfortable with the
tools -Twitter, Pinterest et al -these younger entrepreneurs use so naturally.
Hiring young also helps. Helion has at least
five-six executives in their 20s as against just one five years back. “It has
been a deliberate strategy,“ says Gupta.
The run-ins (and run-outs) notwithstanding, the
big picture should convince entrepreneurs -young and not-so-young -that working
together and setting aside egos and other similar baggage are in everyone's
interest. As Kola puts it: “We are barely at the start of a great saga of
Indian companies being noticed and being relevant. This is an incredible time
to be an entrepreneur and investor in India.“
|
Malini Goyal
|
ET10MAY15
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