Saturday, May 16, 2015

STARTUP/ YOUTH SPECIAL ....................Rash, Brash and in it for the Cash?

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

No comments: