Sunday, November 26, 2006

Deciding to do a Deep-Dive

How does a Venture Capitalist decide that they need to spend more time on a business plan and do comprehensive due-diligence on it? What factors are important and what is the thought process behind sending back an idea, and spending time on an idea?
Through my experiences at Intel Capital and University Venture Fund (Wharton Chapter), and discussions with mentors in the industry, I have seen a common theme come up. This thought process is important especially for post-MBAs because that is what you will spend a lot of your time doing: Sifting through business plans to find that elusive investment gem.
So here I put together a simple (and frankly very common) framework to take a look at a business idea. The framework has five aspects to it:

1. Team
- Who is on the team and what kind of background do they have? Are they credible and more importantly, are they hungry?
- How is the team relevant to the business plan that has been put together? Why are they on the team in the first place?

2. Problem
- What problem is the startup trying to solve?
- Is there a market for the solution? Is the Total Addressable Market (TAM) above a particular size (usually ~$300M or more)

3. Solution
- How is the problem being solved? What are the details of the solution?
- What is the competitive landscape of the sector?
- What other kinds of solutions are out there and what is the point of differentiation for the startup?
- Does the solution create some other potential problems?
- How do they plan to reach their customers? Is there a distribution strategy and if so, is it viable?
- Is the solution defensible and has IP protection?

4. Economics
- What are the margins on the product? Are they sustainable across the channels?
- What kind of capital do they intend to raise? Where will it be used?
- What are the financials of the company 2-3 years down the lane? What about 5 years later?

5. Exit
- What are the potential avenues for an exit?
- What kind of exit do we forsee, and what kind of return do we see on this investment (Ballpark figure)?

This exercise may not take more than a few hours at most, and less than an hour at least, but it should quickly provide the potential investor with a sense of whether they want to devote more time on this idea or not.
At the end of the day, an idea does not make a company, people do. Hence, beyond these questions it is probably more important to pick up that phone and call a friend to ask about the team behind the company. And then proceed from there.

My 2 cents on how to quickly surf through an idea. You do it differently? Shoot me an email or leave me a comment.

Monday, November 20, 2006

NexGen Partner Profile Series: Alexander Harrison (Sequoia Capital)

Continuing the series where I profile young Next generation partners who I admire for their accomplishment and personality.

Alexander Harrison (Sequoia Capital)
Alexander is incredibly affable and probably one of the most accessible Venture Capitalist one will meet. This is especially commendable for someone who has accomplished so much so quickly. I remember reaching out to him during my internship at Intel Capital, and not only did he promptly reply, he also stayed engaged till we could figure out a mutually convenient time to meet up. And after that, he has been helping me and supporting my ambitions more than anyone who met someone just once would do.

Education - BA from Darthmouth College

Previous Venture Capital Job - Summit Partners

Last Job before Venture Capital - Goldman Sachs (covering communication semiconductor firms)

Positioning - Financial Services, Healthcare Technology and Services

Out of the blue deed - As a child, Alexander was a stage and TV actor

Personal Mantra - "Its not show-fun, it's show business", "All you have is your credibility"

Investing Philosophy - Alexandar works in sectors where you typically find:
1. Savvy entrepreneurs
2. Business models with strong early operating leverage
3. Ability to scale a company without heavy vc investment early on

The Drift - If you are truly ambitious and passionate, Alexander will go out of his way to help you.

Tuesday, November 14, 2006

Corporate Venture Capital: Are they really VCs?

So I did my internship at Intel Capital, which is probably the world's largest and most influential corporate Venture Capital shop. I have been working for the last year and a half at University Venture Fund, which is probably the largest student-run Venture Capital shop. Does this mean the time cometh for me to work at the world's largest traditional Venture Capital firm? I do not know but I do know that I have an opinion on the differences between these different models of capital deployment.
So today let me give you my two cents on Corporate VCs. In the past, questions have been raised on whether Corporate VC investments actually increase firm value. I contend that you can love them or hate them, you can't ignore them. After all, in the second quarter of 2006, Corporate VCs participated in ~20% of all VC deals.

Corporate Venture Capital
Corporate Venture Capital arms of large technology firms (or any firm for that matter) probably started from the corporate development divisions of these companies. They owe their genesis to the tendency of large technology firms to shore up their growth through inorganic means (M&A). At some point, many of these made the transistion from acquiring startups to investing in startups (to acquire them), to investing in startups for their strategic benefits. In that sense, Intel Capital is probably more traditional than most because it tends to invest for IRR reasons as much as strategic ones.

Some of the prominent Corporate Investors are:
1. Intel Capital
2. Cisco
3. Siemens Venture Capital
4. Comcast Interactive Group
5. Motorola Ventures

Specifically Corporate Venture Funds have multiple objectives when they invest:
1. Create a potential window for scanning the market for novel technologies
2. Create an ecosytem for their core products
3. Invest in inorganic growth by building up startups for future acquisitions
4. Pre-empt competition by investing in strategic technology
5. Create returns for their parents through traditional investing strategies

Depending on the firm one is looking at, there is a different order of priority between the four objectives. Intel Capital for example is very much focused on 1, 2, 3 and 4, but is largely driven by 5. Hence, it ensures that it remain a top quartile fund inspite of its strategic objectives.

Key Observations
1. It is these, sometimes conflicting aims, that makes the job of a Corporate VC incredibly difficult. And exciting. But the glass is half empty or full depending on how one looks at it. The same job can be exciting or frustrating depending on one's investment ideology. Corporate VCs juggle these often contrarion aims on a daily basis.

2. On the boards of their portfolio companies, they remain representatives of their parent firms and are sometimes silent observers (due to liability issues).

3. Corporate VCs often work way harder than their traditional counterparts. Their investments (especially in firms like Intel Capital) span across the globe and can be incredibly difficult to navigate through. There are whole host of regulatory, multi-national, macro-economic, and political issues that creep into an investment decision. This makes their work quite complicated.

4. Yet, many Corporate VCs do not get carry. They have immensely important jobs and sit on boards. But corporations (so as to not misalign incentives) shy away from putting together a carry compensation structure. This lack of power-compensation structures has always been an issue in Corporate VC.

5. There are inherent information asymmetries associated with dealing with large Corporate funds and their parent companies. This can create some apprehension among potential startups and other co-investors.

All these issues create a unique Venture Capital model that has significantly altered the investment landscape and been responsible for some very large investments in recent times (Intel Capital's $600M investment in Clearwire).
Finally, this is by no means an exhaustive list or an expostulation of the pros and cons of Corporate Venture Capital. It is more of a 10000 feet view of this model of VC. After all, I owe a lot of what I learnt to people like Ron, Rohini and others from Intel Capital who mentored me during my internship there. And hence, probably owe my budding career to Intel Capital.

Tuesday, November 07, 2006

Why do I want to be a Venture Capitalist? (My Kauffman Fellowship Essay)

I wrote this piece for my Kauffman Fellowship Essay. A bunch of you pinged me to send them a copy after I had applied. I am reprinting it here so as to show one perspective of the motivations behind wanting to get into Venture Capital. Again, its just my opinion and thoughts. Feel free to give me feedback. One is always learning and this is just an experiment in PDA (Public display of Ambitions!)

Why do I want to pursue a career in Venture Capital? This question is even more important today as I skip the recruiting period at school and work on my Kauffman Fellowship application. Success for me is the ability to discern what the core of my motivations is, and then incorporating that into my career. I am at a point in my life where I do not need a job but am looking for the job. That search culminates at Venture Capital, a profession at the crossroads of technology, people and entrepreneurship.

My tryst with technology started in High school where I studied Electrical Devices as a vocational subject and continued on through bachelors into Graduate School where I developed a new semiconductor layout technology called VOILA – VLSI Overall Integrated Layout Application. It progressed at Wharton where I won the Venture Capital Investment Competition (VCIC), the Wharton Technology Case Competition, and resulted in a blog called “FutureVC” at

I started my professional career at Avanticorp as a software engineer, using my expertise to integrate Electronic Design Automation (EDA) software tools across different functional areas. Five years, four promotions and two job changes later, I was the youngest Member Consulting Staff (MCS) at Cadence, considered the largest and most technically advanced company in EDA. But before that I spent some time trying to build a startup as a senior engineer in Softface using EDA algorithms to create next generation taxonomical software. Working in entrepreneurial settings like these taught me how to handle group dynamics, impending deadlines and complex technical issues with equal adroitness.

At Wharton, I am an associate and Outreach manager for University Venture Fund (UVF), an $18M early-stage technology fund. As an outreach manager, I am responsible for creating partnerships with VC shops around the east coast and enhancing UVF’s deal flow. As an Associate, I am responsible for conducting due-diligence and making investment decisions on deals ranging from home security to network storage. However, the watershed of my budding Venture Capital experience has been my internship at Intel Capital (ICAP). As an Investment Manager Intern, I developed a financial valuation tool for ICAP’s broadband investments, helped source, negotiate and value a $8M emerging market broadband wireless deal, and proposed a new mobile services investment strategy. Most of all, I learnt from mentors like Ron Reich, saw the Venture Capital mindset at close quarters, and learnt to work with entrepreneurs. It was here that I started my transition from an engineer-MBA to a Venture Capitalist.

I came to Wharton to initiate that transition. In my Wharton application essay, I wrote – the "perfect business degree" provides the right blend of theoretical knowledge, practical implications of that knowledge along with a quality network of individuals from which to draw expertise, advise and confidence as I pursue my goals. But school, like life is what you make of it. At Wharton, I chair the Wharton Technology Conference and am leading a group of 25 Wharton Students on an expedition to climb Mt. Cotopaxi – the world’s tallest active volcano at 19,347 feet. I think these activities are very important because they help me explore my leadership style and my ability to facilitate, and create significant experiences. Replace “experiences” with “startups”, and this is not too different from the job profile of a Venture Capitalist. On the professional side, I complement these experiences by working on the side with entrepreneurs in Silicon Valley to implement business development projects for their startups (Suggestica).

In the long term, I plan to use my skills in finance, entrepreneurial management and technology to plug into the revolution sweeping across the globe. This revolution is breaking down the traditional market economy and creating a new way of doing business, one that combines the powerful market forces of capitalism with the egalitarianism of technology. I aspire to be a change agent, a future thought leader, who can combine vision, enthusiasm and experience to create a new generation of technology ventures. I know my chances of success would be greatly enhanced by the education and preparation provided by the Kauffman Fellowship program.

I am applying for admission into the Kauffman Fellowship program with the intention of being able to leverage my work experience and technical background so as to carve a niche for myself in the Venture Capital industry. With my background in Semiconductor, Wireless, Mobile Services and India, I have strong insights into the direction in which Venture Capital Industry is moving. A few years of experience in frontline and mid-level Venture Capital positions will create a solid foundation for me to hone and implement my own personal investing philosophy.

And this investing philosophy extends to the way I plan my career too. Whether it is life or a potential startup, every new investment in time and resources should be scrutinized with greater acuity than earlier. After three degrees and eight years of higher education, any further investment should be experiential, efficient and critical. The Kauffman fellowship fulfills all three criteria.

I believe I am going through an exciting phase in my life where my ideas are being honed by experience, and synergized by knowledge. Now I stand poised at the next step towards attainment of my goals – A Kauffman Fellowship. I understand the semiconductor space, have done an enterprise software startup, and did a deep-dive into broadband wireless investments. I have a growing network of entrepreneurs and Venture Capitalists in Silicon Valley and India. But I also understand that domain expertise, operating experience and network alone doesn’t make a good Venture Capitalist.

This summer, I was sitting across the table from Curtis Feeny from Voyager Capital. We were talking about his experiences in Venture Capital. During our conversation, Curtis leaned forward and said something that I will remember throughout my career. “Good Venture Capitalists are good human beings first.” People count, ideas count, the rest follows. If selected, I will bring my knowledge, drive and people-skills to the next class of Kauffman fellows. But more importantly, I will bring respect for entrepreneurship, humility that will fuel my thirst to excel and incredible energy to the program. I am very confident that my experience as a Kauffman fellow will pave the way to realizing my ambitions and look forward to the opportunities it will provide me in the years to come.

Monday, November 06, 2006

Oh Man, Kauffman

Susan Wu from Charles River Ventures pointed out that I need to talk about the Kauffman Fellowship if I wanted to really mention all avenues to make it in Venture Capital.
Kauffman Fellowship is a program setup to select, train and place the next generation of venture capitalists. Kauffman Fellows are students of the Center for Venture Education, and can be either temporary or permanent full-time associates of the Venture Firm during the time of the Fellowship. As associates, their salary, benefits and expenses are the responsibility of and determined by the firm.
There are two ways to become a Kauffman Fellow:
1. Regular Matching - for people who apply to the program on an individual level (usually MBA students). They are usually no connected to any Venture Capital shop.
2. Affiliate Matching - for people who are affiliated with a VC shop. These are usually folks in non-partner positions with less than three years of current Venture Capital experience. Usually the VC firm sponsors their tuition for this program

Both Regular matching and Affiliate matching has very similar application process. The only difference is that in Affiliate matching you are required to get a recommendation from a firm mentor.
Both of these processes require:
1. A completed online application
2. Painfully procured copies of your transcripts from every school you have attended
3. Three recommendations
4. $250 application fees

All in all, from what I have heard ( since I am not a Kauffman fellow (yet), I can only base my observations on hearsay), it is pretty selective process. Last year's statistics involved something like 500 applications resulting in 40 finalists and maybe only 5 really "matched" people.
The caveat there is that many of the other finalists found jobs in the ensuing months.

The Process:
1. Apply - The first step is to actually apply to the program and get your information through before the deadline (Nov 1 this year)
2. Semi-Finals - If you are one of the lucky 80-100 or so you are selected, then you will go through an interview process with a specially selected panel of VCs. Your performance here will determine whether you go to the next round or not
3. Finals - If you are a finalist, congrats. You have made it to the final round. In this round, you are "matched" with partnering VC firms. Being matched with these firms is pretty much like the usual interview process. If you are matched and have gone through the finals, then you are a Kauffman fellow.

What does this finally boil down to?
A Kauffman fellow gets to work as an associate/principal in a leading VC firm (which he/she is matched to). That person has a firm mentor in the matched VC shop who is responsible for training the fellow. The fellow draws a salary just like any full-time employee but also has to go through the educational component of the fellowship by traveling to various locations for classes at regular intervals.

And Finally
In the end, it is a great way to get in. To maximize your chances, I would advice building up your credentials from the time you step into B-school (or even earlier). The fellowship is competitive but is definitely a relatively fool-proof way of making a dent into this seemingly impregnable industry. I have applied and frankly, I cannot judge my chances.

For better or worse, one thing that I got from it was that, I spent a lot of time thinking about the reasons that I wanted to join this industry. This was important as I wrote my Statement of Purpose. It helped me coagulate a lot of my motivations and allowed me to focus on the real reasons for my ambitions.

All in all, a very useful exercise. In the next post, I will do the unthinkable. I will actually post my Kauffman fellowship Statement of Purpose on this blog. If nothing else, it should give you one perspective on why one is motivated to be in this industry.

Wednesday, November 01, 2006

NexGen Partner Profile Series: Mamoon Hamid (USVP)

So today I am going to start a new series on this blog. It will deal with the stories and profiles of people like us, but maybe a little ahead in game. These are MBA students who have graduated recently, and have gone out and carved a name for themselves in the VC world. I think their stories will give us a lot more perspective on what to do in the near term (and what kind of people succeed in this industry) than if I profiled senior partners and legends. The legends will have their own valuable insights but these are people who are young enough to be like us, and have achieved things that are inspiring and encouraging.
So to kick this segment off, I will start by profiling a friend.

Mamoon Hamid (USVP)
Mamoon is probably one of the humblest and most modest guys I have met. We met during my random search for someone to talk to in the Venture Capital world. He not only returned my cold call but also was exceptionally kind to me, and connected me to his mentor in another VC firm. If you want to stay optimistic while doing this crazy search, he is the guy to meet.

Education - Mamoon has a Bachelors in EE and a Masters in Management Science from Stanford. He also has an MBA from HBS
Venture Capital Jobs - Voyager Capital, USVP
Last Job before Venture Capital - Xilinx (Senior Marketing Manager)
Years of Experience - 7
Positioning - Semiconductor, Consumer Internet, Mobile Technology
Out of the blue deed - Started a Pakistani-Indian restaurant in San Francisco. I have had dinner there and it is good

Personal Mantra - Do what you like, do it right and you'll do fine in life

Investing Philosophy -
1. Go in early, support the best people - people who've got the je ne sais quoi and domain expertise. Ideally, these are people you know and trust.
2. Always address a market of consequence ($500m+SAM)
3. Avoid investments that require change in human behavior - whether that’s an engineer, network administrator or plain old consumer. People rarely change (just like in real life) and if they do, it’s over a time period that extends beyond the VC investment time horizon
4. Deal terms (aside from valuation) protect the downside – so if you’re getting bogged down by specific terms, ask yourself whether you should really be making the investment.

The Drift - If someone says, you got to be aggressive to succeed in Venture Capital. Ask him to contact Mamoon.