It has been fun blogging away on random topics related to Venture Capital for the past few months. I will continue this process after the winter break. Meanwhile, I am away from school leading an leadership expedition to Antarctica. If I come back on Jan 5, then I shall continue this blog. If I do not, I must have found a nice VC position out there in Penguinland. Please request Wharton to waive my student loans.
Happy New Year. And have a good one.
- Punit
Monday, December 25, 2006
Sunday, December 17, 2006
Aptitude Tests do not define us, Mr. Kawasaki
Recently, I chanced upon the much talked about VCAT test by one of the most esteemed Venture Capitalists out there.
I cogitated on this blog posting for quite a while. (By the way, my score asked me to email 2000 VCs and pray, something that I already do). I have exchanged emails earlier with Guy, being one of the thousands of Biffs, Sebastians, Brooks, and Tiffanys who want to be kingmakers, and he was generous in his advice and prompt in his response. I felt that the blog posting accurately reflected his opinion but I was taken aback by the significant generalizations inherent in the post.
I re-read a few of my earlier blogs, where I detail the reasons for my wanting to be in Venture Capital. At some level, this particular ambition invokes an emotional undercurrent in me. That probably is because to look for a VC position is to be in such an underdog position, especially in Business School. Young people do not naturally gravitate towards VC positions, Mr. Kawasaki. One has to sit out of dedicated interview periods, knock on hundreds of doors, and email many successful people like you to get a break. It is not a comfortable place to be in, and most people do not take it to it naturally, cocktail parties non-withstanding. But that begs the question. Why Venture Capital?
We do not work towards a Venture Capital job because we see cocktail parties, 0.5M dollar salaries and huge carries. On the contrary, most of us know that it is hard work, reasonable salaries and years before any particular break of any particular significance or visibility comes our way. So, then again, why Venture Capital?
Because most of us believe in our ability to help other companies move forward. Because most of us are young enough to have the energy, and have a finger on the pulse of what's going on and what's coming next. And because most of us want to be a part of the system that has built some of the most amazing technological innovations in recent times.
Many of us have worked for quite a few years in large, mid-size and small startups. We have worked on products, indeed built them, marketed them, and then supplemented that skill-set with advanced degrees in technology and business. We might not be as experienced as some senior partners out there, but we compensate for that with our energy and youth. I will argue that Venture Capital is not something to be done at the end of one's career. It is a great experience to have, to get one of the most well-rounded business experiences out there. It looks like a closed club from outside, but most of my friends who work in it vouch for satisfaction they get from their experiences.
I look at Venture Capital as a state of constant entrepreneurship...that builds other startups. You have to be driven, motivated and bright to succeed. Having not done a startup does not merit contempt when one is helping entrepreneurs. Nor are former entrepreneurs the best advisors to other entrepreneurs. Sure, there is something to be said for having gone through the experience many times over in one's lifetime before getting to be a VC. However, there is no reason someone with the right education, experience and attitude cannot help build successful companies. Most of us do not think that being a VC will involve making mere spreadsheets and giving random consultisque advice. Most of us look at it as an opportunity to work with the best and brightest, as a part of multiple teams, in multiple ways, and making a difference.
I think it is a significant underestimation of our capabilities to think that we are naive enough not to know what is in store for us in the Venture Capital industry. I may not get the right opportunity in this industry and might get the right opportunity in an appropriate startup. Or vice-versa. Neither is a backup for me. Ultimately, it is important to find satisfaction in whatever one does. I am interested in entrepreneurship, people and technology. And Venture Capital is one route to that.
I beg to differ Mr. Kawasaki. It is impossible to condense the capabilities of a person into an aptitude test. No aptitude test ever defined a person.
I cogitated on this blog posting for quite a while. (By the way, my score asked me to email 2000 VCs and pray, something that I already do). I have exchanged emails earlier with Guy, being one of the thousands of Biffs, Sebastians, Brooks, and Tiffanys who want to be kingmakers, and he was generous in his advice and prompt in his response. I felt that the blog posting accurately reflected his opinion but I was taken aback by the significant generalizations inherent in the post.
I re-read a few of my earlier blogs, where I detail the reasons for my wanting to be in Venture Capital. At some level, this particular ambition invokes an emotional undercurrent in me. That probably is because to look for a VC position is to be in such an underdog position, especially in Business School. Young people do not naturally gravitate towards VC positions, Mr. Kawasaki. One has to sit out of dedicated interview periods, knock on hundreds of doors, and email many successful people like you to get a break. It is not a comfortable place to be in, and most people do not take it to it naturally, cocktail parties non-withstanding. But that begs the question. Why Venture Capital?
We do not work towards a Venture Capital job because we see cocktail parties, 0.5M dollar salaries and huge carries. On the contrary, most of us know that it is hard work, reasonable salaries and years before any particular break of any particular significance or visibility comes our way. So, then again, why Venture Capital?
Because most of us believe in our ability to help other companies move forward. Because most of us are young enough to have the energy, and have a finger on the pulse of what's going on and what's coming next. And because most of us want to be a part of the system that has built some of the most amazing technological innovations in recent times.
Many of us have worked for quite a few years in large, mid-size and small startups. We have worked on products, indeed built them, marketed them, and then supplemented that skill-set with advanced degrees in technology and business. We might not be as experienced as some senior partners out there, but we compensate for that with our energy and youth. I will argue that Venture Capital is not something to be done at the end of one's career. It is a great experience to have, to get one of the most well-rounded business experiences out there. It looks like a closed club from outside, but most of my friends who work in it vouch for satisfaction they get from their experiences.
I look at Venture Capital as a state of constant entrepreneurship...that builds other startups. You have to be driven, motivated and bright to succeed. Having not done a startup does not merit contempt when one is helping entrepreneurs. Nor are former entrepreneurs the best advisors to other entrepreneurs. Sure, there is something to be said for having gone through the experience many times over in one's lifetime before getting to be a VC. However, there is no reason someone with the right education, experience and attitude cannot help build successful companies. Most of us do not think that being a VC will involve making mere spreadsheets and giving random consultisque advice. Most of us look at it as an opportunity to work with the best and brightest, as a part of multiple teams, in multiple ways, and making a difference.
I think it is a significant underestimation of our capabilities to think that we are naive enough not to know what is in store for us in the Venture Capital industry. I may not get the right opportunity in this industry and might get the right opportunity in an appropriate startup. Or vice-versa. Neither is a backup for me. Ultimately, it is important to find satisfaction in whatever one does. I am interested in entrepreneurship, people and technology. And Venture Capital is one route to that.
I beg to differ Mr. Kawasaki. It is impossible to condense the capabilities of a person into an aptitude test. No aptitude test ever defined a person.
Friday, December 15, 2006
India
I do not think I need to start this post by talking about the opportunity in India. That is a given. From both buyer and supplier point of view, India has become a force to reckon with in the last decade or so. In recent times, more than 40+ VC firms have established base in India. In fact, currently most VC firms of any consequence have an India strategy. But will they prosper?
What is the nature of the opportunity in India?
First of all, there is far too much money in India by all accounts. An excerpt from an India-focused report by EValueServe sums it up concisely.
Over 44 US-based VC firms are now seeking to invest heavily in start-ups and early-stage companies in India. These firms have raised, or are in the process of raising, an average of US $100 million each. Indeed, if these 40-plus firms are successful in raising money, they would garner approximately $4.4 billion to be invested during the next 4 to 5 years. Taking Indian Purchasing Power Parity (PPP) into consideration, this would be equivalent to $22 billion worth of investment in the US. Since about $1.75 billion (or approximately 40% of $4.4 billion) has been already raised, even if only $2.2 billion is raised by December 2006, Evalueserve cautions that there will be a glut of VC money for early- stage investments in India. This will be especially true if the VCs continue to invest only in currently favourite sectors such as IT, BPO, software and hardware products, telecom, and consumer Internet. Given that a typical start-up in India would require $9 million during the first three years (i.e., $3 million per year) and even assuming that the start-up survives for three years, investing $2.2 billion during 2007-2010 would imply investing in 150 to 180 start-ups every year during this period, which simply does not seem practical if the VCs continue to focus only on their current favourite sectors.
What does this imply?
Firstly that there is indeed more capital than there are deals, and secondly, to invest effectively, VCs will have to move beyond their favorite sectors. No wonder, there is a trend among VCs in India to invest in pickle factories, electrical fittings and other later-stage, more private equity type of deals.
So?
So this means that early stage VCs moving into India will either invest in later, more growth stage deals than they used to or will under-invest. However, there is a third scenario that is possible. There is one school of thought that believes that large VC players are moving into India with the sense that they may get hit in the short term. Their motivation is not to make loads of money in the short term as much as to create a beachhead of sorts. The next few years will be hazy but if they can ride the storm, they would have enough network, crediblity and deal-flow that the deals of 2009 Vintage will more than compensate for any less-than-stellar returns from deals of today's vintage. And while that happens, VCs will move into more later-stage deals.
If this is indeed true, then it will tie in all the four major phenomena occuring in the Indian Venture Capital landscape:
1. Influx of VCs into the Indian market
2. Too much Capital
2. Very few good deals
3. Later stage Investing by early stage players
Finally, the biggest need in India right now is not Venture Capitalists but effective operators. There is a big dearth of good managers in India and this presents an interesting opportunity for people like us. On another note, VCs have a big role to play in this market. This is especially true for those who do invest money but more than that, offer their experience, ideas and manpower to their portfolio companies. Very exciting times out there! So, if you are an entreprenuer looking for capital or good people, mail in!
What is the nature of the opportunity in India?
First of all, there is far too much money in India by all accounts. An excerpt from an India-focused report by EValueServe sums it up concisely.
Over 44 US-based VC firms are now seeking to invest heavily in start-ups and early-stage companies in India. These firms have raised, or are in the process of raising, an average of US $100 million each. Indeed, if these 40-plus firms are successful in raising money, they would garner approximately $4.4 billion to be invested during the next 4 to 5 years. Taking Indian Purchasing Power Parity (PPP) into consideration, this would be equivalent to $22 billion worth of investment in the US. Since about $1.75 billion (or approximately 40% of $4.4 billion) has been already raised, even if only $2.2 billion is raised by December 2006, Evalueserve cautions that there will be a glut of VC money for early- stage investments in India. This will be especially true if the VCs continue to invest only in currently favourite sectors such as IT, BPO, software and hardware products, telecom, and consumer Internet. Given that a typical start-up in India would require $9 million during the first three years (i.e., $3 million per year) and even assuming that the start-up survives for three years, investing $2.2 billion during 2007-2010 would imply investing in 150 to 180 start-ups every year during this period, which simply does not seem practical if the VCs continue to focus only on their current favourite sectors.
What does this imply?
Firstly that there is indeed more capital than there are deals, and secondly, to invest effectively, VCs will have to move beyond their favorite sectors. No wonder, there is a trend among VCs in India to invest in pickle factories, electrical fittings and other later-stage, more private equity type of deals.
So?
So this means that early stage VCs moving into India will either invest in later, more growth stage deals than they used to or will under-invest. However, there is a third scenario that is possible. There is one school of thought that believes that large VC players are moving into India with the sense that they may get hit in the short term. Their motivation is not to make loads of money in the short term as much as to create a beachhead of sorts. The next few years will be hazy but if they can ride the storm, they would have enough network, crediblity and deal-flow that the deals of 2009 Vintage will more than compensate for any less-than-stellar returns from deals of today's vintage. And while that happens, VCs will move into more later-stage deals.
If this is indeed true, then it will tie in all the four major phenomena occuring in the Indian Venture Capital landscape:
1. Influx of VCs into the Indian market
2. Too much Capital
2. Very few good deals
3. Later stage Investing by early stage players
Finally, the biggest need in India right now is not Venture Capitalists but effective operators. There is a big dearth of good managers in India and this presents an interesting opportunity for people like us. On another note, VCs have a big role to play in this market. This is especially true for those who do invest money but more than that, offer their experience, ideas and manpower to their portfolio companies. Very exciting times out there! So, if you are an entreprenuer looking for capital or good people, mail in!
Tuesday, December 05, 2006
Another Buzzword flogged to death: Web 2.0
Having gone through a few VC interviews, I have learnt that Venture Capitalists tend to cut through the jargon and look beneath the hood where it comes to things like "Web 2.0". And I have been asked quite a bit about my opinion on this latest buzzword sweeping the tech industry.
So I thought I would put together a simple primer for the uninitiated about what really is this Web 2.0 and what it means in terms of investment opportunities. Most of us know these concepts in bits and pieces. I am just trying to put them together in a short tutorial. And this tutorial is by no means exhaustive.
Identity
First of all, 2.0 is simply the software way of saying, updated. Web 2.0 is defined as the next version of internet infrastructure and applications. It was first coined by O'Reilly Media and John Battelle as a set of principles:
Value System
1. The web is a platform for the new wave of applications
2. Data will be the driving force for this wave
3. Social Participation will leverage this data to create immense network effects
4. Distributed development (read open source) of applications (widgets) will hold sway
5. Business models will be based on services rather than products
6. Applications will always stay in "beta" mode (no version system)
7. The long tail will create immense revenue opportunities
Key Technologies that prop it up
1. AJAX - a web-development technique that makes the page more responsive by not reloading completely everytime a user-interaction occurs. For ex: Geojoey.
2. Mashups - A technology that interfaces two different site functionalities into one service. For ex: "http://www.housingmaps.com/">Housing Maps.
3. RSS/Atom - Used in combination with feedreaders to check for updates on RSS-enabled websites (Content feeds). This allows the users to find out if their content sources have been updated. You can add my blog to your feedreader by bookmarking this.
4. Blog - This is not as much a technology as continually updated diary. The ease with which this could be created and used led to an explosion of content on the Internet. There are many variants of it (vlog (video logs), mlog (mobile logs) etc).
5. Folksonomy - The technique of categorizing content by making the users "tag" the content with "tags" (keywords). The social nature of this technique leads to a very efficient information retrieval system. Most Web 2.0 sites work on this principle. For ex: You can search on YouTube by clicking on the tag related to your interests.
The Newsmakers
I will categorize the companies in this realm in terms of various functional buckets. However, this is going to be a 30K feet view of the web 2.0 world. In fact, some of these can be placed in multiple categories.
1. Ecommerce (goods, services or classifieds) - eBay, craigslist, Judy's Book, Zillow
2. Content - Wikipedia, Flickr, Geojoey, YouTube, Last.fm
4. Retrieval Infrastructure - del.icio.us, Digg
5. Advertising - Adsense
6.Communications - Skype
7. Applications - Google Docs, Netvibes
8. Collaboration - Socialtext, Basecamp
9. Blogs - Technorati, Bloglines, Jotspot
10. Social Networking - LinkedIn, facebook, MySpace
All in all, Web 2.0 means different things to different people. The impact of this new wave of technology is being seen all over the Internet, and this probably brings us closer to the original vision of the Web being a completely democratic, open, and free network. We shall see where this ends up.
And then a little bit of whining
On another note, I can safely say my recruiting season has finally started. And it has been weird to say the least. I am getting calls from VC firms, they talk to me, nothing (that I know off) goes wrong, things look good, there is the usual, "We will bring you into for another discussion sometime soon", and then poof!
What exactly does sometime soon mean? I am not sure but from what I have heard, it could be weeks, months or tomorrow. The result? I sit around not sure whether I am doing well or not. If this is not wallowing in ambiguity, I am not sure what is.
Oh well...We shall persevere. This is SO much fun!
So I thought I would put together a simple primer for the uninitiated about what really is this Web 2.0 and what it means in terms of investment opportunities. Most of us know these concepts in bits and pieces. I am just trying to put them together in a short tutorial. And this tutorial is by no means exhaustive.
Identity
First of all, 2.0 is simply the software way of saying, updated. Web 2.0 is defined as the next version of internet infrastructure and applications. It was first coined by O'Reilly Media and John Battelle as a set of principles:
Value System
1. The web is a platform for the new wave of applications
2. Data will be the driving force for this wave
3. Social Participation will leverage this data to create immense network effects
4. Distributed development (read open source) of applications (widgets) will hold sway
5. Business models will be based on services rather than products
6. Applications will always stay in "beta" mode (no version system)
7. The long tail will create immense revenue opportunities
Key Technologies that prop it up
1. AJAX - a web-development technique that makes the page more responsive by not reloading completely everytime a user-interaction occurs. For ex: Geojoey.
2. Mashups - A technology that interfaces two different site functionalities into one service. For ex: "http://www.housingmaps.com/">Housing Maps.
3. RSS/Atom - Used in combination with feedreaders to check for updates on RSS-enabled websites (Content feeds). This allows the users to find out if their content sources have been updated. You can add my blog to your feedreader by bookmarking this.
4. Blog - This is not as much a technology as continually updated diary. The ease with which this could be created and used led to an explosion of content on the Internet. There are many variants of it (vlog (video logs), mlog (mobile logs) etc).
5. Folksonomy - The technique of categorizing content by making the users "tag" the content with "tags" (keywords). The social nature of this technique leads to a very efficient information retrieval system. Most Web 2.0 sites work on this principle. For ex: You can search on YouTube by clicking on the tag related to your interests.
The Newsmakers
I will categorize the companies in this realm in terms of various functional buckets. However, this is going to be a 30K feet view of the web 2.0 world. In fact, some of these can be placed in multiple categories.
1. Ecommerce (goods, services or classifieds) - eBay, craigslist, Judy's Book, Zillow
2. Content - Wikipedia, Flickr, Geojoey, YouTube, Last.fm
4. Retrieval Infrastructure - del.icio.us, Digg
5. Advertising - Adsense
6.Communications - Skype
7. Applications - Google Docs, Netvibes
8. Collaboration - Socialtext, Basecamp
9. Blogs - Technorati, Bloglines, Jotspot
10. Social Networking - LinkedIn, facebook, MySpace
All in all, Web 2.0 means different things to different people. The impact of this new wave of technology is being seen all over the Internet, and this probably brings us closer to the original vision of the Web being a completely democratic, open, and free network. We shall see where this ends up.
And then a little bit of whining
On another note, I can safely say my recruiting season has finally started. And it has been weird to say the least. I am getting calls from VC firms, they talk to me, nothing (that I know off) goes wrong, things look good, there is the usual, "We will bring you into for another discussion sometime soon", and then poof!
What exactly does sometime soon mean? I am not sure but from what I have heard, it could be weeks, months or tomorrow. The result? I sit around not sure whether I am doing well or not. If this is not wallowing in ambiguity, I am not sure what is.
Oh well...We shall persevere. This is SO much fun!
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