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Hierarchy of Needs for Early Stage Technology Start-Ups

freshly-hatched-baby-chick-with-broken-egg-photographic-print-c12196192Following my post on “The Show Must Go on” where I did a take on the recently held Proto Event in Pune,I’d like to talk about the New Angels who are especially relevant for early-stage Technology Start-Ups

The role of Angels in nurturing Technology Start-ups in particular has been critical – not just in “funding” them but also in helping them accelerate their value propositions, helping them navigate the proverbial “valley-of-death” or “idea-to-prototype” stages and even guiding and validating the beliefs of the founders who have demonstrated skin-in-the game by bootstrapping their venture.

So when we think about what early stage start-ups need most, I’d say they are:

  1. Validation of their idea which can come from individuals and communities – Market feasibility, Technology Strategy, Differentiation through Product features or Business Model
  2. Sound Advice (it is therefore an absolute imperative that a few of these angels have hands-on experience in the relevant areas of technology and their go-to-market nuances)
  3. Platforms supported by communities of like-minded people who can help fund those ideas with their skills and efforts in return of some equity.
  4. A little money

Most often than not, the market feasibility does not receive the share of the right-brain (that it deserves) that result in failure of left-brain led products, that can be costly and fatal. I am of the view that having decided to go after a Product value proposition, it is an imperative that the founders adopt the Discipline of Market Research and put their dream-product to test against the findings that emerge. Additionally, some help is required in the business plan, legal and accounting areas. Physical workspace and funding, some have argued are important but I’d say this really depends on what kind of product the Founders are trying to build. And, especially for early stage Product Start-Ups a little money can go a long way.

The New Angels

SeeingtheFuture

Micro-Venture funding as a viable alternative to more traditional channels of funding has come of age. What is encouraging is the growth of such funds, whose philosophy of “spare-the-love-and-save-the-startup” seems to have augured well for those they have adopted.  What characterizes most of these Micro-Angels are :

  1. Time Bound fixed cycles in which they choose start-ups, mentor and fund them
  2. Small amounts of Funding (Spare-the-Love)

Here are some of the successful Micro-Venture Funds that are currently operating in the US and Europe, some with very distinct flavors:

YCombinatorPossibly one of the earliest in the game of seed and micro-funding, YCombinator combines deep insights of its founders, a great process of seeing through the possibilities and potential of new ideas, a 3 month cycle in which pretty much prepare the founders to a stage where they can present to potential investors. Their goal is tobe the preferred source of seed funding.They make small investments (rarely more than $20,000) in return for small stakes in the companies (usually 2-10%). The Founding Partners of YCombinator include Paul Graham, Trevor Blackwell, Jessica Livingstone and Robert Morris. Disqus & Posterous and several others companies were born out of YC.

TechStars-max-250x250 TechStars is a mentorship-driven seed stage investment fund, operating currently out of Boulder, Colorado and Cambridge, Massachusettes, USA. Very selective in its approach, its accepts about 20 companies each summer (understand there were 397 applicants last season). They fund upto US$ 6K per founder, that is US$ 18 K max per company in return of 6% equity.

TechStars brings together the best and the brightest mentors in one place. Additionally they provide introductions and connections to potential partners and customers. Each company also has the opportunity to pitch during an investor event that we organize. Usually there are more than 150 VCs and angel investors in attendance.

sprout-box-logo-largeSproutbox presents a refreshingly different approach to funding start-ups. The team takes four start-ups at a time and pump around a quarter of a million dollars into each one over the course of ten months. In addition they also invest teams and resources and this is really different from the rest, as they are also a band of coders who are just not behind-the-scene but in-front-of-the-screen. Launched in 2009, they plan to start a new cycle every three months.

And there are several others which one can look at viz. SeedCamp, RemarkableWit, LaunchboxDigital

Back home, there has been some activity in the micro-funding area and a lot more needs to be done.

iaccelerator-smalliAccelerator, an initiative by the Center for Innovation Incubation & Entrepreneurship (CIIE) at IIM Ahmedabad offers a program to incubate and mentor  entrepreneurs.It says that it requires “the founding teams to live and work near their location in Bangalore from December 1, 2009 to April 1, 2010.” They invest upto 5 Lakh in participating companies and typically ask for 5 – 10% of equity in return for our investment of time and money. iAccelerator is an initiative by Center for Innovation Incubation and Entrepreneurship [CIIE] at IIM Ahmedabad. The 2009 Winter Edition shall be run jointly by CIIE and UpStart.in, a micro-venture fund based in Silicon Valley.

logoOriginally Bangalore based and now Chandigarh based Morpheus Venture Partners has been visible and active. Sameer Guglani & Nandini Hirrainiah now been joined by Indus Khaitan. A slightly dated (September, 2008) post on Mashable.com titled MVP – “India’s YCombinator” – Announces 7 New Startup Investments“, will tell you what they do.  I do not have an update of their current funding model and I will ask Sameer to fill this void.

Pune Tech Angels

Still in its formative stages, Pune Tech Angels Protagonist, Freeman Murray has a refreshingly different view to his new fund. He founded Upstart.in and is currently engaged with the i-Accelerator Program out of Bangalore. Hear what he has to say about Pune Tech Angels

What Freeman is talking about is funding to the tune of Rs. 3-5 lakhs per venture, and bringing down the threshold level of Rs. 50K per investor. He is also a firm believer in the process involved in selecting and bringing up early stage start-ups and already has significant experience.

Aikon Labs has been helping early-stage ideas transform to products though community funding of efforts and skills.

Freeman says, “it would be great to feel out how we can use your tools to help connect and organize young entrepreneurs with early stage angels who are interested in working in a specific field … I think your tool could be nice for helping manage the process at a more fine grained level which I believe angels at least would like”.

Early stage start-ups require several iterations, in multiple areas be it their idea itself, business plan, marketing strategy, product architecture and by enabling them to connect, collaborate and co-create innovative solutions using an online platform, we help not only bring down the costs but also provide visibility and sustainability to ideas . By stage-gating ideas through defined processes, their work flows can be dovetailed with those of the product-life-cycle-management, resulting in superior outputs.

The other key ingredients for success I see for Pune-Tech Angels is the involvement of Mentors who understand technology, people who have been there, done that. The investor community has already seen what kind of ideas and talent reside in the city of Pune. This coupled with availability of technology professionals with skin-in-the-game, if leveraged intelligently could be a win-win for all stakeholders.

So next time you have as little as 50K to invest, think twice before calling your stockbroker – the stocks start-ups you’ve been waiting for could well be right here in Pune.

Freeman can be reached at freeman@pobox.com.

DSC03356Last week on Saturday, I was consumed in one of the best events I have seen in Pune – Proto.in. In its 6th Edition now, Proto provides a platform for showcasing Technology Product StartUps. Vishal Gondal of India Games has covered the Show on his blog Startups Rock at Proto.in, Should Techcrunch50 & Demo look at India? In his “what-rocks” and “what-sucks” style, he put together a great post on the Start-Ups and the event on the whole. So I will attempt to cover some of the other aspects that are worth their mention.

Here is a great video – Courtesy ET Now – Starting Up which captured the moments of truth at the event

Behind the Show

An event of this proportion needs a world-class venue and guess who came to the aid of the Start-Up nation – Dr. Anand-Deshpande: Managing Director-CEO of Persistent Systems Limited. In more ways than one, I believe that the Persistent Infrastructure and the co-operation received from them has set a new benchmark which Proto will find difficult to match in their coming editions. Thank you very much Anand. May your tribe grow.

As a participant and a volunteer from the Pune Start-Up Community, I met quite a few known and unknown faces. Syed and Sukumar the pillars behind the Event and yet their humility strikes you (a common Indian trait which is so uncommon these days). The energetic Ravi-Shankar – Co-Founder of Proto.in, who seemed to have his cursor on every aspect of the event. VC-Karthic, the all-in-one Event and Media man, hustling, directing and innovating-on-the-fly the proceeds to perfection. Sudhir-Syal from Proto and ETNow was the lifeblood for the interviews and coverage of the event. Shradha-Sharma from Yourstory.in anchored the sessions on Intellectual Capital as well the very useful session on Angel Investing by Mumbai Angels. Navin Kabra of PuneTech was the one who lighted the fire by first posting a “Call-to-Arms” saying “Give us 5 reasons why Proto should be held in Pune” and then excited the volunteer force in Pune. Arun-Prabhudesai of Hover to whose credit goes ticket sales, last-minute-request-management skills and the memorable dinner at Post 91. Unmesh Mayekar of Sadakmap.com another enthusiastic volunteer who managed the Registration among other things. The quiet curator of POCC (Pune Open Coffee Club) – Santosh-Dawara Co-Founder of Dubzer.com, who has been doing great work energizing the start-up community in Pune. And ofcourse the Pune Volunteer Team who surpassed every expectation. A big to Thumbs Up to all of them.

At the Show

Dr. Ganesh-Natarajan – National Committee Chair : IT & ITES at CII connected with the audience egging them to stay focused on product innovation. He also dispelled some of the common myths surrounding government support and funding. He pledged his personal support to any start-up seeking help from the government and industry associations like CII. Ganesh talked to quite a few enthusiasts off the stage and we look forward to his continued guidance in our engagement with the government and CII.

On the Mumbai-Angels Panel, I was personally motivated hearing Sasha-Mirchandani. ‘Be willing to adapt but once you have decided to run for it, stick with it and you shall succeed”. “There is need for more angels in India, currently there are only two – Mumbai Angels & Indian Angels – not enough” he said. “Every time I hear someone wants to start an angel fund, I am the first one to hop on to a plane to go out there and help ”, he concluded. Sasha’s enthusiasm for Start-ups is contagious and his commitment palpable.

The Sideshow

During the event I met and talked with several youngsters, many of them nurturing an idea, some standing at the threshold of taking the plunge and a few who have taken it and swimming with or against the tides. Clearly the issues are significantly different in each stage of a start-up’s evolution including sectoral issues that need to be addressed.

I was fortunate to have cornered a motley crew of start-up evangelists to put some of these issues on a feedburner. Freeman Murray – Founder Principal of Upstart.in said, “The needs of Product-Start-Ups are significantly different from others. Product Start-Ups need funds to sustain the development effort much before they get to see their first customer”. Its great to know that Freeman along with others have initiated PuneTech Angels (something I am writing about in a subsequent post). Navin talked about the need to segment by areas of technology and the significant difference between Mentor and Advisory roles. Manak Singh – Executive Director of TiE, felt that  entrepreneurs need to stay grounded on their purpose and mentoring could play a significant role in guiding the course.“Funding itself is seen a major of the success. Such shows maybe creating these expectations in start-ups before the necessary groundwork is done by them”, said Naru Narayanan of Nett10 Digital.

It was quite clear that while the challenges for start-ups beyond a certain stage would certainly be around “Go-To-Market” there are still significant support requirements in the “Idea-to-Prototype” Phases. If these issues were to be addressed we needed multiple mechanisms and entities to come together.

After the Show

In the backdrop of the discussions, I am putting forth a few questions that I feel are important for us to seek answers to for the road ahead:
Collaborate

1. How do we take events like Proto.in to their next level and leverage them better? Get active participation from the Government, established companies and industry associations. Engage actively with these entities to collaborate and create larger value propositions. Most importantly, translate rhetoric to action.
2. How do we showcase Start-ups on a sustainable basis ? I think YourStory.in led by Shraddha is doing a great job providing focused and sustained visibility to Entrepreneurs. She can take her proposition to the next level, tracking successes, failures, valuation, spin-offs etc.
3. How do we support early Stage Start-Ups? India as a country needs thousands of ideas and Capital in itself cannot become a bottleneck for nurturing them– Aikon Lab’s Open Platform  PlanetAikon does just that by helping leverage skills and efforts from communities to fund ideas in their early stages in return for equity.
4. How can we work better with  Angels and VCs? How do we understand their expectations, processes and areas of focus and articulate a process to provide a window to meet those expectations and realize their funding aspirations?

There is huge energy in the system. Imagine what a combination of POCC, PuneTech, Pune Tech Angels, PlanetAikon, YourStory, Mumbai Angels and Proto along with other ecosystem partners can do!

What we need now is some concerted action because the Show must go on.

What do you say and how can you help?

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R R DASGUPTA (RR)

My conversations here are about Ideas, Entrepreneurs and their moments of truth. It is also about helping build an ecosystem in place of ego-systems, to make our collective journey a more rewarding one. India needs thousands of ideas Do you have an Idea ? Can you be the Change?

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