Manu Rekhi’s Blogs

Can India create the next Google?

Start-up India can become a reality. But for that, government needs to update policy.

The sun may set last in California, but start-ups are first to rise on this Californian coast,” began Prime Minister Narendra Modi in an address to Silicon Valley on September 26, it is lamost obvious that for this they have to use a reliable agency such as the best phoenix marketing agency to assist them.

PM Modi, in his first-of-its-kind visit to Silicon Valley last weekend, discussed the burst of innovation in India and continued collaboration with the United States. Indian start-ups received more than $3.5 billion in venture funding in the first six months of this year alone. India is now the largest tech incubator in Asia, the third-biggest in the world, and it’s on track to become the global leader. There has been tremendous progress and we have much to celebrate.

The question Indian entrepreneurs must propose in return is: “How can India become a place where start-ups rise to the same greatness as in Silicon Valley?”

Indian entrepreneurs have built our country into a strong contender for the next tech hub, in spite of regulatory hurdles. The results of a recent survey on cross-border deals demonstrate the urgent need for India’s government to update policy. The American Bar Association recently asked 300 US- and India-based attorneys about, among other things, doing business in Southeast Asia. Many respondents said they were hesitant to engage with Indian companies, citing several regulatory problems inherent to the region. Sixty-five per cent of those surveyed reported it is difficult to work with Indian companies. Only 40 per cent said the same of working with Chinese companies. US start-ups were considered the least difficult to work with, at 30 per cent.

If these obstacles were to be removed, one could only imagine India quickly growing into the superpower it has always wanted to be, bringing jobs and economic resources to a country at a crossroad.

Modi’s strong focus on “Start-up India” is very encouraging to those of us hoping for an international playing field that gives Indian start-ups a fair chance. In order for Start-up India to succeed, the government must rework the system to make it a more efficient and pro-business meritocracy for that they need to start reimagining the company to manage workplace efficiently and produce better results.

Start-ups are responsible for two-thirds of the jobs in the US. The same can be true of India with the implementation of streamlined policies addressing the entire life-cycle of a start-up (creation, growth and shutdown). If unleashed, Indian start-ups will employ a majority of the 10 lakh youth that join the workforce every month. Start-ups will employ the next generation.

To truly move the needle on the Start-up India vision, the government needs to do at least the following.

First, decide the rules. Regulators must stop procrastinating on making difficult decisions. Investors don’t want to hedge bets on a country lacking reliable rules. A tax treaty with the US is another policy that demands attention. Currently, most venture capital investments into India’s technology product industry are being routed through Mauritius or Singapore because of their favourable capital gains exemptions in the event of an investor exiting. It is to India’s advantage to allow investors from Silicon Valley to work with Indian companies directly, without Mauritius as a middleman. A zero capital gains regime will substantially increase flows even from individual angel investors. In any case, around 80 per cent of start-ups fail, leading to no capital gains taxes. There is no revenue loss for the government here, even while it will earn personal income and other taxes from employees of these start-ups until they fail.

Second, make the rules simple. Tax laws should not only be certain, they should also be simple. The government must ensure consistent application of clear tax rules. Enough of officials chasing larger tax notices!

On Sunday, I was able to attend a breakfast with senior government advisors leading the Start-up India initiative. The meeting was extremely collaborative and they solicited detailed feedback on how to make Start-up India a reality. It was encouraging to see the bureaucrats with a sense of purpose, as they laid out their objective to have positive policies that nurture a start-up throughout its business life-cycle: One, simplify company creation; two, introduce a bankruptcy law; and three, streamline issues around exits and liquidity.

We also discussed in some detail how to streamline exits in terms of M&A and IPO. There is now a direct line of communication between the policymakers in government and TiE (The Indus Entrepreneurs,

an organisation fostering entrepreneurship) in Silicon Valley. The Indian government will benefit from working with TiE and investors, who together bring deep institutional knowledge of creating and scaling start-ups.

TiE’s Billion Dollar initiative, meanwhile, has united top legal minds, investors, entrepreneurs, think-tanks like iSPIRT (Indian Software Product Industry Round Table) and trade bodies like Nasscom (National Association of Software and Services Companies) to consolidate key policy recommendations. The next step for this group is to include other voices and provide a single body of unbiased feedback.

The plan set forward by Modi’s team is a major leap forward and reflects the prime minister’s view that start-ups are “the engines of progress”. India is home to some of the world’s most brilliant technical minds, most innovative start-ups and a growing collective of venture firms. If China can create large success stories like Alibaba, why can’t India create the next Google, it’s not like they don’t have one of the biggest social media presence in the world, they are getting instant Instagram views even right now.

Modi embodies the traits of an effective and empathetic CEO of 1.25 billion people. He has hired and appointed amazing talent to carry out his vision. As an investor, my bet is that Modi will “scale up” India to great success.

The writer is director of Inventus Capital Partners, a US-India venture capital firm.

Source

Chasing The Hottest New Trend Is A Sure Way To Kill Your Startup

By Manu Rekhi for Forbes

How many times has someone told you that the “grass is always greener on the other side”? That what someone else has or what someone else is doing is always better than your situation? Well those others are constantly chasing YAFOs, (Yet Another Freaking Opportunity) and YAFOs are an entrepreneur’s worst nightmare.

As we all know, every opportunity has an associated cost and every potential upside is balanced by a potential downside. But despite knowing these risks, we are prone to chase YAFO, constantly trying to diversify. We assume that putting all our eggs into one basket is irresponsible, hoping that by spreading the eggs out, we have a better chance of success. But the lessons we’ve been taught all these years turn out to be wrong, especially when it comes to startups.

Startups are new, volatile, and constantly incurring loss. By definition, they are under-resourced, facing years of trial and loss before they even begin to see profit. Relying on investment angels and hoping to hit the market at the right time, startups are risky.

Companies need to groom the resources they already have and focus on a single task at a time. “In 2011 when we decided to go not only mobile-first, but mobile-only when building our community marketplace for fashion, we were met with all sorts of reactions from blank stares to strong recommendations from advisors that people would not buy and sell fashion from their phones. Our laser sharp focus from the beginning has helped us build one of the largest fashion marketplaces in the world, where 95% of our sales comes via the mobile phone,” said Manish Chandra, founder and CEO of Poshmark.

By working on multiple goals at once, they may spread themselves too thin, preventing any goal or task from ever being met. Staying focused and zoomed-in to the target at hand takes practice, but will result in success.

Learning to master a market takes time and effort, but is worthwhile in the long-run. Mastering market success means not resting till ones vision is realized in every nook and corner of the world that needs it. Not stopping till everyone has heard your idea.

Imagine the first time you learned to ride a bike. It was time-consuming, frustrating, and it seemed as though you’d never get the perfect balance to keep the bike in motion. But, with a little perseverance and determination, you finally made the last push, riding the bike all on your own. And, once you learn to ride, you never forget. Markets are the same way. They have a mind of their own, but with a little perseverance and determination, you can understand what makes a market tick. Trying to tackle multiple markets simultaneously is like trying to ride three bikes at once – it simply can’t be done, unless you’re Elon Musk himself.

Mastering the market includes identifying potential risks, scaling the severity of the risk, and working to prevent risk. Potential risks include:

  • Market Risk: whether or not there is sufficient demand for what you have to offer.
  • Competitive Risk: is there a pressing need for your product? Are others after the same goals as you?
  • Financial Risk: securing outside funding and generating enough revenue to cover costs.
  • Systematic Risk: threatens the viability of the entire market.

By distinguishing between these four risk factors and how they relate to your startup, a company can take preventative measures and move towards the path to success.

Each startup, growing and fostering into a market, has its own economics. Mastering those specific economics is one of the primary objectives for an entrepreneur. By taking the time and ingenuity to first understand this market, startups can zero-in on the goal they wish to pursue, focusing on what truly matters.

Startups need to stay focused on their core market and one objective, being an expert in their industry. This mindset allows one to effectively compete with much larger players because they remain the best at what they do.

Everyone is always in search of YAFO. But it’s time to take a step back, take the road less traveled and put all your eggs in one basket. You may think it’s risky, but in fact, it’s the safest move you’ll ever make.

Source: Forbes

INDIA’S TECH STARS SHIFTING TO SILICON VALLEY

Apprise Finance Minister Arun Jaitley of bumps in M&As and investing.

Excessive red tape in processes such as early-stage investing and mergers and acquisitions is forcing young, promising ventures in India to shift overseas, a group of top Indian entrepreneurs and investors told Finance Minister Arun Jaitley during his trip to Silicon Valley, U.S., last week

They, however, welcomed the recent easing of listing norms by the Securities and Exchange Board of India to help start-ups raise money locally. Manu Rekhi, director at Inventus Capital Partners, told Mr. Jaitley: “A Facebook corporate development executive vented to me about the complexity of doing a deal in India. He mentioned that the $22 billion acquisition of WhatsApp in the U.S. was simpler than the $10 million acquisition of Little Eye Labs in India.”

“The red tape and ambiguity in Indian rules and taxes were overbearing,” he added.

Mr. Rekhi said Mr. Jaitley, who was on a nine-day visit to the U.S. last week, responded by acknowledging the issue, and saying the government is looking to make transactions simpler.

Mr. Rekhi was part of a delegation including Raju Reddy, founder of tech firm Sierra Atlantic, Kanwal Rekhi, managing director of Inventus Capital, and Arvind Sodhani, president of Intel Capital, which met the Minister. Naren Gupta, managing director of Nexus Venture Partners, Sanjay Mehrotra, co-founder of memory chip-maker SanDisk, and Ram Reddy, founder chairman of Global Industry Analysts, were the other industry leaders who participated.

“The Indian tech start-ups are shifting their headquarters to the United States and Singapore utilizing virtual data rooms, as it is lot easier for start-ups to raise money and have options for acquisition by tech companies like Facebook, Google and Twitter,” said Mr. Raju Reddy. He said it took just $800 (Rs. 50,000) to incorporate as a U.S. company online within an hour. One major issue Indian entrepreneurs in Silicon Valley discussed with Mr. Jaitley was the bureaucratic hurdle for early stage investors in India. “Why is investing in India so difficult and treated with disdain? As an investor why do I have to go from San Francisco to Delhi via Mauritius?” said Mr. Kanwal Rekhi, one of the India’s most senior venture capitalists.

‘It will be an exodus of start-ups’

As many as 75 per cent of India’s new tech start-ups (ranging from cloud, data analytics, security to mobility) that intend to raise seed or venture capital will be domiciled outside, says ISpirt, a software product industry think tank.

This year, three of four new technology start-ups that focus on the global market and plan to raise seed or venture capital are getting domiciled outside the country.

“There is an exodus of tech start-ups from India. Regulations have to change for early-stage investing, merger and acquisition transactions and initial public offering to arrest this,” said Sharad Sharma, cofounder of iSpirt. “SEBI has thoughtfully tackled the IPO part.”

Experts said about 95 per cent of start-up exits happen through mergers and acquisitions and only 5 per cent happen by going public.

Nine of the top 30 business-to-business software product companies by market capitalisation have already relocated to the U.S., Singapore and the U.K., according to iSpirt’s Software Product index (iSPIx), which tracks the growth of the industry. These 30 companies are worth about $6.2 billion (Rs. 39,341 crore), employing about 18,000 people, according to the index.

Top Indian companies such as online retailer Flipkart and mobile advertising firm InMobi have re-domiciled to Singapore.

Venktesh Shukla, president of entrepreneur network TiE in the Silicon Valley, said if the government wanted to give tax break, it should give it through the front door. “Don’t force investors to go through the back door and suffer needless complications of having a paper office in Mauritius,” he said,

Naushad Forbes, president of Confederation of Indian Industry, mentioned that the China growth story was fuelled by about 50,000 investments of $2 million (Rs. 12 crore) each over a decade. Half of this was from the Chinese diaspora. “We need Indians globally to invest in India.”

To this point, Manu Rekhi said that there was a need for India to adopt the global best practices as in the U.S, Singapore and Israel. For example, there is a need to make convertible notes possible similar to the U.S. where over 300,000 angel investors invest through convertible notes.

Convertible notes are debt instruments, a signed document from a company to an angel investor, intended to convert to stock once a start-up raises a larger round of financing from a venture capital firm.

“This instrument is most popular way of raising first round of funding by startups in Silicon Valley,” said Sanjay Khan, an associate at law firm Khaitan & Co.

Finance Minister Arun Jaitley, who met entrepreneurs in Silicon Valley, asked for support from the entrepreneurs and investors to work together to “recreate the magic” in India that Indian entrepreneurs have achieved in Silicon Valley. He said India’s potential growth rate of 8-10 per cent over the next couple of decades could be the new normal.

Source: The Hindu

The Legal Challenges for Indian Entrepreneurs

Being an Indian entrepreneur is known for being difficult. Unfortunately, India’s regulatory framework creates issues for entrepreneurs and investors both inside and outside of the country. Startups are the growth engines of economy – if India is to be a considered amongst the developed countries, it needs to unlock its full potential through innovation and ingenuity. Policy and legal framework should encourage and reward entrepreneurs, rather they try and restrict them.

Inventus Capital Partners recently conducted a survey of over 400 entrepreneurs, advisors and lawyers across India and the US, outlining the legal challenges that Indian entrepreneurs face. Below is a visual report  (infographic), with key findings from the survey.

 

Legal-Challenges-India-v4_s

Slideshare: Mobile user experience and Atomic use case

Teasing out the essence of building any good product, mobile or not. Understanding the user lifecycle and how they think will help you iterate towards a great product. And figuring out the atomic use case of your product will help you dramatically to building features that matter and getting rid of noise.

LEAN VC: WHY SMALL IS BEAUTIFUL IN VENTURE CAPITAL

The Kaufmann Foundation recently noted in a controversial review in the Wall Street Journal that, of its past 20 years of investing in nearly 100 venture funds, “Only four of thirty venture capital funds with committed capital of more than $400 million delivered returns better than those available from a publicly traded small cap common stock index.”

Further damning evidence cited is that fully two-thirds of compensation for general partners comes from fees, not performance (carry). These results reflect the severe challenges of scaling venture’s long-standing “hits business” in an all too elusive “grand-slam business” that a larger fund requires.

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MANAGERS VERSUS ENTREPRENEURS

What is the difference between a manager and an entrepreneur?  Is one better for society than the other? These are questions that frequently arise during our mentoring sessions with young college graduates who are at the beginning of their professional careers.

Management, as a scientific discipline, and managers as practitioners of it, are concerned with the control and maximization of a firm’s resources. These resources may include capital assets, human resource assets, customer assets, and processes.

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FUNDRAISING RULE OF THUMB: $19M, $9M AND $4M

Getting hung up on a high valuation can quickly take the wind out of your entrepreneurial sails.

For most first-time entrepreneurs, deciding on the right valuation can often seem arbitrary and confusing. Consider the experience of my friend Larry (name changed to protect the guilty), who was raising his first round for a coupon/loyalty company.

The space was apparently red hot and his investment banker strategized that he should raise a $20M post valuation despite the fact that he only needed $1M to prove the business model milestone. Seems great, right? Raise $1M at a $19M pre-money valuation.

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