View the image in a new window for better readability.

Notes:

1. This post is written keeping the market conditions of India in mind and may not apply to other geographies.

2. The table shows somewhat ideal scenarios just for understanding, in real world there are many more variations.

3. Don’t mistake table as set of fixed rules, these are just some possible combinations to enable you to create your own scenarios

4. Most of the times these things are function of the main investors subjective opinion, competition for the deal

5. This is not description of what my firm The Morpheus follows. Methods followed by The Morpheus could be different depending on the exact scenario

Update: (answers to the questions that have come on the post)

What percent of equity that will be diluted to the investors at each step?

This can be calculated fairly easily

• Equity given to the investors =  Total money invested / Post-money valuation of the company
• Post money valuation = Pre-money valuation + Total money invested
• Pre-money valution = Valution of your company before taking the investment
• Example:
  • Pre-money valuation = 1 Cr
  • Money being invested = 15 L
  • Post-money valuation = 1Cr + 15 L = 1.15 Cr
  • Equity given to the investors = 15 L / 1.15 Cr = 13.04 %

How did you come up with the pre-money calculations?

• Startup valuations are essentially an art, end of the day valuation of a company  on which both the startup and the investor agree on
• I have based these numbers on my observations and understanding of the preferences of Indian startups and Indian investors operating at different stages
  • I have been directly / indirectly involved in a good number of funding deals  / discussions
  • Also there are deals in which I was not involved but i have the information about them
• I have a personal bias towards revenue generating / cash flow positive startups

Most founders start companies to achieve things like : financial freedom, creative freedom, change the world, make a difference, do something different, be the master of their own fate, be known for their work, be respected by friends & family, lead people, create jobs and the list goes on.

A surprisingly a large number of folks who start companies expect these glamorous  things to start happening automatically the day they leave their job and become entrepreneurs. And since the reality is very different, very soon they start complaining and eventually quit. Here is a little secret you should know:

“Things don’t happen automatically, u have to make them happen. You have to endure and enjoy the pain. Successful entrepreneurs know it instinctively & that’s what makes them tick.”

First 2 years (or more) of a startup are extremely demanding on you as the founder of the startup. You have to endure a lot of pain before you can even get a glimpse of some of these nice things. And there is always a high probability of not making it. Its kind of being pregnant for 2 years while knowing that probability of giving birth to a healthy child at the end of it is a mere 10-15%.  People who go through this period of pregnancy and deliver successfully are the ones who enjoy the journey and the pain more than the outcomes; ones who are prepared to do what ever it takes. You should ask the same question of yourself – are you ready to endure the pain? Or are you better off in your job?

Here is the list of some the things that you should be prepared to go through at a personal/ emotional level during your entrepreneurial journey.

• Unless you plan to live with  your parents, be prepared to move out of your comfortable flat in Versova  with rent of 20k a month and  move to Dahisar to maintain the size of the flat but reduce the rental bill to 10k a month.
• Flights won’t be the default mode of travel between cities (surely not kingfisher).  Every time you’ll travel you will evaluate train vs flight, usually the trains win and mostly sleeper class fare.
• Cabs are no more allowed for travel within the cities. You gotta be using auto rickshaws,  ride buses / trains / metros or even hop on the shared cabs (yeah I have done that)
• No staying in hotels, not even budget hotels. Make a list of friends / relatives in all cities and starting piling on. Or checkout  www.couchsurfing.org
• Can not eat in any fancy restaurant – get a list of affordable but clean food joints – McD is a great option. Cooking at home is even better.
• No more drinking out in pubs. If you wanna drink bring it home.
• No movies in multiplexes. In fact no time to watch TV.
• No phone upgrades / No laptop upgrades. Manage with what ever you have.
• No bank will give you loan. Not even a credit card.
• When we were doing our first venture madhouse – did not buy new clothes for 3 years. Only bought when an investor asked me come to the next meeting in formals.
• There is nothing called a work-life balance in first 2 years of a startup. It’s only work, work and more work. So get used to it and tell your family also.
• You are doing to work (or should I say slog) 18-20 hrs a day everyday for the whole 2 years. And in your 4-6 hrs sleep you will keep dreaming about work anyways
• And a lot of your work time will be spent doing small things, which are not exactly intellectually stimulating  - kinda stuff you always took for granted – cleaning the loo, mopping the floor, making tea, opening your office, buying food, going to banks, dealing with govt officials, starting the generator
• You won’t have much time with family or friends. You will regularly face – angry parents, angry wife, angry kids and angry girlfriends/ boy friends.
• No going to family functions or weddings. Even if they drag you to the function – you will be sitting a corner on your laptop or iPhone and that would leave your relatives angry with you.
• No holidays. No weekends. And if you really want a vacation - Use Google earth to enjoy your imaginary vacations. Feel happy when google earth has higher resolution imagery for your vacation spots. They have recently added high imagery for Kashmir region, especially gulmarg and Amarnath.
• No time to take care of your health. Running, exercises, gyms – all go for a toss
• Don’t expect any recognition for your efforts from friends and relatives – they wont get it – for them you are still a moron – who quit his fancy job with a big company and fat paycheck to do some thing as mundane as SELLING DVDS
• Be prepared to a lot negative talk – all most all people around you will keeping tell you how big a looser you are and many more things.
• Totally get used to failing. Infact failing is not bad – that’s the way to make progress. If you are building anything from scratch – you have to fail 20-50-100 times before you get it right. That’s how evolution works. That’s what happens when you try to solve hard problems.
• Be ready, most people will reject you : customers, investors, employees you try to hire, organizers of startup showcases. You have to keep looking for the ones who will accept you.
• Employee retention will be a pain. You will spend a lot of time finding and training freshers to find they have been poached by biggies with just 1.5x or 2x the salary as soon as training is completed.
• Your girlfriend’s / boyfriend’s parents may tell you that they are not too keen to marry their son/ daughter to an entrepreneur
• And if you plan to close an arrange marriage deal you can forget about it. Entrepreneurs are a total flop in arranged marriage scenarios
• Your co-founder will chicken out and will create a bitter scene. People who seem super committed and ready to give their life for the cause would suddenly find out reality and bail on you.
• Be ready to max your cards / pledge your Personal Assets/Share certificates to give fuel to your Business.

Lot of startups fail / shutdown, just because founders were expecting too much too soon and were not prepared for some of the hard things. I believe being aware of what is in store; can help you prepare for it. If you are prepared for the pain, it will not come as a surprise and I promise at the end of it – all the nice things that you started out for are eagerly awaiting you.

Thanks to Ashutosh Upadhyay , Ankit Maheshwari, Robin Moses, Indus Khaitan, Pankaj Guglani, Sahil Parikh and Nandini Hirianniah for reviewing the draft of the article.

Dead poets anthem

Recently I watched the movie Dead poets society. The movie hit me hard,  I had tears in my eyes during the last 20-25 minutes. After the movie got over I was numb for sometime and my mind wouldn’t get away from it.  Its been 3 days since I watched it but the movie is with me. I can close my eyes and play the whole movie for myself.  So I guess its not a bad idea to write a post about it.

It teaches some of the most important lessons of life and delivers them in quite a hard hitting way.

• Be a free thinker
• Don’t conform; create your own identity
• Suck out all the marrow of life
• View things from a different perspective
• Be loyal
• (Most important) Carpe diem – Seize the day

Most institutions and influencers around us discourage us from following these lessons and sometimes even force us,  “to conform, to follow, to accept established views & methods, and to be safe”. These include – schools, colleges, parents, govt., relatives & more.

The movie is set in Welton Academy, shown as USAs most prestigious preparatory school, after finishing the school 90% of students  get into Ivy League. The school is run by a headmaster (and management) who is proud to continue the traditional, conformist ways of learning and wants to maintain absolute discipline. Mr. Keating (played by Robin Williams), an graduate of the same Welton Academy, comes into the school to teach English Literature – which is given pretty much a step-motherly treatment since the school wants to only produce – Doctors, Lawyers, Engineers, MBAs.

Keating on other hand has different ideas. He starts his first class with “Carpe Diem” – a latin word that means “Seize the day” and Carpe Diem is the central philosophy of his teachings. He wants the students to be free thinkers, to create their own identities – he wants to them to “Seize the day” – Carpe Diem.

As per him English poetry has all the things we stay alive for – beauty, love, romance. His style of teaching is very fresh and totally out-of-the-box. Some of the boys go look up the yearbook for the year in which Keating had graduated from Welton and among other things they find the mention of Dead Poet Society. They ask Keating about it, at first he doesn’t want to talk about it. But when the boys push him he tells them about it but asks them to keep it a secret. During his school days, members of Dead Poet Society met in the Indian Cave which was away in the jungle by the river after dinners, read poetry and sucked the marrow of life. A group of boys lead by Neil like the idea, re-form the Dead Poet’s Society and start the meetings. These boys also start becoming free thinkers and start to create their own identities. One track of the movie is about the teaching methods of Keating – where he uses poetry to teach them some important lessons of life. Second track shows stories of  all current members of Dead Poets Society who are influenced by Keating’s teachings and decide to “be thinkers and find there own destiny”, instead of just doing what their parents and headmasters are telling them to do. As expected the school management does not appreciate his endeavor of making real thinking citizens out of the students and they decide to throw him out. The movie has an amazing ending, but I wont spoil the movie for you by telling the end. But let me tell you – it is the ending that is the most hard hitting. Watch the movie – you will enjoy it.

One of the reasons India has not realized its entrepreneurial potential and not produced the googles is that our kids continue to grow up in a conformist environment, risk averse society, surrounded by schools, colleges, parents and other influencing forces telling the kids to just follow, to conform and not to try new things. All of us admire and respect people like – JRD, Dhirubhai, Sunil Mittal, LN Mittal, Sanjiv Bhikchandani, Subhash Chandra, Narayan Murthy and many more, the entrepreneurs who have made a difference. Ironically, these guys were anything but conformist, all of them traveled the ‘road less traveled’, took the risk , trusted their guts and pursued opportunities which looked stupid to others. When Nandan Nikeleni decided to join Infosys as a young engineer from IIT Mumbai – his friends and family thought he was crazy and today he is one of the most respected guys in India.

The lessons of Dead Poet Society are cardinal to the success of an entreprenuer and I would strongly urge all entrepreneurs (current and would be) to watch the movie and internalize the lessons.  Get your parents to watch the movie as well.

Lessons once more:

• Be a free thinker
• Don’t conform; create your own identity
• Suck out all the marrow of life
• View things from a different perspective
• Be loyal
• and

Carpe Diem – Seize The Day

Credit: The image was taken from a blog post about Dead poets society

As a startup, specially if you are in the B2B domain, you need to write a lot of Business proposals and send them to potential clients (mostly big companies) . These proposals play a very critical role when you are dealing with big companies, they are used to old way of doing things.  Here are some thoughts on proposal documents.

• Good proposal documents are like paintings
  • Writing a good proposal document is an art
  • It has to come from within, you need a deep understanding of “what does the proposal document stand for, what is it trying to accomplish, who is my audience, what do I need to communicate”
  • Once thats done just let your self loose and a good document will emerge
  • Review the document a couple of times to De-text and make it crisp and professional
  • Identify a few folks whose proposal reviewing skills are good and get them to give you critical feedback
  • Don’t ignore the feedback or parts of the feedback. Work on each point meticulously
• Overall Goals
  • Clearly document the goals of the proposal
  • What are you trying to achieve via this proposal ?
    • Make sure every word & every sentence in the proposal contributes to that
    • Dont get carried away and write stuff which is not directly related to the goal
  • Example Goals
    • Convince Westside to do a pilot in mumbai
    • Pilot should start in next 1-2 months
    • Get Westside to purchase stock against advance payment
• Communication goals
  • Document what are you trying to communicate through the proposal and ensure that of it (and not more than that) is communicated
    • Example communication goals
      • Who are we
      • What do we make
      • What are we selling to the customer and why should the customer buy it
      • What is a simple initial pilot we can get started with (initially try to get into a pilot which is simple and easy to get started with for both sides, you can get into deeper more elaborate partnerships later)
      • What are the mechanics of the initial pilot
        
      • What are the commercials
      • Other terms & conditions
        
      • How can we get started
• Audience
  • Define who is the audience, who will read it?
  • Step into heads of your audience and think what do they want to see so that they will make decision that you want them to make
• Overall structure and format
  • Create a document structure to accomplish goals listed above with the stated audience in mind
  • Fill in the content in the structure
• De-text
  • De-texting means going through the written text and removing unnecessary words / sentences that don’t all value to the content or don’t contribute towards the goals of the document / section
  • De-texting is an art and it takes patience to do it but once you practice enough you will become good at it
• Have just enough
  • You should have “just enough” content in the document
  • Every word / sentence / section in the document competes for attention of the reader
  • Hence every extra sentence takes away attention from existing sentences
  • So be careful and sure about every word / sentence / section – that its required to complete the document
  • Removal of every unwanted less wanted section will increase the chances of rest of the document being understand better by the reader

Please share your experiences / views in comments about the proposals. I plan to update the post based on feedback from readers.

PS: After reading this post again I realized that its equally applicable to other forms of written communications like presentations, agreements, e-mails, requirement documents etc .

“Start-up Morning/Evening” events are organized with the support and help from a lot of friends in the startup community. Previous editions of the event have been held Mumbai, Bangalore, Chandigarh and Pune. In all events we were more than houseful on the capacity, participation was intense and interesting discussions took place. Read coverage here.

Recently, these events are organized under the Xtreme Startups banner. Xtreme Startups is a Non-Profit initiative to support /promote entrepreneurship. This edition of Xtreme Startups is supported by NSRCEL – IIMB, Chitkara University , Morpheus Venture Partners (MVP) and Startupnews.in.

The first Xtreme Startup event was organized in Chandigarh a couple of weeks back, details

Date: 24 May, 2009 (Sunday)

Time: 10:00 am – 01:00 pm

Speakers: Three start-up founders will share their experiences of starting a venture, sustaining it and taking it to the next level.

Phanindra Sama, Founder & CEO www.redbus.in

Phanindra is the co-founder and CEO of redBus, India’s largest bus tickets aggregator in just over 2 years of operations! He has a honors from BITS Pilani, and worked with Texas Instruments before he co-founded redBus. redBus was born out of a personal need and a market failure. Today redBus’s distribution spans across 75000+ outlets in the country! More…

Prateek & Nithya Dayal, Founders www.muziboo.com

Nithya and Prateek Dayal, a husband and wife duo run Muziboo. Prateek, a B.Tech graduate from IIT Guwahati takes care of technology and Nithya, the community. Both the founders believe in bootstrapping and harnessing the online medium to grow an internet business. Muziboo’s success lies in its emphasis on building a “community” for musicians & music lovers, as against being another file sharing platform. Professional & non-professional musicians ranging from free lancers & audio-engineers to enthusiastic hobbyists use the muziboo platform extensively! Prateek blogs at www.prateekdayal.net/blog and Nithya at www.nithyadayal.com/blog.

Himanshu Khurana, Co-founder & CMO www.lifemojo.com

Himanshu Khurana graduated from NSIT Delhi and worked at Trilogy for 3 years. He later went on to experience the startup world at ngpay(JiGrahak). After 2 years, he founded iStrait with two of his friends, Namit Nangia and Varun Gupta.  LifeMojo provides easy access to preventive health care experts and necessary tracking tools. It also has a platform that helps preventive  health care providers to run and scale-up their existing operations. Launched in November of 2009, they are adding users at a fast pace. Himanshu blogs at hkhurana.wordpress.com. Lifemojo is a MVP portfolio

Audience: Start-up founders / entrepreneurs

Format

• Event will be attended by 30-40 start-up founders / entrepreneurs
• The event brings together Startup Founders to share experiences and interact with other start-ups in an informal manner
• The other guests, like you, will typically be experienced entrepreneur / investor / a person from the start-up ecosystem
• Participation is “invite only”, concentrated group of Startup Founders and others in the startup ecosystem
• There is no fee for attending the event
• Refreshments will be provided at the event

What will you gain from the event?

• Opportunity to interact with others in the startup ecosystem
• Share and learn from each others experiences in running businesses
• Potential to meet a business partner, investor, employee, etc.
• Opportunity to build a strong startup community

Invite Only: It’s an invite only event. In case would like to attend write to indus AT morpheusventure DOT com OR info AT startupnews DOT in, with your full name and a brief introduction of your startup / venture.

See you on Sunday!

Announcing the first Startup Morning event in Chandigarh. The event is being organized by Xtreme Startups – a Non-Profit initiative to support / promote entrepreneurship. Xtreme Startups is supported by Chitkara University , Morpheus Venture Partners (MVP) and Startupnews.in

Event Details:

“Start-up Morning/Evening” events are organized with the support and help from a lot of friends in the startup community. Previous editions of the event have been held Mumbai, Bangalore and Pune. In all events we were more than houseful on the capacity, participation was intense and interesting discussions took place. Read coverage here.

Xtreme Startups team is excited to announce the first “Startup Morning” in Chandigarh Tri-City:

What will you gain from the event?

• Opportunity to interact with others in the startup ecosystem
• Share and learn from each others experiences in running businesses
• Potential to meet a business partner, investor, employee, etc.
• Opportunity to build a strong startup community in the Chandigarh Tri-City region

See you on Sunday! (for invites write to sameer AT morpheusventure DOT com)

The Entrepreneurship Development Cell (EDC), IIT Roorkee is organising a Startup Fair’09, in association with CSI, NSIT Delhi, to facilitate Startups to recruit.

Date:      Saturday, 25th April’09
Venue: Netaji Subhas Institute of Technology (NSIT), Delhi

I am looking forward to participate in IIT Roorkee E-Summit @ 18-19 April 2009.  I am not taking my laptop, it will be a good break from my regular schedule, campuses are always good places to spend time at, students are so full of energy.

I am doing quite a few things as part of the event:

• Giving a talk  on “Accelerating your Startup“,
• Participating in a panel discussion  “What investors want?“
• Mentoring startups in the “Mentoring Clinic“
• And judging finals of the B-plan competition – ARTH

If you are planning to attend the summit, lets catch up this weekend @ IIT R.

Here are my notes for the talk on Accelerating your Startup, would love to get your inputs as well.

• Get out of planning and discussion phase
• Commit to deadlines
• Make decisions
• Execute, execute , execute
• Translating dreams to idea
• The art of zooming in: entrepreneurs always start with a grand vision, the art is to zoom into a small part of the vision and start by doing it well.
• Cost management,  Time management  (use tools like : spread sheets , desksway , white boards)
• Force yourself to release / launch fast
• Go get real users ->improve their life
• Start efforts to monetize the users
• Its possible to apply agile techniques to all parts of your business ( 2 week release cycles)
  • Agile Marketing
  • Agile Development
  • Agile Reading
• Ensure Quality, quality comes with care. Build products that are dream come true for your customers.
• While building your products, go around with your laptop, show it people in in cafe – get feedback, talk about it
• Measure, Measure, Measure – what can be measured can be managed
• The winning formula: 10L and 12 months
  • Upfront capital expense : 2 L
  • One year running expense @ 50 k / month = 6 L
  • Buffer: 2 L
  • Ensure revenues of company are higher than 50 k / month before the end of 12 months
  • You are cash flow positive, no dependencies on investors
  • You have got people to pay for your service / product – you are in good company (All of the long lasting tech companies figured the monetization very early : apple , google, ebay, paypal, MS, amazon , skype)
  • You have survied 1 year – you are on your way to success

CHANDIGARH

Chitkara University, one of the most popular educational institutes in the Punjab/ Chandigarh region, are initiating the First Open Cofee Club in Chandigarh.

The inauguration and and first OCC Chandigarh meetup is backed by Chitkara E-Cell (Entrepreneurial Development Cell).

Details below:

Date:       17 April, 2009

Time:      3pm to 5pm

Venue: Chitkara Corp Office, Plot No-11-12, Dainak Bhaskar Building, Sector-25D, Chandigarh

Nandini and I have been invited to interact with the OCC Chandigarh members.

If you are around, come by. Lets meetup and share our experiences as startup entrepreneurs!