Smart Investors and Selfish Founders

Indian Startups seems to be loosing steam this year. Flipkart was devalued and Jabong is loosing its shine in the market. Yebhi Story is not that old. Grofer and several delivery startups were forced to roll back from various markets. I have been involved as a Consultant with numerous startups and New Ventures namely Jabong and almost all Rocket Group Companies in India, OCS Group, About Face, Unique Cabs, Garuda Cabs and so on.. Now, almost everybody is asking question is why our startups are loosing luster. Another question that is frequently being asked is if the Indian Startup Story is dead.

The answer to the questions is not simple yes or no. Indian Startup scene is going through corrections. What has happened is that lots of Founder(s) have launched businesses and they call them startups because it is the latest fad even though the businesses they launched are pure copycats with nothing new and no insights of Indian Market. Such Startups based on some foreign venture with little bit of desi funda mixed up. These Starts ups sometimes succeed in the markets of Delhi, Mumbai and Bengaluru but fail once they try to expand beyond these market as these startups fail to penetrate Rural India and even Metros like Chennai with strong local culture.

Delivery Startups faced problem because they forgot that most of Indian families beyond metros has only one working member with dependent wife and parents. Shopping and bargaining is part of daily entertainment of the dependent wife and parents. Most of them will not use delivery startups as they like to pick and choose their goods and because they enjoy haggling with Vendors. These Startups could have succeeded if would have done some market research before trying to implement this model without local customization.

In our country the language and culture changes every 10-20 kilometers. The leading brands are different for different markets. Only Hindustan Lever and Soft Drink Companies are omnipresent. In our country, where longstanding brands and products find it difficult to penetrate new markets. These Startups dare to enter these markets without giving a damn about market armed with excel sheets and some smart ass MBAs who think if something succeeded in Bihar, it will succeed in Punjab or Kerala. What they fail to realize that the culture and expectations of people ate different and they need customization to penetrate each market.

The Trouble with our Startups is our Founder(s) and Investor(s). Our Investor(s) are sharp enough to realize that only 1-2 of the Investee companies have the possibility of becoming winners. Smart ones (Our Country has no dearth of Smart people who end up outsmarting themselves and then blame environment, government and everybody else), try to make winners out of some of their other ventures by forcing the winners to acquire these ventures. E.g. Flipkart and Snapdeal have acquired several companies in same domain with same Investors. This has double advantage, Bad penny of such smart investor gives good returns and the because of funds required for acquisition, the Founder’s stake in the winner startup gets diluted, which in turn gives greater control to such smart Investors. However, the trouble starts when the Founder equity diluted to a level where he starts losing interest in the winner startup.

Then such smart investors get outsmarted. Only very smart people can be the top class idiots. Now, such smart investors are in a situation, similar to a dog chasing car, when the driver of the car gets out and leave the Car open. As the Dog does not have the skill set to drive the Car. Such Smart Investors do not have team or capability to manage their invested companies and when the Founder loses interest, startup is bound to go down.

At another extreme is the story of Founders, who promise sky and moon to their co-founder including CTO, without whom nothing would have been possible in a Tech Startup. They promise every employee that with funding their salaries will jump sky-high to get the work done. As soon as the funding happens, they start hiring smarter and better people (in their opinion) and give paltry increments to the team. Key Members of the team move on, and the smarter and better people often turn out to be damp squibs and business tanks. Somebody needs to add a course in our IIMs and Management Colleges about Dhirubhai Ambani and JRD Tata and how they commanded the loyalty of their team members. I met one of the directors of Reliance once and as surprised when the person said that he does not like they way one of the Ambani Brother works but cant leave as he has promised Dhiru Bhai to stay with him. That kind of loyalty is earned and our Management graduates needs to learn about earning such trust and loyalty.

Furthermore, some of our Startup Founders are getting into startups for the sole purpose of raising funds. They have no interest in the business after fund raising. They can give beautiful projections in excel sheets but fail to explain how they will achieve what they are projecting. Funny thing is our Venture Funds or Angels also rely on the judgment of such excel sheet wonders and hence such startups get funded. However, good things is that market corrections happen and these devaluations and loss of Investor confidence is forcing both our Founder(s) and Startup Investor(s) to look deeper and I feel that worst is past and the future will be rozy as I am seeing few experienced professionals leaving their comfort zones to do something new.

Recently, I have seen changes in the outlook of Investor(s) and Founder(s) both and I feel positive that our people will discover success again and we will see rise of the Phoenix again in coming years. If few startups have failed to meet expectations, then lots of new ones are coming. The faith of Indian Entrepreneurs despite shortage of funding in the market is overwhelming and some of the Investors are already busy looking at several new startups. Some of them have even learnt that Startups are possible beyond IIMs and IITs. Which is good, as Startups need vision not qualifications. I wish best of luck to new and emerging startups and their Investors for a new era and outlook.

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