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Entrepreneurs The fundemental Raw Material for VCs
Hari Anil
Wednesday, February 2, 2011
In a candid interview with Siliconindia Ashu Garg, Venture Partner in Foundation Capital, shares his thoughts about the new trends driving the start up eco system.

New Trends Driving the Industry
We have a very vibrant eco system of entrepreneurs in the valley. The fundamental raw material for our business is the supply of great entrepreneurs who want to do interesting things, and I think this momentum will continue uninterrupted. The reasons for this being, the presence of great role models, availability of capital from high quality firms, and the cost of building a start up that continues to come down. These make it easier to experiment with new ideas. The new trends in the themes we are investing can be considered in three folds - from Client Server System, Client Server Infrastructure towards Cloud Based Infrastructure. And this trend continues both to the infrastructure layout and the application layout.

The second trend is the fact that the traditional IT budget is been supplemented by the marketing budget. 10 -15 years ago startups were more focused on budgets for CIOs and consumers. Now a third allocation of the funds for marketing via Google Adwords, and online marketing has come into purview.

The third trend is video. The growth in online video is reasonably well understood, people still underestimate how huge it is. Today Neflix, an online video streaming portal, has as many subscribers as Comcast. When you sit back and think about the implications of that, it is very fundamental, the number of people who watch online video as a medium of entertainment, whether it is premium or non premium, is now comparable to the number of people who watch TV. The quantum of time for which they watch it is lower, but that is changing every year. So if you think about the world a few years from now where all video content will be watched online, then across that eco system there are opportunities for innovation. Not just for content providers but also for infrastructure providers, for platforms, and for advertisers.

One technology trend that I would say is driving a lot of change today is the low cost storage solutions. Cloud computing is one of the hosts of underlying technology trends which is enabling that.

Challenges in the startup market
It is hard to generalize, as the challenges depend on what market you are going after. The challenges in a consumer segment are very different from the challenges in an enterprise segment and both these are very different from an advertisement related start up.

At the broadest level I would say the number one challenge is that it is still very hard to track the right talent whether it is in engineering or business. This is true for both U.S. and India, as great talent is in short supply. This shortage in talent is way more than the shortage in capital.

Then the major challenge would be finding the right product. This is especially true for technology oriented startups. You have this great initiation, this great idea, but most of the time no one is buying it. Many entrepreneurs struggle with this in the life of their companies. It is figuring out who would pay for what you have and how to get it to them in a repeatable manner are always a challenge, irrespective of the market you are in.

The final challenge is that how do you go to a market in a way it is repeatable and cost effective. The cost of customer acquisition most of the time exceeds the near term revenue. Over time you will be fine but this increases the burden of a startup.

Advice to startups
Primarily you should go after a very large addressable market, since, if you are in a large market then you can zig and zag and find a market position that is defensible. But in a small market there is very little room for maneuvering. To me this is very obvious and I am stunned by the number of startups that are going after small markets. The art is about figuring out what the real addressable market for what you are doing and not being overly optimistic. Secondarily, before you go into the market think about what is the source of your differentiation and how you can continue to innovate around that. If you are really crystal clear about what the value proposition is and innovate around that and keep the main focus around that then it is much easy to sustain differentiation.

Tips to entrepreneurs
Being successful is more important than getting funded. So you should focus on the basics, find a large project, differentiate its value proposition to your customers and should stay laser focused on that. Then invest early on in building a team around you, at the end of the day an entrepreneur should be remarkable in selling his vision to the people around him and getting them on board. The early team you get goes a long way in your success. And finally, don’t be afraid to fail, fail fast and get up and start again. This is sort of the macro advice.

On a more specific level, as you start a company you have to recognize early on that fund raising is going to be an ongoing priority and focus for the CEO. If you are choosing to be a CEO this will be part of your job, this will be something you do all the time. You might be doing that for over 20 percent of your time over the course of the company’s life. This should be recognized, this is my first piece of advice.

My second advice is, from day one invest in attracting an ecosystem of advisors and angel investors who have experience with the fundraising ecosystem. Great products have advisors of different kinds. People always look for great technologists to give them advice which is a great thing to have, but in addition you need to find great marketers, and people who have experience with fundraising who understand that ecosystem.

The third point is, make sure you find the right investor for you. Depending on what you are looking to do, your goals, and your personal style, find an investor who works with you and for you and not against you. So keep focus on these and things will be good.

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