Y Combinator Gets The Sequoia Capital Seal Of Approval

Techcrunch reports the news about 2 million investment in YC from Sequoia and prominent angel investors (Ron Conway, Paul Buchheit and Aydin Senku) . They also report that YC will now be doing 60 companies / year, up from 40 / year.

This is another big validation for the business accelerator model pioneered by YC and adopted by folks like techstars, seedforum and MVP. The premise of model is that the cost of doing business has gone down significantly. With the right support, guidance and capital of around 15-20K USD it is very much possible for team of Young, Talented , Focused and Passionate entrepreneurs to build a business with significant value. Which means businesses with good user traction, evolved products and business processes, revenues, break-even and more.

These initiatives are obviously good for the VC industry, and its good to see it officially recognized. The specialized and organized support for the super early startups is resulting in stronger startups, which means returns on the investments of the VC firms will be higher and more number of VC investments will lead to creation of successful companies.

Another important aspect of this model is the special focus and availability of active support from founders of companies working alongside in the same batch as well the alumni founders. All of these folks have experienced creating real companies and have unique capabilities, contacts and experience which proves useful for other folks part of the program at YC  / Techstars / Seedforun / MVP.

Read my previous about “First time entrepreneurs (FTEs) – Building businesses in India“.

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First time entrepreneurs (FTEs) – Building businesses in India

Just read the couple of articles written by Paul Graham : Y Combinator (answers what exactly does YC do?  or  Seedcamp, Techstars, MVP etc ) and Equity (explains why should you give 5-6% equity to a program like YC)

The thoughts expressed got me thinking about how should First Time Entrepreneurs (FTEs) go about building businesses in India. While a lot is in common between the approaches of YC, SC and MVP there are a bunch of things unique to the Indian Ecosystem which FTEs should consider.

Uniqueness of India

First things first, only during the last 10 years India has started seeing bootstrapped or garage startups by talented, educated, experienced and passionate folks who dont have access to a lot of capital but have the skills, will to solve problems and the staying power. The number of successes out of these have been limited and have not been really publicized for folks to get inspired by or learn from.

The VC industry is just about 8-10 years old in India as compared to 50-60 years in US and Europe; among them majority of the funds in India are under 5 years old. VC being a long gestation industry we are a good 5-10 years away from seeing major VC success in India. Most of the firms are focusing on the existing pipeline deals in the market and there are quite of few of these available – companies by serial entrepreneurs, companies started by Executives (CXO, VPs) from large companies, some of FTE companies where the traction is fairly significant, also since PE sector has performed very well and the bigger funds are shifting time and money to PE  deals. Clearly all of the above are the right things to do for the Indian VC firms, since the firms need to perform for their investors. None of this directly supports the FTEs, which is where the gap that needs to be filled in.  We need to create new pipeline of deals that will become successful startups and will feed into the VC pipeline 1-2 years later. That’s the role folks like MVP, iAccelerator, Upstart.in and others are attempting to play.

Another dimension of difference is IT / internet. The penetration of Internet and PCs in India is quite limited (9 computer for every 1000 people, as compared to 700 for every 1000 in USA). On the other hand the awareness and usage of IT in companies, specially SMEs is limited as well. There are a lot of other fundamental needs to be fulfilled in India (remember we are a developing country).

FTEs in India: What to focus on ?

First thing to ensure is to build a cash flow positive business within the initial capital that you have managed to raise (self, friends, family, fools). Keep lowest possible costs and create early revenues. Expenses should ideally be below 50,000 INR and in no circumstances higher than 1,00,000 INR a month.

Dont think of funding as a validation for your venture. Be prepared to wait longer, to build your business to the 50-100 crore revenues in 7-10 years, with VC funding coming after 2-3 years of being in business or no VC funding at all. If this does not appeal – don’t do a startup.

Internet only business models targetting indian market are not going to viable for atleast 2 years ( or more). View internet as a cheap way to build products and get the initial users with zero marketing budgets. From day one build alternate channels : mobile, call center, SMS, kiosks , shops , sales team into your model. Use technology as a enabler to drive costs down and to drive quaity upwards, but do not depend on customers using it directly via internet.

If your idea only lends itself to internet, think about doing it for developed markets like US and Europe.  India still has lower costs and we are very bullish on build here – sell to the developed world model.

So while you take into consideration the universal wisdom of building businesses, paying attention to the uniqueness of India can make an big impact on the outcome of your venture.

Starting a new journey…

Friends, its time again to start a new chapter in life and to get out of the comfort zone. I have decided to move on from my current role at Seventymm and try a few new things. I have been thinking about this for some time now and sooner or later I had to give in to my inner desire of being a free bird – an entrepreneur – a traveler. So here I go…..

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My one year stint with seventymm has given me a different perspective on business, a lot of learning, many interesting and challenging projects, a lot of smart people around and I made many good friends, so overall good memories. I will be full time with Seventymm up to end of July-08 and after that will convert to consulting role…

About my next adventure, myself and nandini (my partner from madhouse) are working together on this venture. Basically, the energy that I draw from being an entrepreneur and from working with other entrepreneurs is just amazing, it keeps me going and gives me high unlike anything else. So I figured I should be doing something in that area.

During last year I have been working as mentor/adviser with many different startups. In some cases it became an ongoing engagement (Instablogs, commonfloor, food@home etc) and in some cases it was just a couple of interactions e-mail, phone ,face to face etc. But each time I interacted with a bunch of very energetic, intelligent and passionate people – who have decided to venture out and create something on their own. Each venture is in a different domain and each team is trying to solve a unique problem – which means I get to learn about a new domain and new problem from a new set of smart people at every interaction with a startup team. In the process few the companies I have worked with have moved on to next stages, some have raised professional funding, some have become profitable etc.

I find this whole thing very exciting and have been working on creating a company which we will basically work with teams of entrepreneurs and help them realize their dreams of achieving the impossible, of changing the world or just getting rich.

The new company is called morpheus venture partners (morpheus is the Greek god of Dreams) and will remind you of a very successful initiative in US; Y Combinator. While working on morpheus we studied similar companies in others parts of the world and came across Y Combinator. They are doing a very good job and offer many good practices, which can be studied and adapted to the Indian environment.

I will be sharing more information with you as things evolve in coming months, meanwhile if you come across a team of young entrepreneurs who would like to work with us please drop me a line at sameer AT morpheusventure DOT com

Also check out nandini’s post here

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Note: The pictures were taken by my friend Harish Shanthikumar @ lovely lalbagh garden in Bangaluru. More pictures from Harish can be seen at Greenroutes