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RAISING YOUR FIRST VENTURE CAPITAL
When Pawan and I started Wheebox.Com we had clear target to make our business an enviable brand. We had two clear goals in our mind, one to make our product distinctively clean from other assessment vendors and other to work with selected few customers and make them super happy for first two years then replicate and scale.
Both of us had one goal missing and that was Financial Goal. None of us any point of time thought, “How much revenue shall we clock from the first year of operations?” While we were working with some of the best Tech and Sales interns, somehow both of us were lost in our focus of making money. (Principal of any successful business to run)
By the end of the year we could build three properties, a clean product, 2 great IPs and 6 paying customers. And how the year passed by, neither Pawan nor I could keep a track, because each day and each hour was spent either with Product teams or clients meetings.
By first quarter of 2012 our board (Which comprised 2 of us and our two advisors Ujjwal and Sandeep) had figured that to scale and to enter specific markets we need capital. (I have to admit that it was Ujjwal who pointed this out and we reluctantly agreed to raise capital). Thus we agreed to excite investors and raise capital after closing financial year of 2011-2012.
Making Investment Draft
By second week of April, 2012, it was the first time we sat down to write an Investor Proposal (I did most of the reading from Internet and Websites of VC), Out of us it was Ujjwal who was a part of his previous organization to raise capital from a large VC and knew at-least more than any of us. We somehow could copy and paste the available models and circulated amongst ourselves to review, interestingly we could figure out 5 things that awakened us.
1. India stand-alone will have over 200 million (Unique Users: Single Instance) online test takers by 2016-2017. And our target market (BRICS) will have 900 million (Unique Users: Single Instance) by 2019-2020. Each user will minimum undertake 3-5 online such assessments for Study, Jobs, Admission and Test Practice and thus 4.5 billion users per annum will exist and even with 2 dollars per test it will comprise of 9 billion dollars business only from BRICS.
2. Only 30% of test takers will move from Pen and Paper to Online by 2017-2018. Hence a huge opportunity for Online movers. (Calculated over 100 billion market globally by 2025) will exist for next 20 years.
3. There are 10 odd serious online players in BRICS that we have to compete in next 6 years.
4. Government will be the major spenders of this business.
5. Content may not play the only distinction in the next revolution, the major splash of revenue will come from best technology companies who can give scale, robustness and huge insights of analytics.
Identifying Venture Capital Firms
Once we were ready with our proposal our job was to identify a few investors and we thought to seek help from a friend Anindya from Corporate Knowledge partners who had some experience in raising capital for a few start-ups. I asked Anindya if he could provide some consultancy to review our proposal and also if he can get us a few echo walls (Investors/VCs who jump at all opportunities to dig more for their portfolios) and my guide-lines were clear to Anindya, seek investors who have invested in Assessment Companies as they will be eager to dig more information from any new start-up and ask us right questions and thus correcting our presentation for the right set of investors).
We met 2 such echo walls and both the meetings were hurting (Though we were prepared but still I had some ego as all entrepreneurs possess). Both were critical of our model, inexperienced team, inaccurate and business planning. But both of them had good feedback for Pawan and me and our product nonetheless the meetings prepared us enough for actual presentations.
By the time with enough preparedness (We thought so), We sent our initial set of presentation (20 Slides) versus industry norms of sending not more than 8-10 slides to 4 PE/VCs, instantly we received conformations from 3 of them asking us to wait for their responses.
And then within a fortnight we had 3 one-on-one meetings lined up with either the decision makers or the influencers, As I was the only person in our set-up, who could interface and I had no experience in raising capital or meeting these set of business specialists. I knew actual meetings are very different from the staged meetings we had done earlier with other 2 VC firms, as there my intention was not to get funded from them but to get feedback for real meetings.
My first date with Lumis Partners
We met Aditya one of the partners at Lumis and had a small but very interesting discussion. The half an hour discussion with no formal presentations revolved only around Education Industry, Team and my personal strengths. Interestingly no discussion around Business Plan, Projections, Industry Observations, Market Penetrations, nor was on Burn Rate, Capital required or even our immediate and long term goals.
The meeting ended with a commitment to meet shortly. My immediate feedback was mixed to my team, as it ended well but no concrete discussions were done.
Meeting SEED FUND:
I had done some home work on SEED FUND and influenced by videos of Mahesh Murthy and I was excited to meet them as they were one of the investors of REDBUS.IN and I knew that the team could give me scale, bring best practices of Internet Business in a jiffy rather than I do it myself. My meeting with Shailesh was short at our office. He looked somewhat lost and in a hurry and thus was to the point. But this time my feedback to the team was clear, we would not go ahead with them because for me we both have like each other before even talking about business. (Even SEED FUND did not connect us further).
Meeting Indus Balaji Private Equity Education Fund
Meeting Indus Balaji was a good feeling, as the managing partner Ashish was my senior at NIIT and I was sure that it could help in initial ice breaking. And it did, as we could start conversation instantly. Meeting went of very well with IB presenting themselves and their plans and we presented ourselves in a very professional manner, but I could figure out that they were interested in majority stakes and some changes in the business model. As the meeting aroused enough positive feeling inside me hence for the time being the equity and the other issues were not intruding factors in my mind.
We both parted with a next meeting date.
Meeting Sequoia Capital
In last week of April we got an email from Sequoia Capital asking us to meet. We were thrilled to see their presentation and their portfolio companies attached with the email.
They set up a formal meeting at their Delhi Office, It was love at first sight with Sequoia, The lady at reception knew me and made me comfortable in their meeting room, the office boy addressed by my name and asked for tea/coffee. I have never been exposed at such professionalism during my 15 years of working experience in India and abroad. I understood why people love working with them, and it was a feeling of being loved.
Meeting their Analyst, Ishaan was equally a good feeling and again it was a personal discussion not business specific with a deadline to meet shortly with the real presentation.
Within next 3 days the next date was fixed with Managing Director of Sequoia, G.V.Ravishankar (Known as G.V), though it was on Video Conference where Ishaan and I joined from Delhi and G.V joined in from Bangalore, but the hour spent was very enriching.
This time it was all business and it ended with G.V asking us if Sequoia can introduce us to their partners or Investees. As promised they instantly did that, but somehow by that time we had moved to the next round with Lumis and Indus Balaji and we excused ourselves.
But with my little experience with investors, I can vouch Sequoia guys were one the best of the lot we had met. They know how to love entrepreneurs and build relationships.
Getting Terms Sheets
We had 2 rounds of meeting with Sandeep (M.D of Lumis) and I found both the times he had given valuable inputs to build Assessment Businesses. But both the meeting did not give me any clue of investments. And then in May first week Lumis introduced me to Pankaj from PeopleStrong (One of the investee companies of Lumis).
Meeting Pankaj was the same feeling as meeting Sequoia guys. I found Pankaj to be genuine, ambitious and sharing the same passion as we were driving in ourselves. Post meeting Pankaj my feedback to the team was, possibly we have found the right investor.
Next day Pankaj made me meet Co-Founder and COO, Shelly and the executive team, I could make out the whole team at PeopleStrong is reflection of Pankaj and Shelly, each of them are passionate bunch of professionals, high in energy and genuine to the core. And no wonder this could be the first reason today PeopleStrong is one the leading RPO of the country and a very successful venture within 6 years of operations.
Pankaj and Shelly flew down to London and met Pawan and instantly they liked each other. We were somewhat clear that we could close the transaction with them and look forward to a Term Sheet.
Interestingly in that week itself we received the Term Sheet from Indus Balaji with 15 days of closure period. Pawan and I were thrilled to receive the term sheet because of our valuations over the period. And most importantly, it was the first time we had seen something like this and proud of building something in a year where people could value and put their money as an investment.
Now the problem was to get the Term Sheet from PeopleStrong and map both the offerings.
I had no choice but to speak to Pankaj to get us the Term Sheet as we need to close the transaction and to my surprise he called an immediate meeting and asked me to meet his set of Advisors (Some heavy names of the industry) to get their feedback and close the transaction. Ground rule is you cannot force an investor to rush through an investment, but being an entrepreneur himself understood my position and assured us.
On one hand I had to meet 3 advisors within next 10 days as all of them were busy professionals and on the other hand each day passing by is a danger of losing Indus Balaji, Hence we thought of meeting some advisor of this industry and get a feedback of signing the term sheet with Indus Balaji or wait for PeopleStrong’s Feedback.
I met Paul Shoker, Serial Entrepreneur and Founder of Benefitsplus; Paul was about to launch his venture capital fund venturefund.com with heavy stalwarts like Rajan Anandan (M.D of Google India) and Ashok Kurien (Promoter of Zee Enterprise and Dish TV). Paul floored me within 30 minutes and I found he knows the investment game pretty well. He asked me if he could interact with Indus Balaji and in the meantime I could get the ball rolling in PeopleStrong.
In the meantime, I also spoke to Dr. Suresh Nanda, who was M.D and CEO of Signature Capital, Dubai and sought his advice. Both Paul and Dr. Nanda advised me to keep speaking to both of them and get term sheets and then evaluate.
Finally the term sheet arrived in the last week of May 2012 from PeopleStrong. But now the real question was to evaluate both proposition and write confirmation mail to one of them.
Evaluating Term Sheets
Till now it was a strive for getting investors and exciting them in our venture but now the position was different, As Pankaj and Rajesh (CFO of PeopleStrong) had released the Term Sheet on the Target Date, It was really tough to evaluate.
Nonetheless, I again spoke to Paul and Dr. Nanda to apprise them with the Terms in the Term Sheet. (I had to narrate them the main points as one of the point in the Term Sheet was the document shall not sent to outsiders).
However I was sure the call has to be taken by me, as I was the major stakeholder and I will be responsible for any wrong move. It is always hard to evaluate two very distinctive offers in the term sheets. Also I must know and decipher the legal words and sentences because host of these words moves to final agreement copies.
One of the term sheets valued us 100 times of our revenue and the other 30 times. One of them asked for a full majority while the other asked for a small equity.
One of them asked us to get paid a super annual remuneration apart from sale of stakes while the other assured us the revenue maximization.
One of them stated to dilute us further in case of additional investments in the company while the other stated they would dilute themselves along with us in next round of investments.
Two things came out distinctively; one will make us instant rich (By our rationale) and other will create wealth over a period.
One is made to sell the property in next 3 years and the other is to build a property as a brand.
We chose the one which will help us in building an enviable company, a respectable brand and proud to be associated with.
I wrote a thanking letter to one (Because they valued me and our company) when we needed them and entrusted me in particular.
Following day, I signed the term sheet with PeopleStrong.
Never Say No.
Same week we got calls from 2 leading Angel Investor Groups, asking us to present in their forums. While I always avoid doing group presentations for raising investments but I said I will connect them shortly with our presentations.
I know after positioning us in one market and adding some more customers I have to scale in a disruptive way and I have to meet new set of investors for the next round of investments, Hence I shall never say no to anyone.
But I also know that next set of fund raising will be equally challenging and exciting because now, I will be asked new set of questions and hence will have to be prepared with new set of exciting answers.
I learnt two lessons from the first set of fund raising:
1. Investors need not fund only Ideas, Product or Market. They primarily fund Entrepreneur who will execute.
2. In order to get funded they (Investors) have to like you as a person and you have to like them (Investors).
Next Series: Life after finalizing Term Sheet.