being awesome at Corp Dev

abridged thoughts on how to excel at Corporate Development

did a podcast with my friends at IVM Podcasts on this a few months ago.

https://player.fm/series/1444998/184888985

cheers!

Limiting angel investors’ upside

I am speaking from personal experience here, so please read this note with that caveat.

Over the past 3–4 months, I’ve encountered a disappointing trend among a few tech entrepreneurs (in India) towards their early stage angel investors.

The argument goes,

hey, i need to clean up my cap table as I want to raise a lot of money, and I need to reduce founder dilution …it’s something my current big VC investors are pushing me to do. Please can you take an exit at a multiple of your invested capital?”

In most cases, this should be cause for celebration. How often do angels get exits in early stage tech deals in India after all.

But recently, I’ve found myself with the short end of the stick. Founders approach us saying, “please take an exit since you’ve already made X-times the invested capital and that should give you a healthy return”. Another version is, “you’ve invested in that other company that vaguely competes with us, and so we are worried about information rights you have and you may leak our secrets to them.”

In each case, the offer on the table is a “market rate discount to last round” … without an upfront disclosure about an impending big-up-round on the horizon. Because there is no way for the angel to truly know that a new round may happen, and even when it does, the disclosure will happen much later anyway, why not “clean up the cap-table”.

I see it as nothing short of theft.

When an angel investor invests in your company, it is often at a stage when your company is at the formative stages, and has little to no evidence of achievement. The risk factor of the angel investors investment going to ZERO is pretty high. In other words, unlimited downside risk on the capital invested.

So, on the other side, when you start achieving great success, just as Founders have unlimited upside potential; early investors should have the same opportunity (to the extent of their investment) … unlimited upside potential.

Thought I’d share this for the benefit of fellow angel and early stage investors in the India startup ecosystem. Don’t fall for this trap.

PS: if you want solutions for how to protect against such practices (i.e. safe guard yourself against such malpractice), feel free to email me.

How to think about Corporate VC investors

Couple of friends asked me this question recently, so I thought it may be useful for a wider audience.

Often during a fundraise process at startups, you come across the investment arm of an Operating Company (unlike VC’s who only invest and don’t run companies).

Let’s call them OpCo’s.

OpCo’s typically invest from their balance sheet, and do investments for one of two reasons:

  1. Strategic Investments (learn a new market, buy-in early into future potential new lines of business, build an ecosystem of partners around their core business, create more stuff to sell to their existing customer base, etc)
  2. Separate Investment arms [for capital appreciation, not only for (1) above]. In these cases there is often a strategic angle involved, but not explicitly a must-have. In these cases, capital is typically set aside in a fund vehicle.

Critical to know which type of Corp VC arm you are engaging. You can simply ask questions along the lines of (1) and (2) to figure this out.

Strategic investments should typically come with “more than moneybenefits. For example: supply chain, distribution channels (sales, user acquisition), unique/early access to tools, and some inside track on enabling you to build an unfair advantage in the marketplace.

To ensure you really (and tangibly) get these benefits, it is important to ensure that you secure buy-in from OpCo Executives who control those assets. In other words, don’t just trust the investment team to be able to deliver on these unless the operating team has bought in. In most cases it helps to make the OpCo Exec your champion within the company in the long run.

Another important question for Strategic investments is to ask about the time horizon for the investor. Typically OpCo’s will have a longer horizon (read: patience), and be willing to back you in future rounds as well as long as their goals are being met. That being said, if their goals aren’t being met, then they can be tricky to deal with.

For Corp VC’s that are setup as separate Investment Arms [(2) above], the best way to evaluate is to look at them just as you would another VC. Ask all the same questions you would a regular VC firm.

The Upsides of Corp VC can often be game changing.

  1. Getting access to (and locking others out) of proprietary “more than money” benefits can set you apart from competitors fast. It can help you achieve things at lower cost.
  2. Corp VC’s aren’t as active on your board as a regular VC. So as long as you are hitting broad goals, they won’t get in the way for most operating decisions. This is sometimes a negative too; all good boards help entrepreneurs avoid pitfalls
  3. Corp VC’s understand their markets & adjacencies fairly well. So, they are what I call more-committed capital, and will invest in adjacencies with deeper conviction than some VC investors (the few who are easily swayed by market sentiment).

Of course, there are potential downsides! … primarily two: Speed and Priorities.

  1. Speed of getting through internal decision making can sometimes be a challenge. It often also takes longer to turn around documents. Keep in mind, the OpCo isn’t setup like a VC (Monday meetings, standard contract templates etc) so some decisions aren’t as high frequency. Therefore, it also can take longer to get documents reviewed/signed etc. But this a minor thing in the grand scheme.
  2. Priorities of the OpCo often change from time to time, as they themselves see market transitions and competition in their core business. If you and your company are no longer a priority for the OpCo then you can find yourself in some level of stress. This can mean that the “more than money” benefits may not continue to be available or deliver as much value to you as intended, or the interest in doing follow on investments may not be the same anymore. This is the thing to watch for, and honestly the better way to handle this is to partner only with very strong companies who have durability on their own.

In conclusion, Corp VC’s can be very productive partners in enabling you to build and grow your startup; you just need to be smart about the process of getting to know how to extract the best value for both sides.

Bonus point: in some cases, Corp VC’s also make potential acquirers.

BSE Sensex validates that Food Tech revolution in India is no bubble

Consumers have more choice, and Pizza is no longer the only preferred home delivery option

I read this article in the Economic Times yesterday, and realized that the food-tech sector has just demonstrated its real impact and latent demand on two public stocks (Jubilant Foodworks & Speciality Restaurants)

http://economictimes.indiatimes.com/industry/services/hotels-/-restaurants/restaurant-companies-like-jubilant-foodworks-and-others-lose-market-capitalisation-as-consumers-cut-on-spending/articleshow/51161671.cms

Performance of Jubilant Foodworks & Speciality Foods on BSE SENSEX past 12-months

“Delayed recovery in same-store sales over the medium term seems not just cyclical but also structural. There seem to be no signs of revival,” Abneesh Roy, an analyst at Edelweiss Securities

Roughly 36% of Jubilant Foodworks sales were via online ordering (OLO as they term it), which contributes to approximately — INR 800 Crores GMV (run-rate) in annual revenue run rate across Dominos & Dunkin Donuts in India & Sri-Lanka. (Keep this number in mind)

The structural shift spoken about by Abneesh Roy, isn’t a slow down in the Indian economy, or consumers cutting back on spending as some others have conjectured.

Consumers have a lot more choice today when it comes to where they order home-delivery food from. Thanks largely due to the Food-Tech Bubble as many perceive.


Impact of Food Tech investments

The past 18 months have seen a significant surge in the quantum of Venture Capital investments in Food Tech. Collectively, the sector raised $375M in 2014 & 2015 across 55 companies.

A whole host of new companies got created as a result. Food delivery marketplaces, Internet-First restaurants (or “cloud kitchens” as some call them), a couple of physical restaurant brands pivoted to delivery only, Recipe Boxes, Chef marketplaces, and many more.

The initial sampling and surge of orders was driven largely by deep discounts offered by the likes of Foodpanda, Tinyowl, Swiggy, Zomato, Faasos, Freshmenu et al. And lets not forget the discounts offered by the payment gateways as well; PayUMoney & Paytm splurged lavishly on this category.

This was followed by a round of crash & burn, consolidation.

The exuberance has left behind lasting & meaningful structural changes:

  1. More choice for consumers — beyond QSR’s & delivery chains. 
    you can order from a restaurant that doesn’t have their own delivery fleet
  2. New infrastructure — delivery-riders available “on-demand”
    quoting RoadRunnr — ‘book, track, and manage deliveries at scale’
  3. Digital payments, Menu discovery, Repeat Orders
    simple but powerful features enabled by a variety of apps

Based on a couple of articles, and my conversations with people in the industry, I conjecture that an average of 100,000 orders @ average order value of INR 300 per order are being placed through new Fo0d-Tech companies relying on the online/mobile channel exclusively. These orders are delivered from nearly 25,000 restaurants.

That is roughly 1095 Crores GMV in annualized orders. 20% more than an established mega-brand like Dominos & Dunkin.

Couple this with growth rates of category leaders in the range of 15% MoM, the category should double every two quarters.

INR 1000 Crores in GMV in a short 18-months is no small feat!

What the future may hold

While the Food-Tech exuberance raised a lot of eyebrows in past 6-months, it has created new-infrastructure that brings more choices for consumers, and enables a broader spectrum of Restaurants/Chefs/Homecooks to deliver their product to a mass audience.

my prospection is the following:

  1. Emergence of new “delivery only” brands at the scale of Dominos, Chipotle, McDonalds enabled entirely via the new Food-Tech infrastructure. 
    (Freshmenu, Faasos are already getting to some scale; we will see 10–15 more)
  2. Tier-2 markets will latch on to this phenomenon, the same way they adopted E-Commerce.
  3. Micro-entrepreneurship for good home-cooks will flourish. A new form of scalable livelihood for many
  4. Palette expansion for the mass Indian consumer — international cuisines become more accessible at lower price points
  5. At least two or three nationwide online Food delivery marketplaces will reach sustainability, and see a path to an IPO in 3 years from now
  6. Consumers will be willing to pay for “assured delivery” at peak-hours. We may even see some platforms introduce Surge-Pricing like Uber & Ola

The worst of the Food-Tech correction is behind us, the revolution will continue on, and it just demonstrated its impact on two large stocks on the BSE SENSEX.

Now, I am going to go order a Starbucks coffee from Swiggy!


special thanks to Deepak Abbot & monagandhi for reviewing edits

Mentors – your aides in career navigation


I often find myself deeply confused and unclear about navigating life and career decisions. These may range from simple things such as whether to take on a project at work?, or broader questions such as what geography do I want to be in 10 years from now?


No matter what the question, it is quite challenging to step outside of one’s own bubble and see the forest from the trees. What makes navigating these crossroads even harder is that the consequences of most such decisions may only be evaluated over long periods of time. All of us face these questions regularly, and am sure each of us has devised unique ways to find answers.


I constantly turn to my Mentors for guidance and direction when faced with multifaceted decisions. They (my Mentors) are the only way I am able to understand what is going on beyond my own life stage, industry, financial circumstances, geography, career track, and ideologies.

Surround yourself with mentors who not only share their life experiences but also challenge you to think about dimensions you may not have contemplated. Having an insight into what lies ahead, or how people in a different industry think about the same decision is invaluable.

As you think about Mentors, here are my thoughts on who to surround yourself with:

  • a peer in your industry
  • someone whose life/achievements you admire
  • a family member
  • someone in a different geography than your own
  • someone much younger than yourself
    (you are the
    present, they are the future)

Keep in mind that cultivating a Mentor/Mentee relationship takes time and diligence. You want to be selective in finding Mentors who are genuinely interested in you as an individual, and this takes time. An ideal mentor is someone you have known for atleast a couple of years, and is someone you would love to have a beer with.

Your relationship with your Mentors is a two-way street. You have to pay it forward and share as much as (and perhaps more) you wish to learn.

Think of a person without mentors as a sailor relying on astrology to cross the seas, and a person with mentors as an Admiral with the support of sophisticated GPS satellite navigation and mapping to assist him. The Admiral has a much better lay of the land and the many pitfalls and traps on the path to his goal.

Be the Admiral.

I hope you find Mentors that help make your life more interesting, and at the same time be sure to share your own perspectives with others who could benefit from your experiences.

(Special thanks to Aakrit Vaish, Dev Khare, and Tomas Tunguz for their feedback)

Mark Pagel on collective cultural evolution, and how we may be becoming infinitely stupid

This is a very interesting talk by an evolutionary biologist, where he starts from the beginning of life itself and weaves a story through to our current state of culture and how ideas flow.

There are several pieces of the talk that are worth taking a moment to appreciate. Here are a couple excerpts.

here he explains humans versus chimpanzees:

One way to put this in perspective is to say that you can bring a chimpanzee home to your house, and you can teach it to wash dishes, but it will just as happily wash a clean dish as a dirty dish, because it’s washing dishes to be rewarded with a banana. Whereas, with humans, we understand why we’re washing dishes, and we would never wash a clean one. And that seems to be the difference. It unleashes this cumulative cultural adaptation in us.

here he explains how ideas are accelerating, and in many ways the term “building on the shoulders of giants” comes from:

If I’m living in a population of people, and I can observe those people, and see what they’re doing, seeing what innovations they’re coming up with, I can choose among the best of those ideas, without having to go through the process of innovation myself. So, for example, if I’m trying to make a better spear, I really have no idea how to make that better spear. But if I notice that somebody else in my society has made a very good spear, I can simply copy him without having to understand why.

here he describes how most of us make choices, and what the collective group-think means for humanity:

As our societies get larger and larger, there’s no need, in fact, there’s even less of a need for any one of us to be an innovator, whereas there is a great advantage for most of us to be copiers, or followers. And so, a real worry is that our capacity for social learning, which is responsible for all of our cumulative cultural adaptation, all of the things we see around us in our everyday lives, has actually promoted a species that isn’t so good at innovation. It allows us to reflect on ourselves a little bit and say, maybe we’re not as creative and as imaginative and as innovative as we thought we were, but extraordinarily good at copying and following.

If we apply this to our everyday lives and we ask ourselves, do we know the answers to the most important questions in our lives? Should you buy a particular house? What mortgage product should you have? Should you buy a particular car? Who should you marry? What sort of job should you take? What kind of activities should you do? What kind of holidays should you take? We don’t know the answers to most of those things. And if we really were the deeply intelligent and imaginative and innovative species that we thought we were, we might know the answers to those things.

And if we ask ourselves how it is we come across the answers, or acquire the answers to many of those questions, most of us realize that we do what everybody else is doing. This herd instinct, I think, might be an extremely fundamental part of our psychology that was perhaps an unexpected and unintended, you might say, byproduct of our capacity for social learning, that we’re very, very good at being followers rather than leaders. A small number of leaders or innovators or creative people is enough for our societies to get by.

And this next insight is where he predicts where we might be headed:

Putting these two things together has lots of implications for where we’re going as societies. As I say, as our societies get bigger, and rely more and more on the Internet, fewer and fewer of us have to be very good at these creative and imaginative processes. And so, humanity might be moving towards becoming more docile, more oriented towards following, copying others, prone to fads, prone to going down blind alleys, because part of our evolutionary history that we could have never anticipated was leading us towards making use of the small number of other innovations that people come up with, rather than having to produce them ourselves.

And how are Facebook, Google, and Twitter contributing towards making us collective stupider ?

The interesting thing with Facebook is that, with 500 to 800 million of us connected around the world, it sort of devalues information and devalues knowledge. And this isn’t the comment of some reactionary who doesn’t like Facebook, but it’s rather the comment of someone who realizes that knowledge and new ideas are extraordinarily hard to come by. And as we’re more and more connected to each other, there’s more and more to copy. We realize the value in copying, and so that’s what we do.

And we seek out that information in cheaper and cheaper ways. We go up on Google, we go up on Facebook, see who’s doing what to whom. We go up on Google and find out the answers to things. And what that’s telling us is that knowledge and new ideas are cheap. And it’s playing into a set of predispositions that we have been selected to have anyway, to be copiers and to be followers. But at no time in history has it been easier to do that than now. And Facebook is encouraging that.

Lastly, what might this mean from an evolutionary biology perspective, and what are we becoming?

Now, the evolutionary argument is that our populations have always supported a small number of truly innovative people, and they’re somehow different from the rest of us. But it might even be the case that that small number of innovators just got lucky. And this is something that I think very few people will accept. They’ll receive it with incredulity. But I like to think of it as what I call social learning and, maybe, the possibility that we are infinitely stupid.

Hope you enjoyed reading this, as much as I did.

Mark Pagel on collective cultural evolution, and how we may be becoming infinitely stupid