VentureWoods has a nice discussion in the context of India and startups:
We are seeing more and more businesses around the theme to offer a $100 a year service to a million users. Few ideas that have got discussed here include:
1. Online DVD rentals
2. Online photo printing
3. Online tutoring (export oriented – ok more like 100k x $1000 here)
What are the views around feasibility and scale on some of these? Will these land up being more like 100k x $ 30 plans in the online context? Given that 5-10 startups are starting out at the same time, will the market fragmentation be too high?
Steve Rubel writes about the impending demise of the pageview metric:
Underneath the Internet advertising economy is a key metric that dictates how properties are valued and how online media is bought and sold – the page view. While it’s not the only way to measure the health of a site (time spent and unique users are among the others), it’s still very popular. Unfortunately, the trusty page view is on life support and I give it four years to live.
This may sound like heresy to most of you. After all, the page view has served us well. It has established a universal way to measure web sites. However, the metric is about to become a moot point.
The page view does not offer a suitable way to measure the next generation of web sites. These sites will be built with Ajax, Flash and other interactive technologies that allow the user to conduct affairs all within a single web page – like Gmail or the Google Reader. This eliminates the need to click from one page to another. The widgetization of the web will only accelerate this.
So, what have I learnt in the past few years with the investing?
Raising early stage capital is an incredibly tough challenge. There may be plenty of venture capital investors, but most have fund-sizes that do not easily enable investments less than $4-5 million. Most start-ups don’t need that kind of capital. I think the right amount of capital is of the order of $1-2 million. This will enable the entrepreneur to build a good team and have enough leeway to take the product or service to market. In India, this money should last about 18-24 months. Since each exercise in raising capital takes up a few months, it can be extremely distracting for the entrepreneur. So, giving enough capital for the entrepreneur to focus on the business is important. What we need in India are more early-stage investors who not only invest but also serve as a sounding board for the entrepreneur.
One of the key challenges is in bringing good people on board. And that is where an external investor can perhaps be a match-maker. In today’s India, while salaries are going up rapidly to levels which start-ups cannot easily afford, I believe that ESOP will emerge as a powerful magnet for people willing to take a little risk in their life. As I was explaining to someone the other day, joining a startup is like getting paid for half the time since the salary is likely to be half of what the person is likely to make elsewhere. So, for the person joining, the two questions to ask are: can I live a decent lifestyle on the package that is being offered, and if things go wrong can I revert back to original industry payscales after the startup experience. If the answer to these questions is yes, then the upside potential can be very high through ESOP and the rich experience in working on the frontlines of an entrepreneurial outfit.
Keeping a close eye on the cash burn is important. An entrepreneur needs to always know how much money is there in the bank, and how long it will last. The next capital can only come from two sources revenues that the company generates, or a new infusion of capital. The ideal way to build a business is to generate revenues and profits where that works as the fuel for future growth. But in some technology-driven businesses, revenues can be some time away. In that case, it is important to have validation that the technology created has commercial value. This is what will attract new investors.
In India, my experience has been that there is not enough investment happening in early-stage innovative companies. There is a herd mentality for stuffing consumer internet and mobile companies with multi-million dollar investment rounds. While that is a good sign of the maturity of the market, we need plenty of early-stage, smaller-size investments to keep the wheels of innovation churning. Many of these ventures will fail, but they will create a hotbed of entrepreneurs and new ideas.