Category: Partner Blogs


Vyome, the backstory to our investment
On / by IronPillarFund / in Partner Blogs

Vyome, the backstory to our investment

Last week, Iron Pillar announced its investment in a life sciences technology company called Vyome. At Iron Pillar, we are on a quest to find the best technology companies and entrepreneurs who possess a remarkable combination of vision, intellectual property and execution capability. In Vyome, we have found that perfect mix. This is the story of why we invested in this breakthrough life sciences platform company.

Over the years as an investor, one important lesson I have learned is that when you come across a remarkable serial entrepreneur, build a relationship with him or her and double and triple down on his / her ventures as and when given the opportunity. Perhaps the best example of that approach that I saw during my tenure at DFJ was Elon Musk. The firm invested, and did very well, with multiple Musk ventures including Tesla, Solarcity and SpaceX. In the Indian entrepreneurial ecosystem, there is such an individual emerging who is little known, but has already had tremendous impact, specifically in the healthcare domain. He tends to be low key, but his ambitions and achievements defy gravity. His name is Dr. Shiladitya Sengupta– an AIIMS topper, who got a Ph.D.from Cambridge University, did his post – doctoral fellowship at MIT and is now a professor at Harvard Medical School. I have had the pleasure of knowing Shiladitya for close to a decade through the MIT network. I first met Shiladitya during the annual MIT Emtech event, which was held in Bangalore in 2010. I was speaking at the conference, and after my panel ended, Shiladitya approached me, complimented me on my remarks, and introduced himself. He asked
if he could speak with me about his startup, Vyome. He also told me about the fact that he had founded another company earlier and taken it public. I was intrigued by his pedigree and enthusiasm. I was interested in learning more about Shiladitya and Vyome.  I spent time getting to know the team, the science and the market, but DFJ partnership decided eventually to not proceed with the investment. While disappointed with the outcome, I knew that Shiladitya was special, and I stayed in touch with him over the years.

Fast forward to 2016. Shiladitya knew that I was now part of Iron Pillar and asked to connect so that he could update me on his various entrepreneurial ventures. It turned out that Shiladitya had been busy over the past few years and co – founded two additional ventures– Mitra Biotech and Invictus Oncology (now called Akamara). But he was keen to speak with me about Vyome, the company I was most familiar with. He had gone through two additional rounds of financing and was now contemplating a pre – IPO Series D round and wanted to see if Iron Pillar might be interested. My initial reaction was what one might expect– we are a small fund focused primarily on consumer and enterprise technology companies.

It was unclear to me whether the partners would get excited about Vyome. But Shiladitya was persistent. With Vyome, Shiladitya was targeting the dermatology space, specifically developing an antibiotic ointment to treat acne with precision, without side effects, and without consumers building resistance to the treatment– which is a key issue with the current leading ointment in the space, Clindamycin. It turned out that Vyome had also developed an anti – fungal product to address the dandruff market in India, had licensed the compound to Sun Pharma and was selling in the Indian consumer market with solid early traction. Shiladitya had brought on board N.Venkat early on as a consultant, and then as CEO of the company. Venkat had previously run Emami, and was intimately familiar with the Indian FMCG market. That, by the way, is Shiladitya’ s modus operandi– he is the brains behind his ventures, a scientist with the ideation and research expertise. But he then hires the best and brightest in the relevant healthcare sub – domain as co – founders, operators and advisors to scale the business. He has created a life sciences research and development hub in Delhi where he assembles the leading scientists from around India and the world to develop new therapies and formulations. The drive behind Shiladitya (and his wife who, by the way, is a computer science professor and one of the world’ s top machine learning experts at University of Pennsylvania) is to have real world – class biotech innovation and IP developed in India for the world. With four companies under his belt, he is well on his way to doing just that.

What makes Shiladitya’ s approach special is that he uses existing underlying molecules, and leverages a combination of computational biology, genomic analysis and proprietary chemistry to repurpose them for a different target. With Vyome, Shiladitya has leveraged existing anti – biotic building blocks in an ocular anti – biotic and derived a new molecule for acne.There is a spectrum of therapies for acne that exist today ranging from topical ointments to benzoyl peroxide, steroids, oral therapeutics and combinations thereof. However, many therapies have a combination of significant side effects as well as resulting bacterial resistance mentioned earlier. Vyome encompasses simplicity of application(a topical), precision of delivery(to the point of lesion / inflammation), minimal side effects and designed specifically to prevent bacterial resistance.

While the initial reaction to Vyome from the Iron Pillar partnership was a combination of raised eyebrows and intrigue, I was able to convince the partners to at least meet Shiladitya and learn a bit more about his venture. That meeting in late 2016 in Noida got Sameer, Anand and Harish excited about Shiladitya and Vyome, enough to at least want to dig a bit deeper. None of us had the background to fully understand the science behind Vyome. Realizing that, Shiladitya described Vyome in layman’ s terms (which, as a professor, he is very capable of). We started contemplating a possibility of an investment. We knew that we could tap into our collective networks and find experts who could help us understand the science behind Vyome, as well as provide insights from a market adoption standpoint. That, by the way, is a core strength of the Iron Pillar team– that we can leverage business and technology resources within our large collective network as and when necessary for diligence and validation. We found an ideal individual who was both a scientist and a practising dermatologist. She performed a thorough review and came back to us very excited about both the science and the business prospects of the company. So much so that she wanted to work with the company on designing their upcoming clinical studies. As parents of three teenagers, my wife and I had dealt with the physical and emotional issues that kids (and adults) face with acne. We had also studied various treatment options, many of which had awful side effects. From a consumer standpoint, I was very excited about the prospect of a treatment that was targeted, with little to no side effects, and designed and delivered in a way to reduce or eliminate resistance.

From an investment standpoint, there are four key ingredients that the Iron Pillar looks for in a startup. I call it the T’ s and the M– Team, Technology / IP, Traction and Market. Over my investment career, I have realized that the venture business (and I would argue almost any business) is all about people. The best of times and worst of times I have had over the years are because of people. As investors, the Iron Pillar team cannot predict exactly how a startup will perform over time. But the key is to invest in teams who are remarkable in their execution capability, and can maneuver through the ups and downs that startups inevitably go through. I have been an investor in companies that were close to a unicorn status but eventually failed, and also in companies that were days from running out of cash and are now on their way to becoming unicorns. That“ people” bet in Vyome’ s case comprised the combination of Venkat, Shiladitya and the senior technology team. Shiladitya had assembled a world – class advisory board including the former president of the American Dermatology Association. He had also convinced Perceptive, one of the most successful life sciences investors to come on board, with a senior partner taking the Executive Chairman role. The Resistant Acne market is a multi – billion dollar untapped opportunity globally. Vyome’ s focus on drug – resistant skin diseases and the IP differentiates the company compared with the incumbents, many of which are decades old therapies.In terms of traction, the anti – fungal product has been in the market and doing well. The initial proof of concept trials of the leading molecule showed positive results, validated by an independent expert. Iron Pillar, as a firm, wanted to be associated with phenomenal people like Shiladitya and Venkat who personify intellect, humility and focused execution. Additionally, a fundamental hypothesis for Iron Pillar is to showcase and invest in entrepreneurs and companies from India that are bringing amazing IP, technologies and products to the global stage. Vyome is a prime example of that thesis.

Vyome has some remarkable investors on its capitalization table including Aarin, Romulus, Navam, Kalaari and Perceptive. While there is still a long way to go, Iron Pillar is delighted and honored to be on the journey with Vyome and looking forward to working with the other investors to help Venkat, Shiladitya and the entire Vyome team shine on the global stage. Upwards and onwards!

Birth of Iron Pillar
On / by IronPillarFund / in Partner Blogs

Birth of Iron Pillar

This week Iron Pillar proudly announced the final close of its maiden fund, Iron Pillar Fund I, with over $90M in commitments across its India (AIF) and Mauritius vehicles. It’s the culmination of a journey that began in early 2015. The team got together recently at a farm house in Karjat, about two hours from Mumbai, away from the craziness of a megacity, and in the serenity of the greenery of the Western Ghats, partly to celebrate the occasion, partly to reminisce about the ups and downs of the last few years, and especially to plan for the future. This is a note to capture the journey with its curves, speed bumps and forks (not unlike the Indian infrastructure), the team’s perseverance, the visits to all parts of the world meeting investors, building resilience despite hearing a lot of “no’s”, the patience and support of our spouses and families, all the while getting to know each other personally and professionally.

Since 2012, my partner, Anand Prasanna had been thinking about the coming of the golden age of venture growth investing in India. Having observed investment trends in China, he knew that it was simply a matter of time before similar opportunities would take shape in India. He had been an LP, based in China for many years and had a first hand view of the remarkable maturation of the startup ecosystem there. I remember meeting Anand and spending a day together in February, 2015 when he visited me at my home in Bangalore and talked to me about the concept of Iron Pillar — filling the emerging mid stage technology investment gap in India. His hypothesis was that with the emerging entrepreneurial ecosystem and continuously increasing number of early stage funds and investments, there was a real need for a purpose built venture growth firm in the country — one that had a different investment strategy, and a bespoke team for turning that vision into reality. Anand had also given the name Iron Pillar, significant thought. The millennia old monument in Delhi has withstood the test of time, untarnished. That is the team’s lasting vision for Iron Pillar!

As a primarily early stage investor in India in the late 2000’s, I had experienced first hand the chasm that existed between early stage or Series A funding environment and the late stage, private equity realm where investors were more than happy to invest in profitable and cash flow positive companies. But getting from that early stage “A” to a late stage “D” was non-trivial. In my case, to bridge that mid stage gap, I was often compelled to do inside rounds, pull in strategic investors prematurely or find other boutique firms. I was sold on Anand’s overall vision. I did tell Anand at that time that while I was intrigued with the plan, I was far from committing. I told him that throughout my career, the best AND worst of times I have had are because of people. And as such, while I was interested in Iron Pillar, I had to be convinced by the kind of team Iron Pillar was going to assemble, and we decided to date.

I was still at DFJ at the time. But, with my early sponsors, Tim Draper and Raj Atluru having moved on, DFJ had morphed from a truly global firm to one that was very US, and Silicon Valley centric (for all the right reasons). I had a choice to make at that time — whether to reinvent myself as a Silicon Valley VC or leverage the almost decade that I had spent investing in and managing startups in India. I chose the latter.

Soon after that day in Bangalore with Anand, I had the pleasure of meeting Sameer whom Anand had known for some time and the two had actually co-invested in a technology startup. Anand had already had conversations with Sameer about coming on board as an Iron Pillar co-founder. The two of them had a series of in-depth discussions over the next few months and further validated the investment strategy after which Sameer decided to take the plunge. Sameer brought incredible experience across dozens of sizable technology transactions across the M&A and IPO spectrum during his fifteen years at Citi in New York, Mumbai and Singapore. Co-incidentally, Sameer’s older brother, Sanjay (co-founder at Blume Ventures), was one year my junior during our MBA stint at UCLA’s Anderson School. Anand had experience investing both at Sequoia early in his career and then as an LP running Morgan Creek’s Asia office and I had spent almost fifteen years investing in seed and early stage startups at Garage and DFJ. So, while Anand and I brought the investing experience, Sameer brought the complementary and crucial “exit” skillset. Sameer then convinced Harish, his colleague at Citi for almost fourteen years who was running Citi’s M&A business in India, to take the entrepreneurial plunge and join the team.

Next to officially join was Ashok, an old friend of Anand’s, a serial entrepreneur, in the role of an “in the trenches” Operating Partner. Interestingly enough, Anand was an early employee at Ashok’s first company, Vertebrand, a brand consulting company. Anand was also Ashok’s first investor in Ashok’s second company, Taxiguide. It also turns out that Ashok was the first person with whom Anand had spoken officially about Iron Pillar, in 2014. Last person to join the founding team was Ashish, our CFO. Ashish is the only person I know who has actually lived in Mauritius, Singapore and India. Having been CFO of 3i Asia, a billion dollar private equity fund, it was clear to us that he had the business acumen and attention to detail that was required in this role with Iron Pillar. He had twenty years of private equity and fund experience. Ashish’s younger brother had worked at Citi with Sameer and Harish for a decade, and they had known Ashish socially for a number of years. The dating ritual that started for me in February, ended with the team coming together by the end of 2015. We all knew inherently that the entrepreneurial opportunity in India over the coming years was absolutely massive, and that we wanted to be part of that journey, not just as spectators but as deeply immersed participants, helping make that vision a reality. With that thought as the catalyst, we formally launched Iron Pillar in January, 2016.

We knew that building a venture growth firm from scratch would be challenging, especially as a first time team. But we knew the key ingredients that we needed to have in place to be able to get investors/LP’s on board — we had a remarkable team with extremely complementary skillsets, we had a first of its kind venture growth story for India, and we knew the market was sizable and growing, given the uptick in the overall Series A activity in the country. In 2016, we spent significant time honing and refining the story, understanding the landscape and nailing down our detailed investment criteria and process. The plan was for the firm to construct a portfolio where we could mitigate risk, but still provide meaningful IRR to our investors. We were not going to underwrite home runs necessarily, but nor were we going to take binary or mortality risk with our investments. It would be a concentrated portfolio where we would lead or co-lead, take board seats, and take an active hands-on approach to portfolio management. While the fund would clearly be India-centric, with my presence in Palo Alto and Anand’s China experience, the fact that we had strong connections to those geographies was another key strategic advantage. The fund would also be shorter than a typical ten-year fund life cycle. We decided to make it a seven-year fund. The rationale was that we were going to “walk the walk, rather than just talk the talk” when it came to delivering returns in 5–6 years, rather than the typical 8–10 years. That was (and is) the plan.

That’s not the end of the beginning of the story. That is just the beginning of the beginning. Once together, we were self aware enough to realize that as a first time team and first time fund, going out fund raising based purely on a story and dream would be a herculean task. We needed to work together, meet companies and ideally make a couple of investments before actively approaching LP’s. And that’s precisely what we did. We ended up raising “warehouse capital” from IIFL Wealth and one other LP. Essentially, they provided a pool of capital alongside our own to make initial investments without formally raising a fund. The IIFL executive team was convinced of Iron Pillar’s overall thesis and their belief that we would be able to successfully raise Fund I. Once we raised the fund, we would return the warehouse capital. In 2016, the team met over 150 startups and made two investments — NowFloats (www.nowfloats.com) and BlueStone (www.bluestone.com) in March and June, respectively. We led the rounds, with meaningful ownership, took Board seats and got deeply involved with the companies. The idea, again, was to be value-add active investors and true partners for the entrepreneurs, existing investors and management teams.

With initial investments under our belt, we rolled up our sleeves and got involved with business model refinement, hiring, business development and any way we could add value to both companies. We also figured out our collective working style, spent time understanding each other deeply, and over multiple off-sites, honed our overall positioning as well as value system for the firm that we would hold sacrosanct. Given Harish and Sameer’s background at Citi, we became fundamental believers in data and deep pre-investment diligence and analysis — understanding the overall startup ecosystem, not only qualitatively, but also through objective quantitative lens. We mapped the market and sectors in detail, and conducted bottoms up analysis of every tech Series A and B deal in India. We constantly interacted with Series A investors upstream from us. With our first two investments, existing investors in those companies such as Accel, Kalaari, Saama, Omidyar, and Blume saw us in action and got to appreciate the value that we brought to those companies. That was indeed part of our strategy. We knew that it was on the back of a high reputational index, would we be able to build a lasting firm.

In early 2017, with version 15 of the pitch deck, we finally hit the road to fundraise in earnest. We had gotten early interest from Indian investors, and we wanted to take advantage of the Indian government’s India Aspiration Fund, a Fund of Funds established to help accelerate startup activity in the country. At the same time, we got introduced to a US Government entity called Overseas Private Investment Corporation (OPIC), a decades old US Development Finance Institution (DFI) that had historically provided billions of dollars in low cost debt for infrastructure projects in emerging markets. In 2017, they launched a new program to invest in emerging market venture capital funds. Iron Pillar was part of the very first applicant pool. The selection and diligence process was long and grueling. But in February, 2018, after multiple meetings over months, a week-long diligence trip by a team of five people to India, background checks, and dozens of documents, the OPIC Investment Committee gave their formal approval. Iron Pillar, therefore, became the very first venture capital firm globally to have OPIC as an LP. That was a key milestone that started the process of corralling other interested parties — institutions, family offices, tech entrepreneurs and executives within our extensive networks and those introduced to us by our advisors. All along, we continued to meet interesting companies and build a robust pipeline.

After roughly eighteen months, and a lot of collective hard work, we have formally closed Iron Pillar Fund I. We are delighted and humbled by the endorsement of our investors from around the world — India, China, Singapore, Dubai, Abu Dhabi, UK and the US. The fact that OPIC chose Iron Pillar as the first fund out of the Venture Capital program is truly an honor. We recently announced our third deal, Servify (www.servify.in) and have two additional companies moving towards closure in the coming weeks. There are many other bits of positive news that Iron Pillar will be releasing in the coming weeks and months. We are clearly in business, and look forward to turning our early vision into a reality — making a meaningful impact on the companies, entrepreneurs and overall Indian startup ecosystem. From the entire team — Anand, Sameer, Harish, Ashok, Ashish and yours truly, a note of gratitude to all our supporters and we are all genuinely excited about the path ahead. Upward and onward!

The MJ Co-efficient
On / by IronPillarFund / in Partner Blogs

The MJ Co-efficient

I am a big fan of turning the complex into something that is relatively simple to digest. I remember, in business school, every case study started with “ratio analysis” which the goal of coalescing the state of a particular company being analyzed into a handful of financial and operational ratios that would provide a bird’s eye view into the overall health of the company. Similarly, perhaps as I get older (and might argue, somewhat wiser), I have become big fan of certain core metrics when analyzing startups for investments. Some like LTV/CAC, Churn (or negative churn), and marketing efficiencies (Revenue/marketing $), I have written about in the past. But there is one particular metric in which I have become a big believer of late. I call it the MJ co-efficient. People ask, “why call it the MJ coefficient”. My response, “why not!” The title actually relates a lot to my own value system, as you shall see.

Often, especially in the Indian context, there has been a lot written about companies that are either unicorns or soonicorns, riding high on valuations (that, at one point in the not so distant past, were increasing by $100M/month) with hundreds of millions or even billions of dollars being invested, especially in the e-commerce domain. But a relatively small fund like Iron Pillar ($100Mish), can’t necessarily afford to invest in companies that are very capital intensive. Our model is to invest in companies that, either with the round being led by Iron Pillar, or one additional round post our investment, can get to sustained profitability. How, one might ask, could you ascertain whether a company is or is not capital intensive in the long run, or at least until you, as an investor, exit that company. Part of the answer lies in pro-forma analyses, looking at both domestic and global comps, and eventually going with some weighted average combination of analysis and gut feel to take a call. It is also important to get a fairly good understanding of the product-market fit, business model, and team’s execution capability in an interesting and large market.

But, the answer to above conundrum, in part, is the MJ Co-efficient (MJC), which is simply the ratio of Annualized Revenue Run rate ($ARR) divided by cumulative capital raised by the company ($R). Let’s drill into this a bit. ARR, of course, is a fairly reasonable measure of the company’s scale and how well/much are the customers willing to pay for the product or service (which, by the way, is a good proxy of where on the “cancer to vitamin drug” or “must have vs. nice-to-have” spectrum does the company reside). With ARR is embedded the notion of churn (or net negative churn, if the company is able to up-sell or cross-sell the go-forward customer base which exceeds revenue being lost by customers actually dropping off). In an ideal situation, a company has zero churn and significant net negative churn whereby existing customers continue to increase their spend because of the inherent value proposition of the company’s product or service. Customers, in that case, are essentially hooked and letting go of the product or service is simply not an option. In reality, there will and I would argue, should be, some churn (btw, it’s sometimes important to fire customers, especially if the unit economics with those customers simply don’t make sense and/or the customer is an outlier on the nuisance scale).

The denominator in the MJC is the total funding that the company has raised till date. The ratio, therefore, is a good indicator of capital efficiency (over the life cycle of the company). If the company has raised a ton of capital, but has virtually no revenue, the ratio is close to zero. If, on the other hand, the company has been extremely efficient with its spend, and at the same time has created a cult like following of their customers, MJC could be greater than 1. There are obvious exceptions to this metric. Certain domains or categories, like biotech, simply don’t lend themselves to this particular measurement as revenue stays close to zero, often until after an IPO. Similarly, others might argue that in the broader ecommerce domain, given the challenges of brand creation, customer acquisition and relatively thin gross margins, an MJC of 1 is virtually impossible, at least in the initial years, until the economies of scale can be leveraged.

I use the MJC more when evaluating enterprise SaaS companies. Having said that, there are relatively few truly capital efficient companies in the long run (i.e. those that don’t require at least $50-100M of funding over their lifetime before getting to cash flow positive with meaningful growth). Over my career, I have probably looked at thousands of plans and pro-forma financials. I can’t remember one company that actually hit their mid-long term targets. Predicting exactly how a company will scale is hard. But if I ask a typical tech entrepreneur if they can achieve $50M in revenue with $50M in total funding or $100M in revenue with less than $100M in total funding, the answer will be a vehement “Yes, of course. I can do it for less”. But I would encourage entrepreneurs to look at comps of established companies in your respective domains, and analyze how many, if any, of them got to the magical MJ co-efficient of 1, and when. There are examples. Zoho, for one, comes to mind where a bootstrapped company has gotten to phenomenal scale. But those are rare.

More recently, I have looked at companies that have shown a co-efficient of close to 1 post seed or series A level, which is fantastic, again from a capital efficiency standpoint. What that shows me, as an investor, is that the company not only can deploy capital efficiently, but that they have been able to use that capital to develop and sell their product effectively. At that point, if the company approaches me for funding, I know that they have the wherewithal to really grow their market share, and dial down their spend, for example, if need be to get to a point of sustenance during tough times. I might still pass on the investment for a variety of other reasons, but the likelihood that the company will run out of cash is minimized (because they have the ability to control their burn).

The MJC is a directional, not an absolute metric. In many markets, winners take all or most. In those cases, issues like significant marketing spends around brand and customer acquisition matter. Trying to simply stick to a MJC of 1 may lead to a situation where a company becomes a niche player or yields unintentionally to another player in the market.

Bottom line: It is crucial for a company to be able to control their destiny to the extent possible. Having the DNA of capital efficiency helps companies not only in the good times, but especially in the bad times. With that mindset, a company can survive during the downturn, and be wildly profitable when market conditions are positive. Again, the MJC is not an end-all be-all. To throw another metaphor in the mix, you also don’t want to be penny-wise, pound-foolish. Do what’s right for the business, and if it genuinely means spending more up front, either for R&D, branding, or refining the supply chain, so be it. MJC is simply a tool to measure efficiency as a company goes through its life cycle. Some may achieve that early in their life cycle and be able to show a product-market fit with relatively low revenue and smaller equity raise. Post that, they can raise larger rounds, go well below 1.0 on the MJC scale, but eventually come back above 1.0 once hitting the profitable growth trajectory. Other companies, depending on sectors, may only get to an MJC of 1.0 or greater well into their life cycle. Some, as I mentioned earlier, may never get there simply because it’s not revenue but other items such as IP that are the value creation driver. It’s important to keep the context of this tool in mind, and use it to measure your company against your competitors. But MJC can be a guide as entrepreneurs think about creating a culture of capital efficiency (something that’s important to me in my personal life) within their organization early. That can only benefit the company downstream, through good times and bad.

Don’t Underestimate the Power of Serendipity
On / by IronPillarFund / in Partner Blogs

Don’t Underestimate the Power of Serendipity

When asking successful investors or entrepreneurs the reason for their success, the answers might be all over the place – skill, team, execution, strategy, IP…but few will mention what is often the key or at least big catalyst for the outcome – luck! It’s basically being at the right place at the right time. The inverse is also true – wrong place at the wrong time can turn what looks like a billion dollar outcome into a write off (yours truly has been through that roller coaster as well). But, my better half has a “glass half full” approach to thinking about the above. Her thought is that people make their own luck or bring about positive circumstances. That is the crux of this article. I am starting to become a believer in the notion that people can influence their own good fortune, in their personal and professional lives. Let me ‘splain.

I thought I would dedicate this article describing my own professional journey which has less to do with thoughtful planning and preparation and much more to do with sheer serendipity — being in a unique situation when an opportunity presented itself, and then having the courage or naivete to say “yes”. Let me rewind a bit and take you through my life story. About 35 years, having arrived in the US in the early ‘80’s, and after going through a very challenging first few months, the family settled in Southern California. I went to a high school that had the highest teenage pregnancy rate in the state, low graduation rate and where no one in the decades long history of the school had ever applied to MIT. I was lucky to have a counselor who, in passing, encouraged me to apply as a “really long shot”. I got lucky and that long shot worked. Ironically, I got rejected by UC Davis, my sure-shot school (although, again ironically, the UC Regents gave me a full scholarship. So, the right hand (admissions office) was not speaking with the left hand (UC Regents)). As I approached my four years, and was seeking a dream job as an Aerospace Engineer either at Boeing or NASA (both of which offered me a fantastic $25k/yr and a $32k/yr gig, respectively in 1991), my thesis advisor got a small grant from NASA for some research. The day before I had to make a job decision among my two top prospects, Prof. Martinez-Sanchez basically persuaded me to stay and do my Masters with a fully paid fellowship. Life would have been very different after another 48 hours, had I picked a traditional aerospace career.

Fast forward to 1995. On a whim and slight nudging by a friend, I ended up going to an open house for UCLA Anderson School of Management in Boston. I wasn’t really interested but she said “what the heck. It can’t hurt”. I ended up speaking with the Dean at length at that event. Sure enough, the “it can’t hurt” turned into an Anderson MBA. In 1997, I did not know what I was going to do for the summer between the two years of business school. I didn’t want to work for a big company, but wasn’t really sure of how to connect with small ones or startups. I happened to stop by the career center at the school to browse. In those 5-10 minutes, started a conversation with a senior executive from Epson who had had a last minute cancellation, so he had 45 minutes to spare. A slight chit-chat/water cooler conversation turned into a summer internship helping Epson figure out its online strategy. Upon graduation, again, I knew that I did not want to go down the route of consulting, investment banking etc. During a conversation over a drink with another classmate, he asked if I had ever considered Mattel, the toy company. I said, “of course not”. It’s a big company and I really want to focus on a smaller company. He said “what the heck. It can’t hurt” as he spoke with me about a small group of MIT folks at Mattel whose charter was to find technologies that could be embedded in toys of the future. I thought it was an interesting job description. That nudge from Rob led to a one-year stint at Mattel. While there, I got a cold call from Guy Kawasaki (the prolific speaker/author and one time Chief Evangelist at Apple). It turned out that one of my business school classmates had become pen-pals with Guy, and right out of business school joined Garage.com, a boutique investment bank Guy he had co-founded in Silicon Valley. Guy asked if I might be interested in learning about Garage. The phrase “what the heck. It can’t hurt” went through my mind yet again. That led to my departure from Mattel and joining Garage.com in 1999, and a series of roller coasters over the next eight years, that led to Garage.com pivoting from an investment bank into Garage Technology Ventures, a seed stage venture firm. Overnight, I became an accidental Venture Capitalist. In 2006, I happened to be in India looking for potential investors for Garage’s second fund. As part of that trip, I was asked to come and speak at the Indian School of Business in Hyderabad. At a business plan judging competition, I happened to sit next to Raj Atluru who, at that time, was a Partner at DFJ. I had known Raj for close to a decade and was surprised to see him in Hyderabad. He mentioned that DFJ had been investing remotely in India and was now looking for a partner to set up their India operation. That chance conversation on a panel half a world away led to my joining DFJ in 2007, moving to Bangalore and starting a really interesting next nine year stint as an early stage global VC. India threw a bunch of googlies (or curve ball, to use a baseball analogy), as it usually does, but I ended up spending five years in Bangalore, which were amazing, both personally and professionally.

Fast forward to 2015 when I started thinking about a move from DFJ as the firm’s focus had shifted from being global to completely local. I got an outreach from my now partner, Anand Prasanna. Anand had been contemplating a fund like Iron Pillar and was looking for someone who had been an investor in the US and India. I was one of a very few that fit that profile. We spent a day together in Bangalore, and I was sold on the thesis/approach. We spent 2015 putting the team together and in early 2016, officially launched Iron Pillar. While early, it’s been a great entrepreneurial ride, with a first time team and first time fund. I have experienced the challenge and exhilaration of fundraising for Iron Pillar 1.

I love helping entrepreneurs and I often say, “I am in the business of putting good people together”. Which is true. I recently got a call from someone who basically indicated that I had changed his life. He is now a senior exec in London with an investment firm. And apparently some advice that I had given him 15 years ago at Garage changed the trajectory of his life. To be honest, I did not remember the gentleman, nor the context. Similarly, I remember years ago, sitting at a law firm listening to women entrepreneurs pitch their ideas. I started a conversation with the gentleman sitting next to me, who happened to be the then CTO of Mozilla. We followed up to connect in some more depth, and he connected me with a gentleman named Daniel Epstein, of the Unreasonable Institute (based in Boulder, CO). The group effectively helps social entrepreneurs instill best practices and access to capital through global mentors and advisors. It’s truly a do-good, do-well organization. I have had the privilege of being involved with them as a mentor/advisor for almost seven years – all because of a brief seemingly random conversation at a small gathering.

The reason for giving you the painful detail above is to drive home a few points. One, that life-altering events happen more often not through careful planning and immaculate execution, but rather through happenstance meetings and random conversations. Two, more often than not, we choose not to speak with the person sitting or standing next to us (on a plane, at an event, in line at the grocery store or wherever). I am also not saying that one should go around interrupting nice family meals at restaurants, but when in an environment where a brief conversation is not intrusive, have a chat and get to know a bit about the individual next to you. Sure 90% of the time, there may be little or no overlap in background or interests. But in 10% of cases, remarkably, you will find some connection that binds you with that individual in either subtle or not so subtle ways. Finally, just give. If you can, give your time, your advice, your connections to the extent they can be helpful to others, without expecting anything in return. A random note of gratitude years from now from someone you may not even remember, will make your day, week, month or year.

All too often, people in the investment and entrepreneurial business are too busy or pre-occupied with the fires that need to be fought on a day-to-day basis. I think it’s important for all of us to take our heads out from the weeds and zoom out a bit every now and then. There is no better way to receive than by giving. As I think about what makes Silicon Valley so unique, I think the above is a big chunk of it. That random conversations lead to significant events and milestones, and that people are fairly open to helping. At Iron Pillar, the team subscribes to that mantra. Live to the fullest. Give to the fullest. Because, it all has a way of coming full circle.

The Art of Exit
On / by IronPillarFund / in Partner Blogs

The Art of Exit

In the startup business, it goes without saying that a key milestone, if not the end goal, is for investors, founders and management to achieve an exit. An exit, hopefully a fruitful one, places a stamp of success for the entrepreneur and the investors. It creates a launch pad for both towards the next big thing, whether it’s the next venture for the entrepreneur, or a brand creation opportunity for investor, whose name might then be synonymous with companies in that particular domain. He/she might then have the title of king/queen of SaaS, IOT, VR or something else. For some it’s an ego trip and have their name in the Midas list of most successful VCs. For others, it’s the pure joy of helping a company make it through the proverbial ups and downs to eventual success. Needless to say, Exits are important and for some, an end all, be all. More often than not, for companies fortunate enough to get to a fruitful exit, especially in case of an IPO, it’s simply another milestone in the long journey from a startup to a multi-billion dollar enterprise. Obviously, if it’s an M&A scenario, the exit might itself be a culmination of years of hard work, with both investors and entrepreneurs moving on to their next opportunity.

It is also true that the startup landscape is littered with a high mortality rate. Much more often than not, companies go to a zero or near zero, given the sheer high-risk nature of startups. In other cases, while there may technically be an exit, it’s a fire sale or an aqui-hire being positioned as an M&A to provide slightly better outward facing optics to the less-than-fruitful outcome. It’s very rare to have a fantastic exit where everyone does extremely well financially.

What I want to really talk about here is the fairly common situation where a company grows and often struggles through multiple rounds of financing with several investors, all with different timelines in terms of their respective exit horizon. I term that timeline as “womb to tombstone”, typically implying the duration from inception or seeding of a startup to the tombstone which is not meant to imply death, but rather a trinket that bankers and VCs like to prominently display in their offices upon a successful exit event which returns a meaningful investment multiple and IRR. That “womb to tombstone” defines the reputational index in the VC and startup industries. Did the investment do well? How well? (in terms of both cash on cash multiples and IRR’s, with different firms placing varying emphasis on both metrics), and what was the hit rate (what % of investments were successful).

Now let’s talk about the challenge, one of many, that an entrepreneur and/or a CEO of a private company faces. Imagine the following scenario. You are company ABC, founded in 2008. Now nine years later, you have raised four rounds of financing from six different investors, but you are still 4-5 years away from an ideal exit (M&A). The oft-mentioned mantra in exit realm is “companies should be bought, not sold”. Implication being that if the company is doing well, the prospective buyers will come knocking. At that point the company has all the leverage, because it’s not in the market to be sold and the buying entity(ies) will get into a bidding war. Going back to company ABC…imagine if you are a seed/Series A investor, you are already 9 years into the investment. A typical fund has a 10-year life cycle (with potentially some extension), but VCs really try to get the capital back and portfolio closure by the 10th anniversary of a given fund’s vintage of formation date. Series B investor might be 6-7 year into their investment. But the most recent series D investors have an additional 4-5 years until they would/might want an exit. The entrepreneur/CEO has a real dilemma. Not only does he/she have a company to run, scale, worry about financial health of the company, strategic forks on the road, continuously changing competitive landscape etc etc, but she/he has a challenge managing the internal dynamics among and between investors, each of whom will have different timelines and exit thresholds. The entrepreneur ends up getting different signals and pressures from different investors at different times leading to a constant dose of hypertension medication to maintain his/her sanity.

My strong recommendation to entrepreneurs is to understand the above situation whole-heartedly up front, and have a clear conversation with all investors along the way, especially around funding events. Because, more often than not, companies don’t have a Facebook or Snap-like run in a few years to a point where everyone does extremely well. Even in the upside scenario, it’s usually a 8-12 year slog to even have a shot at a reasonable exit. So, how does one manage this tension and make sure that there is alignment on the Board and among various groups that works in the company’s favor, rather than create constant tension and friction. That, by the way, is not only draining on the entrepreneurs and management, but work against the overall well-being and potential positive outcome of the company (which then leads to further tension and a vicious downward spiral)

In my humble opinion, the right thing for the entrepreneur to do is two-fold: 1) to keep in mind the exit timelines for the earlier investors. That is something they (the investors) would have communicated when making their initial investment. And while, investors are usually understanding of the fact that companies almost never deliver on their 1,2 or 5 year plans, they are responsible to their partnerships and LPs, and therefore have to try to return capital to their investors within a reasonable timeline. 2) to be very mindful of the fact that the early investors came in when the company had very little, if anything, in terms of traction and she/he should do right by them. Often, the late stage investors might encourage or incent entrepreneurs to work within the new investors’ timeline (a new trigger, often with new incentives/stock options tied toward a 4-5 year exit horizon), much to the frustration of the early investors. But the late stage investors usually have leverage, with deeper pockets (when the earlier investors are often tapped out). The entrepreneur has to walk a tight rope between authentically appreciating the risk the early stage investors took, with the much needed growth capital that the new investors bring to the table. In an ideal situation, company continues to hit its milestones, attracting value-additive capital at increasing valuations, within a timeline that works for everyone. That scenario however is in the realm of miraculous, and therefore, highly unusual.

Add to the above, an environment like the one that exists in India, with a dearth of public exits, and you create a real quandary. The solution to the above dilemma is secondaries. It’s really the only mechanism whereby the company does not have to exit outright pre-maturely, but still be able to create an exit mechanism for earlier investors who have reached the end of their fund life cycle. This can happen through either a straight secondary, similar to what DFJ or Canaan embarked on in India (selling entire portfolios), or by a company raising capital through a combination of primary and secondary capital infusion. In that scenario, typically a private equity investor comes in with a large capital infusion, which is used, in part, to buy out existing investors (either partially or fully) and provide primary capital to the company. If done right, this can create a real win-win situation for older investors, new investors and the company. The old investors get a needed exit; the company gets needed primary capital and the new investor usually gets decent ownership at a blended average cost which is lower than the preferred price of the most recent financing round. As an example, company ABC raises $50M, split $25M each between primary and secondary. The primary capital comes at a $250M post money valuation, but the secondary capital is at a $200M post money. The primary capital buys 10% of the company, but the secondary chunk buys 12.5% of the company for a total of 22.5% (rather than 20%, which would have been the case if the new investor had invested the entire $50M as a primary). Obviously, there are some caveats to a deal like the one above. The fact that the company has $25M less primary capital may have an impact on the business growth. Additionally, the portion that was bought through a cheaper secondary may have lower liquidation preference (which is one of the reasons the existing investors were willing to sell at a discount. But the primary reason for taking a discount is liquidity).

Exit creation is an art. I would encourage all entrepreneurs to think about the exit horizon and scenario when creating a business plan. And truly think about the process and challenges which I have tried to highlight. It’s very easy in a powerpoint to indicate that “we will exit through M&A or IPO” in x-y years. Everyone knows that plans almost never work out, but the key is to set appropriate expectations, with periodic re-forecasts and as deep an understanding as possible with existing investors around their exit timelines and thresholds. Last thing that an entrepreneur wants is investors pushing for an exit when the entrepreneur knows in his/her heart that the company is significantly more valuable 2-3 years downstream. Having said that, entrepreneurs are optimistic by nature and the hockey stick uptick is just around the corner…always. But at some point, it might be pragmatic to draw a line in the sand alongside your investors and say, that “if we don’t achieve certain business or financing milestones within a certain time period, then we will hire a banker to find a home for the company and employees”. That is a perfectly appropriate action to take, rather than be hard headed (which both entrepreneurs and investors tend to be sometimes), due to ego or other reasons and continue to “bang the company’s head against the wall”.

Often entrepreneurs fall in the trap of “second guessing” and the “only if I had…” thought processes. My advice usually is “when in doubt, follow the data”. Do the needed analysis (market, industry, competitive, technical, financial…) to determine what the likelihood of success (however you define it) is within a certain timeline (usually 6-12 months). If you are not able to hit those milestones or come close to hitting them, then perhaps the market is telling you something and you, as the entrepreneur/ceo have to internalize and digest that feedback and brainstorm next steps with your Board, keeping in mind the fiduciary responsibility to the shareholders.

Bottom line: Exits are clearly important, but there is an art to their creation and execution. Managing expectations and pro-actively delivering on the exit promise to investors is one of the most challenging but most important measuring sticks for an entrepreneur. You cannot let down the early investors who bet on you when you had nothing. Nor can you create an unnatural short term outright M&A, much to the dismay of your late stage investors. Sooner you start understanding this common, yet un-discussed phenomenon, better off you will be as and when the time comes for tough conversations with your investors. With all that said, now go build the next $1B startup! Good luck!

Overseas VCs need to step up their game in India
On / by IronPillarFund / in Partner Blogs

Overseas VCs need to step up their game in India

Over nearly a decade, I have had the pleasure of watching the Indian venture ecosystem evolve not just as an observer on the outside but an active participant on the inside. As I sit on yet another long haul flight, I have the time to contemplate and think through the ebbs and flows of Indian venture capital over the years and perhaps where I see India heading in the near to mid term. As a matter of fact, my own personal and professional life has been tightly coupled with that Indian ebbing and flowing.

Over the years, I have also had the pleasure of spending time with Bill Draper who arguably was one of the first US-based venture capitalist to invest in and be bullish on India in the late 1980s. He invested in some of the earliest tech and tech services companies and had folks like Abhay Hawaldar and Kiran Nadkarni working with him back then. But the first real wave of US VCs started in earnest in the late 90s and early 2000s. The Y2K phenomenon led to the scaling effect of the large IT services companies like Infosys, TCS and Wipro. India came on the global technology landscape in a significant way. Silicon Valley VCs saw that as a key, leading indicator of entrepreneurial investment opportunities in the country. So, they came, one by one, but as tourists, eager to spend money/invest but without necessarily a deep-rooted intent of establishing a serious presence in the country. There was no real venture capital, outside of a few exceptional individuals and some pseudo government entities at the time; so the Sand Hill folks could afford to (and some would argue, had to) be tourists. Investors were attracted by the largest democracy, young demographic, emerging middle class, growing economy, and the perpetual parallels with China’s explosive growth. That was the first wave.

Marquis Silicon Valley tech VC firms like Battery, Norwest, Walden, Trident, Bessemer, Sierra, NEA, Mayfield, DFJ, SAIF and KPCB are just some of the names during this initial phase of India investing. The idea was to be early, have their pickings and catalyse entrepreneurial growth in the newest and potentially one of the biggest tech startup markets in the world. But the modus operandi was very different than the typical VC investing protocol in their local market. Rather than having a physical presence in India, most VCs decided to visit one-four times/year, meeting a handful of startups, established players, government entities and making their initial investments. This was the “dipping their toes” phase of the India investing. DFJ itself made several sizable investments in companies like Komli, Reva and Live Media during this phase.

The next phase, which started in the mid 2000s was one of “satellite operations” when some of the phase 1 VCs seemed convinced enough to establish a physical presence of some sort in India, while others exited. Those establishing India operations during that time included DFJ, Canaan, NEA, Norwest, Bessemer, Mayfield while others like Sierra, Battery and Trident exited, realising that they didn’t have the bandwidth, resources or returns to justify investing in India through a global fund. During this satellite phase, while there was a team on the ground, the investment decision-making still resided primarily or entirely within the respective US mother ships in Silicon Valley. I was part of this second phase of investing in 2007 when DFJ decided to set up an office in India and brought me on board specifically for that purpose. By the way, the phase 1 to phase 2 transition was also initiated not only by more conviction on part of the investors, but also increased competition which required more real time (rather than a quarterly batch processed) access to entrepreneurs.

The current third phase is really the most interesting to me. This started around 2006/2007 with further bifurcation of those VCs who were really “all in” with respect to India versus those who wanted optionality and felt that having a satellite office was good enough. For US investors, this was the proverbial “S#@t or get off the pot” moment. This was also the period when local funds like Nexus, Helion, Erasmic, Inventus and NEA, IUVP/Kalaari got established. For the first time, Sand Hill VCs faced real competition from home grown players. Decision making became a real constraint for those who were running the satellite operations (like yours truly), trying to compete with local firms, wanting to move quickly but still encumbered by investment committees in the US full of partners who often did not have their pulse on the Indian market. As a result, local players thrived and I would argue, were able to get preferential access to some of the most interesting startups. During this period, several Sand Hill firms decided to double down on India by either strengthening their captive presence in India or simply pseudo acquiring local firms. Accel partnered with Erasmic to create Accel India, Sequoia did the same with WestBridge to create Sequoia India and Matrix India was established as a sizable fairly autonomous entity, albeit coupled tightly with Matrix US. Firms like Mayfield and Norwest with senior partners (Navin Chadha and Promod Haque, respectively) who had strong personal ties to India, decided either to raise dedicated India funds or carve out a very meaningful portion of their overall global fund towards investing in India. My personal take is that with a maturing ecosystem in India, those still following a satellite model without local decision making authority, will struggle.

What is interesting to me is the very dynamic nature of a market like India. There are those who are bullish on the country’s prospects and are putting real resources to work. There are others who are on the sidelines waiting for India to mature further before stepping. There are yet others, like Silver Lake Kraftwerk and Google Capital with their initial investments just beginning the tourist or a partial satellite VC journey. Time will tell whether they will go through their own phase 2, 3 and beyond.

At the same time, the early stage ecosystem is evolving quickly with new indigenous funds being created at an accelerated pace, angel groups, and seed VC firms like Blume, Kae and Orios finding solid footing. The late stage craziness of 2015 brought in sovereign wealth and hedge funds into the mix, with most of them being opportunistic entities without a meaningful, if any, presence in India. While they seem to have withdrawn, the Chinese strategic investors have come with significant velocity into the country (as the Chinese usually do) and with deep pockets and long-term view on the country, are no doubt going to stay and change the landscape significantly over the coming years. I am having the kids learn Mandarin, by the way, to be more prepared for the new world order.

I think all this ebb and flow is good for India. New funds need to be and will be created carving out their own niches, whether stage or sector based. Overseas investors will need to decide how quickly they can move from the “toe in the water” phase 1 to an “all in” phase 3. Some funds may disappear based on performance or other issues. White spaces will emerge, and new funds will be formed to fill those gaps. During my conversations with the VC brethren in Silicon Valley, there are many who are eyeing India, and perhaps waiting for meaningful exits to start happening before they truly commit to India. Democratisation of resources (human capital, financial capital, technology capital) in the largest democracy in the world will create opportunities that we cannot even imagine at this time. With young Indian innovators opting to start companies rather than work for large ones, plugged into global innovation hubs like Silicon Valley, I have no doubt that world class companies will continue to be created from India at a faster and faster clip. I am personally bullish on the country long term (despite the current tech startup hiccups) and am betting my career on it. Finally, I am delighted to be back in the thick of it all with a new fund called Iron Pillar. I look forward to telling the world all about the firm in future posts. Stay tuned…