Paul Graham, best known for co-founding the influential startup accelerator and seed funding program Y Combinator, is also very well known for championing simple and straightforward writing.
Reasonable people will have decent ideas that should not be passed quickly. Craziest ideas if implemented correctly will have the greatest impact. Wisest responses to ideas are questions.
Best lines: "Having new ideas is a lonely business. Only those who've tried it know how lonely. These people need your help. And if you help them, you'll probably learn something in the process."
Best ways to look for startup ideas is to look for problems. We need to ensure that the problem really exists. The mistake startups make is to solve a problem that nobody has. This is very long, yet intuitive reading on some of the ways to find ideas.
Best lines: "Live in the future and build what seems interesting. Strange as it sounds, that's the real recipe."
Paul shares his take on numerous areas where new, more ambitious startups can be created. Some key inputs are deceptively simple. Do not announce you will change the world, you'll only raise expectations. Start deceptively small. Don't identify a future point and work towards it, instead let your work guide you to the goal.
Best lines: "The popular image of the visionary is someone with a clear view of the future, but empirically it may be better to have a blurry one."
The best way to come up with startup ideas is to ask yourself the question: what do you wish someone would make for you? Ideas can be of two types: organic (ones that solve a problem for you), inorganic (ones that solve a problem for someone else).
Best lines: "There's nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you've found a gold mine. As with an actual gold mine, you still have to work hard to get the gold out of it. But at least you know where the seam is, and that's the hard part."
If you are looking to start up, or have recently started up, these essays by Paul should be a must read in order to get some structure to your ideas.
In the midst of Zomato’s IPO being heralded by many as a bellwether for the spate of upcoming tech IPOs, CarTrade, a profitable (yes you read that right) venture backed tech-enabled company filed its DRHP papers on May 15. Read on for our thoughts on the company and the broader used car space in this 2-part blog series:
CarTrade is a multi-channel auto platform with coverage and presence across vehicle types and value-added services. It generates revenues from several business streams primarily comprising:
While a detailed breakup across service lines has not been provided, commission and related income from auction/sale of used cars has clearly emerged as the largest revenue driver for the company:
The Net Profit for FY-21(9m) has jumped from to Rs 851 Mn (2.7x jump from FY20). However, this is on account of the Parent Company recognizing a deferred tax asset in FY-21 due to a change in the management estimate with respect to utilization of certain portion of it brought forward losses and unabsorbed depreciation on account of goodwill not being considered as depreciable asset as per Finance Bill, 2021. This is likely to be a one-time adjustment and must be considered as such while assessing the company.
Further a significant portion of the company’s net profits are attributable to non-controlling interests (due to ~44% external shareholding in Shriram Automall), potential investors must thus consider the actual net profit attributable to shareholders of CarTrade while making their assessment
The company has developed (CarTrade and CarTrade Exchange) and acquired several prominent brands (Carwale, Shriram Automall) to emerge as a comprehensive omni-channel automotive platform.
Its platforms, CarWale and BikeWale, rank number one on relative online search popularity, while Shriram Automall is a leading used vehicle auction platform based on number of vehicles listed for auction for the financial year 2020
CarTrade had ~ 8 lac vehicles listed on its platforms for auctions by Mar-21, while it had ~2.6 crore of Average Monthly Unique Visitors in FY21 demonstrating its ability to attract stakeholders on its digital platforms.
The company is led by Vinay Sanghi (former chief executive of Mahindra First Choice) and has raised ~USD 355 Mn over its lifetime from investors including Warburg Pincus, Temasek and JP Morgan to emerge as a digital automotive ecosystem which connects automobile customers, OEMs, dealers, banks, insurance companies and other stakeholders.
Between financial years 2016 to 2019, the Indian car market was one of the fastest-growing markets in the world, growing at a CAGR of 7%, although its growth was adversely affected in financial year 2020 due to factors such as the economic slowdown, Bharat Emission Stage -VI norms and change in insurance regulations. However, the used car market has picked up, growing bigger than the new cars market as it has continued to move towards getting formalized on the back of significant investments being poured into the sector fuelled by the increased need for personal mobility among price-conscious customers.
The gap in size of the pre-owned car market v/s the new-car market has increased from 0.5 Mn units in FY16 to ~1.4 Mn units in FY20. During this time frame, the used car industry has overall shown a CAGR of 6.21%, while the new-car industry had a negative CAGR of 0.09%.
The used-car industry in India has significant headroom to growth with low vehicle penetration in India (~30 per 1,000 people), while its Used/ New car ratio (~1.5x) is also amongst the lowest in the world.
For FY20 GMV of the new-car industry is 52% larger than the used-car industry. For FY25 it is estimated this gap will shrink to 12.5%.
· Increased trust and transparency: The entire vehicle buying journey is undergoing a digital transformation - this has eased decision-making by stakeholders due to transparent data on pricing, condition, mileage etc. of used cars.
· Reduced ownership period: In FY11, the average replacement age of a car in India stood at 6 years, whereas as of FY20 this has dropped to 4.5 years. The faster churn lends itself to pre-owned cars for value driven Indians especially first time buyers.
· Government policy: A significant near-term factor is a favourable push through the PLI scheme, new scrappage policy, etc. This is important in the context of several regulations affecting key VC backed sectors - foreign investment in retail/ ecommerce, drones, RBI monitoring of fintech firms, etc.
· Digitization push by stakeholders: Dealers/ OEMs have also realized the value of online platforms and are poised to increase their digital spends substantially (The digital spend by OEMs is forecasted to grow at a CAGR of 23% for the next 5 years – ~$250mn in the year FY25 from the current <$100mn in FY20).
· Gap in Auto finance: There is a need to fill the gap in financing of vehicles, especially of used vehicles where interest rates are more attractive, while penetration for auto finance is still low at only ~19%. This This is estimated to increase to 30-35% by the year FY25, thereby increasing access to capital for a consumer to own a used car.
· Ride sharing/ Leasing trend: A growing share of younger people no longer purchase or lease their own cars, opting for ride-hailing services, ride-sharing services, car rental services and public transportation instead
· EV impact: India’s plans of moving towards a complete Electronic Vehicle led ecosystem may severely disrupt the used car industry
As of FY20, the used-car market is 50% larger than the new-car market. In FY25 the used-car volume is estimated to be 90% larger than the size of the new car market in the country. The market is likely to be at 7.1 million units in FY25, representing $40 billion of GMV from $19bn as of FY20 with a CAGR of 17% and offering $7 billion of revenue-generating opportunities for value chain participants.
Formalization of the used car industry :
India’s used car market is witnessing a fundamental shift from unorganised to organised led by online car platforms.
The C2C (Customer to Customer) channel still holds a majority of 34% of all transactions in the used-car industry. However, this has dropped from the 40% share that it held in FY11. The share of transactions through the unorganised channel has significantly dropped from 30% in FY11 to 18% in FY20. This indicates that a considerable number of transactions have shifted from the C2C and unorganised channels to organised or semi-organized channels
TAM:
CarTrade has estimated its Total Addressable Market Size to be USD 14 Bn in its DRHP
Summary:
While CarTrade is well positioned to benefit from growth of the used car automotive sector and its formalization, on account of its prominent digital ecosystem complemented by its offline presence, the space is highly competitive with several well-funded players including the likes of Cars24, CarDekho and existing used car-business of automakers like Maruti True Value and Mahindra First.
We shall look to cover the competition landscape and our thoughts on valuation in the 2nd part of the blog. We would love to hear your feedback – write to Dhruv or Siddharth with your thoughts.
References: Malpani Ventures research, Company DRHP, IndianBlueBook (IBB) -2021
Note: The above must not be construed as investment advice.
This is dilemma that founders face while raising.
Too much?
Too little?
Too early?
We do not have the right answer. But we have a framework.
Our framework is simple. Answer 3 questions honestly, brainstorm with your team, and decide before you venture out to raise
End game: For the valuation to go 3x for the next round, what milestones do you need to achieve with this fund raise?
Process: How much money are you raising to reach these milestones?
Start: Does your current business and valuation support the kind of money you want to raise?
Investors want to invest in growing businesses. Hence, they want to see rapid growth in both business and consequently valuation. In early stage, it is difficult to spot unicorns, so we will not think in those directions. Instead, we will focus on growing the business and its valuation to at least 3x.
Sub questions: What milestones do you need to achieve? Do you have a realistic plan that is not based on "Oh we will go viral"? Do you have an understanding of the resources you need to achieve (and preferable exceed) the milestones in a set time frame? Is this a hope trade OR a calculated hypothesis?
As an early stage founder, you have to be careful with the amount of capital you raise. Incoming investors are hoping for a minimum 3x gain. You need to raise enough money that will not only help you meet, maybe exceed expectations, but also account for an emergency buffer in case things go wrong. Worst offenders are - "Looking to raise anything between 5cr to 10cr" - a guessing game, and changing funding ask in the middle of diligence!
Sub questions: Are you raising enough money to last you till the next round? Are you accounting for emergencies and have a buffer? Do you have an execution plan ready? How will you measure your success with respect to the milestones?
You have to be realistic in your assessment of your business. Too often companies with little to no traction, less customer feedback and lack of concrete hypothesis try to raise large rounds. This becomes difficult to assess, and will quickly be put in the 'Hard to understand, lets pass' bucket. Additionally if you try to raise a lot of money while trying to optimize for dilution, this jacks up valuation and puts off incoming investors. Hence there has to be a fine line between reality and opportunity.
Sub questions: Does your current business support your future plans? How soon will your efforts translate into outcomes? Are you trying to raise too much? Are you building in very optimistic projections?
We can not be playing guessing games with founders during the time of a fund raise. Which is why we prefer founders having answers to the above questions before they start reaching out to investors.
If you are raising and you have answers to the above questions, please feel free to reach out to either Dhruv or Siddharth.
Dr Aniruddha Malpani shares his perspective on angel investing
"There is a lot of confusion about what an angel investor does in the startup space, and I'd like to share my world view, to help dispel some myths. I enjoy angel investing. I've been doing it for quite a few years now, and hope to continue doing it for many more! I believe everyone should play to their strengths, which then brings up the question - what edge do I have as an angel investor?
Since I am a doctor in private practice, I have been an entrepreneur for many years. Hence, I can empathize with some of the problems founders need to deal with, since I have to tackle them on a daily basis as well! This includes the 101 mundane daily tasks which running a business entails, such as delighting patients (who are my customers); hiring and firing employees; creating SOPs; filing tax returns, and so on.
Because I am spending my personal money, I can afford to be idiosyncratic about where I place my bets - I don't need to follow the institutional imperative . I am clear about what areas I want to invest in; the kind of entrepreneurs I want to back; the traction that should have been achieved before I invest; and the entry valuation ranges I am comfortable with.
I am happy to be open and transparent, and share my investing thesis online, so that entrepreneurs can judge if I am the right angel for them. Entrepreneurs who reach out to me know that I will not keep them hanging , but will provide a clear answer in a well-defined time frame. Even if we say No, we will try to offer feedback on why we have not invested, and this may help them to modify their pitch when approaching others.
As I am in no rush for an exit or looking for a quick buck, I can afford to take a long term perspective and offer entrepreneurs more time to build their ventures. As I am investing my personal money, and the amount I can deploy in Angel investments is well demarcated, I don't lose any sleep over how the startup is performing. I don't need a quick return on my investment, which means I can be supportive, even when the founder runs into a rough patch. I have a natural love for reading. This has allowed me to absorb insights from different fields . I try to use these ideas for cross-pollination, some founders tell me that I provide a different perspective from other VCs.
I have a great team supporting me which means it's not just Dr. Malpani writing a cheque! I invest through my family office, and we follow systems and processes to make sure we do our due diligence properly. Equally importantly, even after writing the cheque, we continue to support the founder, and we believe this adds value to the entrepreneur's life in areas traditionally which are not their strong points.
Finally, thanks to social media, I try to share what I learn, so that others can benefit from the mistakes I have made. Social media is great, because I find it easier to reach out to entrepreneurs, and they find it easier to connect with me. It’s been a fun journey so far, and I look forward to evolving and growing as I mature."
As early-stage investors, we spend a significant bulk of our time (~30%) meeting and learning from founders. We have summarized below our thoughts which have helped us make meetings more effective for all participants. Note that although the below views are largely written in the context of pitch meetings, we believe these practices can be employed across the entire spectrum of discussions:
While setting an agenda appears clichéd, we the tendency of speakers is to get straight into discussions about the business/ idea. Very often, this results in an unstructured meeting where we end up understanding too much about a particular aspect of the business and making little ground on others. Developing and defining a broad agenda especially with a planned time frame at the outset enables the speaker to maintain an inherent discipline during his discussion and encapsulate all points of priority in a concise manner. More importantly, the speaker receives a buy-in from the audience and can gauge their expectations as well. Budgeting for a spare 5- 10 minutes to allow for some spill-over questions is always a plus!
Einstein’s famous words should serve as a barometer whilst presenting during a meeting. Whilst communicating with a deck certainly provides a framework for the discussion, cramming it with explanations and minutiae tends to distract the audience. A concise deck also does not result in giving the impression that the presenter is simply reading from the screen. Send a detailed deck separately if you must but use a summary version or the very least select slides for the meeting. The best communicators always explain more with less!
Writing down quick and precise notes is a skill not recognized by many of us. We tend to over-estimate our memory and power of recall – resulting in important bits of the discussion not being recorded. Especially, in virtual meetings, notes ensure that everyone in the meeting group is on the same page. Like with any other skill, making notes appears lengthy and unnecessary at first however is certainly a life-saver once mastered correctly. A good practical tip is to send out a short summary on the meeting post every meeting for feedback.
The importance of summarizing the discussion cannot be overstated; it is the must-have dessert after a good meal! A succinct rundown of the discussed points helps listeners understand the bigger picture – a key trade secret here is that this allows the speaker to control the narrative of the discussion. Ending the discussion with a clear call to action (CTA) ensures clarity on the next steps. A precise summary with a CTA plan is often the tipping point of a decision!
We would love your thoughts on making meetings more efficient.
If you are an early stage founder, looking to Meet us, do reach out to Dhruv or Siddharth
The level of detail in the Zomato DRHP vs DoorDash S-1 filing
While researching the Zomato DRHP, we were surprised to see the level of inspiration drawn from DoorDash’s S-1 filing and yet DoorDash provides additional details & metrics to better analyse the business! (DoorDash is the market leader for food delivery in the US) What do you think about the level of detail provided by Indian companies while listing?
Check out how Zomato describes its cohort growth vs the level of detail provided by DoorDash
The financials, contribution margin and money made by each member of the ecosystem is also evident through the DoorDash S-1 filing:
Transparent financials with clear insights into vectors of growth are signs of robust business! We, at Malpani Ventures, encourage our founders to identify and define select metrics which must be rigorously tracked across all times - good & bad.
If you are of the same view as us and are building a robust business for the future, do write in to either Dhruv or Siddharth
We've been investing for quite some time now, and we have seen ups and downs like most investors. Early stage is a 'hits' game - one free hit compensates for five dot balls - if we were to use T20 speak.
Everyone talks about the free hit sixes, but rarely does anyone talk about first ball ducks! It hurts reputation and credibility in the industry they say. We understand, however, if we do not document our learnings, share it with others for feedback, and try to learn from them - there is no point of being a growth investor. A growth investor is one that not only grows wealth, but also their knowledge base.
Today we will share what has gone wrong for Malpani Ventures in the past, what have we learned from it, and what are the steps we are taking to avoid these mistakes
Founders feel their core business (the one we invested in) is not sexy enough for growth trajectories, and hence try to experiment, or pivot. Often this happens when they see peers in their industry going out to raise multi million dollar rounds from large VCs. This is bound to happen. But the solution is not to follow the business model of that company and become a me-too player. Smaller experiments should always be undertaken to understand the pulse of the market. But that is to be done from the cash flows of the core business, for even Jeff Bezos has said that any new product line takes 5-7 years to become meaningful to the overall topline of the business.
This is unfortunate, but it happens. There are mavericks in the startup space who can create fantastic products, however the commercial viability of these products may not develop.
We want to reiterate, we are not in this business to find and fund the next unicorn. Having said that, we understand that most venture companies require larger VC backing to reach to scale beyond a point. In such businesses, if there is no clear roadmap towards breakeven without VC money, no matter how much on track the business is, it may die.
a) Co-invest rather than going alone. Double the backers, longer the runway in case things go wrong
b) Start small, and build up. We signed larger first cheques in the past. Today we start with 50 lacs - 1 cr, and will support companies with follow on funding
c) Engage with founders who want to work with us. Founders need to be comfortable talking to us monthly, sharing financials, cash flows and updates. This is a non negotiable. Else, we will pull the plug
d) Take time with due diligence. We will spend our time to probe on commercial viability and practicality of the business
Have we learned our lessons? Yes
Are there more lessons to learn? Also, yes
We wish to work with founders that are aligned with our thought process. We can not tell a founder how to run their company, but we are clear in our mind what we are trying to achieve.
Do you disagree with our views, or want to provide an alternate perspective? Please feel free to reach out to Dhruv or Siddharth! All feedback is welcome
We receive a lot of pitches by emails. By a lot, we mean a lot - some bad, some good, some spectacular. To get to the crux of this post, we will share what exactly we love to get in pitch emails.
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You don't really need a warm intro to receive funding from us. But if you have a warm intro, please make it count. Warm intros are familiar. Mention that person in cc. Or best - have the person write to us with a short brief introducing you to us! If you just say X introduced you - but you were to lazy to do step 1, this makes us doubt if the intro is actually warm.
We mention our emails almost everywhere. Still, we get some emails on our personal ids (which we have the right to discard without opening). Open our LinkedIn, check our bios, and write an email to the correct id.
Please do not say you are looking forward to 'Fruitful relationships' or 'Lets explore synergies'. We are all past MBA-speak. Be open. You are looking for capital. We are looking for equity investments. Simple. Do not expect us to come to you with a time. We will, but at our leisure. Instead, suggest a slot or two, and ask if one can work.
Best intro emails are less than a page long, in bullet points, key words in bold, sharing relevant data (but not overly disclosing everything).
How much do you want to raise? You ARE raising money. We ARE going to ask you. Might as well save some time. Please do not say between X and Y, its not fixed yet - this shows you are unsure. If you're not sure, how will we be?
A 10-15 page deck on what the company does, your business model, your ask should suffice. No need for 30 slides when key message can be conveyed in 10. This is an initial deck, not an in depth presentation. Please use Guy Kawasaki's 10-20-30 rule. It always helps. If this does not help, there are multiple websites online that help you with this information.
a. Its easier to open
b. Its difficult to modify if in the wrong hands
c. No links to drives please - clicking 3 times does not really incentivize people to open decks
Please know who you are talking to. Please understand the investment thesis of the investor. Mention relevant past investments, try to find similar themes in our portfolio. Best ones we've seen already had plans to collaborate with portfolio companies and also asked for introductions.
If we have met in the past, we can pick it up from there. If we passed in the past, remind us why. Show us how you've improved. Pick up from the last thread, don't create a new one. We love to be proven wrong.
Always pitch with a co founder or an ally. You can do the talking, the ally can take notes. This is to ensure you note down our body language, questions, comments, all of which can be used to hit us up the next time or proactively address queries.
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It is super hard to be a founder. Fundraising is even harder. But simple practices like these will help you stand out.
If you are looking to raise capital and your business fits our thesis, please reach out to either Dhruv or Siddharth
This guest article is based on experiences shared by the founders of Creditas Solutions, Anshuman Pawar and Madan Srinivasan. Creditas is a technology company that provides delinquency management solutions to banks, and financial institutions via a digital medium. We are investors in Creditas.
Pick one (and only one) metric that defines your current business. Resist the promoter urge to want simultaneous perfection across everything. Track that metric relentlessly and in great depth, and pursue growth of that metric aggressively. This focus seeps in to your organization as well so you can avoid problems where people are pulling in different directions. In certain cases, you might want to ask your team to drive a subset of your main metric but it should be directly and linearly correlated to what you are really looking to drive
Revenue was our metric. We invested in tracking it in detail with our CRM tools and MIS function. We created a 'Revenue Predictor' that, working on past trends and daily data, would provide us a daily prediction of revenue expected for the month. This was our early warning system to tell us whether any drastic course correction was needed
Most times, your metric will not be achieved exactly as per plan - the benefit of relentless focus is that when plans go awry (as they often do), you have thought so deeply and often about the metric that alternative plans spring to mind immediately and can be implemented with minimal organisational resistance
Build your second-tier organization consciously and deliberately. This takes time, so do not expect to get it done in a rush. Ensure your key team members are also thinking about redundancy. One good way to execute this is to ask them whether they plan to be doing the same tasks a year down the line. If not, then they must hire and groom people to take their place
Our first step was to hire a CFO who proved invaluable in helping us focus on Sales and Growth and at the same time who ensured that governance did not take a backseat. Another massive benefit was the comfort in knowing that we had a trusted person overseeing the cash situation on a daily basis as well as giving us the confidence that we were set for a further 12 months of runway. Our second step was to hire people who we found extraordinary even if we did not have a direct role for them. Our belief has been that such people create value on their own, especially in a growing organization
Make your hiring a grueling process. Beyond the obvious benefit of better screening, it filters out candidates who might not survive the start-up grind. Lastly, candidates feel valued when they undergo a rigorous assessment rather than a slapdash Yes/ No interview
In an ideal work, good work will speak for itself. In real world, not so much. Never assume your clients (especially senior folk) know all the amazing stuff you've done for them. Ensure you market your achievements to them aggressively and in a manner that your stakeholders within the organization look good too. Everyone loves to talk about great initiatives they've taken so they will take your marketing narrative and promote it further to capture brownie points for themselves
Circulated all minor and major successes to clients in a well-designed format which they could forward to higher ups within the organization. Doubled down on this by sending success snippets over WhatsApp which again benefited from easy 'shareability'
The marketing rule also applies in inverse. If what you're doing cannot be sold internally as a success story, it will be a long arduous scale up within that organization
Analogous to the top metric you are driving - pick the top clients you wish to drive. Its far better to go in-depth with the top client and create robust case-studies than to have a wide portfolio of indifferent results. This will cause somewhat risky revenue concentration in the short term but the confidence you derive from results and word of mouth of performance will even things out in the longer term
Focused on Axis bank - our top client. Ensured we understood as many of their problems as we could, crafted a solid platform to solve those problems and began to market our performance aggressively to other clients
A client who is a strong advocate of your business model is likely to give you 10x the value of your remaining client list put together. Find and cultivate client advocates and not necessarily client lists
There are no quick results. Sales, Organization building and Business performance have an organic growth curve that resists hacking. This is not an argument for inaction but for constant, incremental action towards building people, relationships and processes
The longer we’ve stayed in the game, the more the market is rewarding us with unexpected opportunities. This is akin to monthly compounding of reputation which yields dividends periodically and a massive payoff down the line
Whether you win or lose daily, it is crucial to filter the noise out and focus on the long term. External blows are rarely fatal, it’s the internal loss of confidence that will kill you. As a corollary, composure is a much better skill to cultivate than excitability and keeps you team on even keel as well
Creditas will aim to close this year at 100 cr in revenues, and is aiming for 1000 cr revenues in 5 years with a focus on global expansion. You can read about their plans here.