VC = Venture, Vapor, Vulture & Vampire Capital [Perspective]October 26, 2010 2010-10-26 14:13
VC = Venture, Vapor, Vulture & Vampire Capital [Perspective]
VC = Venture, Vapor, Vulture & Vampire Capital [Perspective]
[Guest article by Alok Kejriwal, Founder of Contest2Win. Alok beautifully describes the different aspects of VC industry]
‘VC’ business in India celebrates 10 years in 2010 and I am inspired to write this column as tribute to the best form of Capital ever invented; to dive deep into the skin of this monster and present my mini learnings in this space.
VC = Venture Capital.
Exactly a week ago, I was fortunate to present my games2win business update to the Clearstone Venture Partners top bosses in Santa Monica. Clearstone is the lead investor in Games2win (g2w).
In the cozy and large conference room sat Bill Elkus (founder of Clearstone), Jim Armstrong and my board member Sumant Mandal.
I had drawn a large circle on the whiteboard – representing our business of g2w. Within the circle I started carving out areas (think pie charts) that defined the business lines of the Company. The carve outs showed online games, portals, social games & virtual worlds. It quickly looked quite crowded. Yet I had a marker in my hand to fill in new sections representing our forthcoming iStore games and Android games.
As my marker approached the circle once again, I was nervous. This was the classic ‘doing too many things’ syndrome. My marker touched the white board and just as another line began to appear, Jim Armstrong, hollered at me in a rather stern voice and said ‘Alok – don’t tell me you have more offerings to explain to us’? I calmly said ‘Yes Jim, we have these new lines rolling out as we speak and…’ Before I could complete my sentence, Jim suddenly sat upright on his chair, broke into a big smile and exclaimed loudly – ‘That’s audacious Alok – and we love you for your audacity’!!
I was instantly relieved and in a typical defensive style mumbled ‘Thanks Jim – we are pursuing very synergistic lines and not vague new ideas like mail or chat’. That’s when Sumant interrupted me and said ‘hey – that sounds even more exciting’!!!
To me, this impromptu exchange of words powerfully captured the concept of VENTURE CAPITAL. It represented money controlled by the really smart and experienced investors, who gave it to buccaneers like me to do anything to find gold and treasure. In this case, my lead VC was telling me – Alok – go out there, be bold and ambitions and kick butt (and not start another mail service)!
Go forth Entrepreneur and Venture
Firms like ICICI Venture, Clearstone Venture Partners, Silicon Valley Bank etc have been true-blooded VCs for me. They were not extravagant with their money, but rather understood the concept of ‘nothing ventured – nothing gained’. Leaders in these VC firms took calls on businesses that had never ever happened in the world before (contests2win) and on entrepreneurs who had come out from the deep freeze (Imagine funding me – a guy who made socks and had a crazy out idea to do online contests). Only a real venture capitalist could take that call – and these are the folks who will lead the race till kingdom come.
The real VCs have been written about all over the place. Research them and go to them before you go to any one else.
VC = Vapor Capital.
The first thing that comes to my mind when I think of ‘vapor’ is impermanence. I think of steam exiting a pressure cooker, or the mist of a sauna – the vapor is very effective for the purpose it was used for and then quickly disappears.
Vapor Capital is exactly like this. In 2003, Siemens Mobile Acceleration Fund in China invested in Mobile2win China just because Siemens had a mobile handset business and they needed VAS companies to develop original apps for their phones (eeks – imagine a Siemens App Store). At that time no one would consider being an OEM for Siemens. Their equity investment in us was a bribe to push us make games & apps for them!
When the Siemens handset business collapsed around 2005 and the division was sold off to BenQ, then all of a sudden like Vapor, their interest in mobile2win vanished. There was no support in the business from their side nor any co-operation coming forth. To add to the punishment, Siemens put out a SELL mandate on our business hence preventing it from getting subsequent funding.
I have gone on record and still maintain that it’s better for an entrepreneur to twiddle her thumbs than start an enterprise that needs to be financed by Vapor quality of Capital. The heartache of seeing your blood and sweat infused business decapitated is not a situation for the faint hearted.
On a similar note, eVentures – the very first VC who funded contests2win in 2000 went bust just 9 months after investing in us. As an entrepreneur who had very recently broken out his shell and had just started waddling around, it was ghastly to see his parent dead on the sidewalk!
Entrepreneurs must research so-called ‘strategic’ investors deeply – not who they are (they are typically famous) but WHY are they interested in your business and what may make them drop your business like a stone. Once you can dimension that risk, then consider next steps.
VC = Vulture Capital.
The Vultures come when they smell blood. So many VCs descend into a Company or even a vertical industry just when the first signs of success seem to be clear – and then they have to get in. Any which way possible.
I remember after Clearstone India put out a term sheet to us (and hence made a massive leap of faith in funding an Online Gaming Company out of India), I had a meeting with a VC at Frangipani – (a restaurant at the Oberoi Mumbai) which coincidentally housed Clearstone on the 17th floor of the same hotel. Mr. VC asked me ‘ Alok, what will it take to over turn Rahul Khanna’s (Clearstone India) term sheet and replace it with ours’?
This was classic Vulture behaviour. Let the real VCs do the hard work, sniff out deals and get to the bottom of an industry. Then the Vultures who have been sitting lazily wake up and pile on. They try and bribe their ways into deals. If you trace the crazy investments in the Travel vertical in India after Make My Trip began to smell of success, you will notice the same vulture behaviour.
Vultures are lazy and unproductive.
Vultures are lazy. They feed on dead carcasses. They can never be leading and batting for you.
Look at your term sheets carefully and figure out who is genuinely taking a bet on you and who is just circling above you (the prey). Your choice of deciding which VC to go with will then become very easy.
VC = Vampire Capital.
The meanest kind of VCs you will ever meet. My encounters with Vampire Capitalists have been in the following scenarios:
In one case, a VC conspired to oust me (who had become a non executive founder) and got the operating management teams to take over the business. The VC convinced my team and even my fellow investors that I was not needed and preceded to force me out of the Company (drag out) by bribing me with millions. Their thinking was I was still being thrown out for cheap. Unfortunately for them, the Company collapsed just 2 years after the drag out happened that.
Watch out for Vampires
In the second case, other cases, a Vampire Capitalist had a set of poorly performing portfolio companies, which they tried to force into one-mega internal merger. Specifically, in the case of Mobile2win China, Softbank (the Series A investor) was not very happy with the way the business was operating. However, they realized how precious our universal short code in China was (considering that only Nokia had a similar code). Softbank had investments in other VAS companies that were doing very well in China and these companies could have leveraged the Single Short Code brilliantly. Routinely, our Softbank board member would make weird suggestions of merging mobile2win into their other unlisted companies for ‘synergy’ etc. They never offered structuring a simple revenue share between Companies or a complete buy out of our Code (which would make us – the mobile2win shareholders rich). It was all thanks to Siemens (ha! The vapor contained the vampire), who always firmly said NO to such convoluted ideas. As fate would have it, the Walt Disney Group finally spotted our unique asset and platform and acquired Mobile2win in an all cash deal.
So, the Venturers, the Vaporists, the Vultures and the Vampires – you will have the distinct pleasure and honor of meeting all of them if you tread the sacred pilgrimage called entrepreneurship. And after you have survived them all, there will be no one left to fear.
Essential Reading – The toughest decision of my life
[Reproduced from Alok’s blog]