Roundtable Recap: December 9 – Where Should You Raise Money?

During this week’s roundtable we had a group of entrepreneurs from the Pune Open Coffee Club gather at the offices of Persistent Systems to participate in the roundtable together. It is a very good format for entrepreneur groups around the world to get together and network around the roundtable programming which happens every week, religiously.

First up today was Jacqueline Floro-Pierre with ShopTranslated from China. ShopTranslated is a mass market online retailer of plus sized women’s clothing, with merchandise in the $59-$99 range. Jacqueline and her partner Cortney are designing and manufacturing the line out of China and selling in the US. They are still very small, but have some validation. And we already know that this is a very large market from working with La Grande Dame.

Jacqueline asked an important question: how do you mitigate your working capital challenges in an e-commerce company at the very early stages without raising financing?

Well, there are multiple nuances to the answer. First, there are two primary aspects that have to be managed: inventory financing and customer acquisition costs. In 1M/1M, we are working with inventory financing companies and for our premium members, we do help you connect with the inventory financing sources.

And of course, we are not advising you not to raise this kind of financing. In fact, I just did a case study on Coastal Contacts, a $150 million e-commerce company that sells contact lenses online, and has built itself up largely by using inventory financing as opposed to venture capital / equity financing.

At the same time, we also have seen several examples of entrepreneurs who have successfully bootstrapped their e-commerce companies without any external financing until much later in the game. Some examples include Flipkart and Redbus in India, and Freshdiet in the US. So it can be done, but you have to be really scrappy, creative and resourceful.

Next Vin Lim presented Qyzzy.com, which can be succinctly summarized as the Yelp of Malaysia. Vin proposes to build a restaurant search, reviews and ratings site for the Malaysian market catering both to tourists and locals. I asked him about his customer acquisition strategy and heard the word “advertising” a lot. Facebook advertising. Google Adwords advertising. Well, all that costs money, I would like to see a more cost-effective customer acquisition strategy.

One thing Vin said that I liked a lot is that the Malaysian government is spending heavily on tourism development campaigns, and Qyzzy may be able to become a part of that campaign. That sounds great.

In terms of monetization, Vin expects the ad networks to supply ads to his site by selling ads to local restaurants. I am not sure if Google AdSense, for instance, has a network of advertisers in Malaysia that includes restaurants. If not, then Vin will have to sell his own local ads. May also be expensive to do.

Overall, the business needs further research and validation and the assumptions need to be checked much more extensively before launching.

Then Suresh Sambandam with OrangeScape came on to discuss a specific issue of where should entrepreneurs try to raise money? Should those entrepreneurs who have built their business elsewhere move to Silicon Valley to raise money? Suresh is a 1M/1M premium member. I invited him to this public roundtable to discuss this topic because I know that many entrepreneurs are dealing with this issue. Since 1M/1M is a global program, we have many entrepreneurs in various parts of the world who are building interesting businesses, and trying to determine how best to interface with the eco-system that exists in Silicon Valley.

Let me summarize some of the highlights of the discussion. You can listen to the rest in the recording.

First, if you are building a business catering to the local market (e.g. Malaysia, India, China, Italy, Argentina, wherever …), you are better off raising money locally. The likelihood of your being able to attract Silicon Valley / US money for an early stage venture catering to a foreign market is abysmally low.

If, however, as in Suresh’s case, the game plan is to go after a global market, the scenario changes quite a bit. Suresh has an Application Platform-as-a-Service (APaas) business that already has a number of multinational customers, albeit all acquired in India. OrangeScape has received substantial coverage in India, and I wrote about them in Forbes. OrangeScape is a Gartner Top 10 company in their space. Among Indian VCs, there is quite a bit of interest in investing in them.

The question is, should Suresh take money from Indian VCs, or go for a Silicon Valley VC who is savvy in investing in real tech companies. There is no question that it would be easier for Suresh to attract the Indian VCs. But he may also be able to attract the Valley VCs, except, they would require the Biz Dev / Sales HQ for the company be moved to the Valley. It is also true that the Valley VCs see a lot more high quality deals, so the bar is higher to raise money.

One option, which many entrepreneurs will end up taking, is raise a round in the local geography, line up the ducks, build up a solid customer portfolio, including US customers, and then raise the next round in the Valley.

 Or, bootstrap longer.

 It is clear to me, after doing these coaching sessions for over two years, that entrepreneurs need a lot more training on positioning and go-to-market. As such, I have created video lecture modules with case studies in the 1M/1M premium lounge on these topics with very specific guidance on what analysis to perform and how. The easiest way for me to teach a large number of entrepreneurs some of these basics is to have you spend 30-40 hours on the curriculum I have created, and THEN have you come work with me on refining your strategies and positioning. 

I have thought a lot about how to make entrepreneurship education and eco-system scalable and accessible to a vastly larger number of people. The answer to that question, I believe, is the 1M/1M Premium Lounge. Over the upcoming months, the program will become much, much richer. But for the moment, we can get you started and give you a significant jump-start.  

You can listen to the recording of today’s roundtable here. Recordings of previous roundtables are all available here. You can register for the next roundtable here.

This segment is a part in the series : Roundtable Recap
. March 25 – A Mixed Bag Of Advice . April 1 – Bootstrapping Tips . April 8 – A Focus On E-Commerce . April 15 – Small Is OK; The Goal Is Profitability . April 22 – The Original Runners . April 29 – Finding The Right Direction . May 6 – Defining Value Proposition . May 20 – Validation, Validation, Validation . May 27 – Is The Venture Worth Your Time? . June 3 – Defining Market Segments . June 10 – Efficient Targeting . June 17 – Online Education Startups . June 24 – Three Startups That Can Hit One Million Dollars . July 1 - Get Your Pricing Model Validated . July 8 - The EJ Methodology . July 15 - A Market Of Late Adopters . July 22 - Bootstrap Using Services . July 29 - Startups In Malaysia . August 5 - Paying Customers =>Validation =>Valuation . August 19 - Niche E-Commerce Is Great For Bootstrapping . August 26 - 85%-90% Of Search Traffic Comes From Organic Search . September 2 - Find High Velocity Channels . September 9 - Open Opportunities In Cloud Computing And Rural BPO . September 16 – 5 Cloud Computing Opportunities for Entrepreneurs . September 23 - Do Not Spray And Pray . September 30 - Investors Don't Fund Broad Ideas . October 7 - Try To Get At Least $2M Pre-Money In Seed Round Valuation . October 14 - Professional Investors Do Not Invest In $20 Million Markets . October 21 - Bootstrapping Comes In Many Flavors . October 28 – Convert Potential Competitors To Partners . November 4 - Premium Lounge Sneak Preview . November 11 - African Tech Entrepreneurs Emerging . November 18 - Not Coming To The Rescue Of Victory . December 2 - Niche Marketplace Businesses Can Be Interesting . December 9 - Where Should You Raise Money? . December 16 - Top 10 Tech Trends To Watch . January 6 - Top 10 Vertical and Social Web Trends For The Decade . January 13 - Top 10 Online Advertising Trends For The Decade . January 20 - Personalization Remains An Open Problem . January 27 - Non-Dilutive Financing Through Revenue Sharing . February 3 - Indian Entrepreneurs Are Maturing . February 10 - When Keywords Are Competitive . February 17 - Indian Company Plugs Gap In Google’s Enterprise Solution . February 24 - VCs, Angels, Incubators, Accelerators – What Are You Doing With Your Rejects? . March 3 - Spotlight On The Northwest . March 10 - Spotlight On India . March 17 - Spotlight On Latin And Central America . March 24 - 75th Session Spotlights The Midwest . March 31 - Microsoft’s $100,000 India Startup Challenge Grant . April 6 - 1M/1M Announces Important Partnership With MAD Incubator, Malaysia . April 9 - 1M/1M Announces Partnership With TiE Chennai . April 16 - 1M/1M Partners With Indian Angel Network Incubator . April 17 - High-Octane Energy In Pune . April 21- Incubators Are Reaching Out To 1M/1M . April 28 - Guerrilla P.R. & SEO Most Profitable Customer Acquisition Strategies . May 5 - Ownership Matters . May 12 - Two Really Cool Companies . May 19, Making Money From Blogs . May 26 - Twitter, LinkedIn - Why Not Affiliates? . June 2 - 1M/1M And Incubators - What We Have Learned . June 9 - Silicon Valley . June 16 - Exciting Companies Lined Up For Microsoft Startup Grant Finals . June 23 - New Assessment Tool For Entrepreneurs . June 30 - Continued International Participation . July 21 - Crowd Sourced Funding Exchanges - An Emerging Trend . July 28 - Investors And Incubators Need To Look At Pre-Incubation . August 4 - How Do You Bootstrap Freemium Ventures? . August 11 - Menlo Park And The Silicon Valley Renaissance . August 25 - How To Use Twitter For Lead Generation . September 1 - Fall Call To Action . September 8 - A View Into Israeli Start-ups . September 15 - Do Your Homework First . September 22 - How Do You Catalyze A Region’s Entrepreneurship? . September 29 - From Poland To Argentina . October 6 - Dedicated To Steve Jobs, Reinforcing Mission To Restructure Capitalism . October 13 - FREE Is Not A Business Model . October 20 - Non-profits And For-profits . October 27 - Check Out Stanzr . November 3 - VCs Are Not Always Right . November 17 - Business Schools And Early Stage Entrepreneurship . December 1 - 1M/1M Premium Company Freshdesk Wins Funding From Accel Partners . December 8 - Three Open Opportunities For 2012 . December 15 - Web 3.0 And Social Dancing; Romania Emerging . December 22 - Free Apps, Ad-Supported Business Models => Dangerous! . January 5 - ERP Galore . January 12-13 - Spotlight On IIT Kharagpur, India . January 19 - Are Media Sites Fundable? . January 26th - Spotlight On Jacksonville, Florida . February 2 - YCombinator vs. 1M/1M . February 9 - Are You Fundable? . February 16 - What’s Happening In Turkey? . February 23 - Microsoft Israel To Offer 1M/1M Scholarships . March 1 - Strategy Gaps Need To Be Plugged . March 12 - Winners Of Microsoft Israel Scholarships . March 15 - Spotlight On 3 Day Startup Tel-Aviv . April 3 - Rendezvous In Bangalore . April 12 - More From Indian Entrepreneurs . April 19 - Tyranny Of The TAM . April 26 - A Rare Women-Only Session . May 3 - Some Wonderful Opportunities With Corporate Partners . May 10 - BlueSnap-Elance Contest Applications Deadline This Weekend . May 22 - Winners Of TechHub-A&N Media Battle Of The Startups Contest In London Win 1M/1M Scholarships