Sometimes, the reason an entrepreneur is denied funding isn’t because he doesn’t have what it takes to succeed. And it’s not because he doesn’t have a viable idea. Sometimes the only reason an entrepreneur gets turned away is because he didn’t pitch to the right investor. Read on to see what Mukund Mohan and his wife are looking for in a company and in an entrepreneur.
Sramana Mitra: Hi Mukund. Tell us briefly your background.
Mukund Mohan: My wife and I have been investing as individual investors in early stage technology companies for over 10 years, since 2001, in the Bay area, and since 2008, in India. We have invested in seven companies so far in India, and in the US we had invested through an investment vehicle called Zodiac Ventures LLC.
SM: Do you have any particular industry expertise?
MM: Since we have worked at HP, Cisco and have started our own companies in Internet (consumer and enterprise) software, eCommerce and Software as a Service (SaaS), we tend to focus on these industries or verticals.
SM: Do you invest regionally, nationally or internationally? If regional, what is your primary region(s)?
MM: We tend to only invest in companies based in India or the United States (Silicon Valley to be specific).
SM: What are your current sources of deal flow?
MM: Most of our deal flow is from introductions by friends or colleagues and other investors, such as VCs. We do get some unsolicited (cold call) emails thanks to our blogging and speaking engagements.
SM: On average, from all sources, how many pitches do you receive a month?
MM: Last year (2011) we received 364 pitches (we consider an email with a business proposal or request for funding as a pitch). While the number of pitches per month is not consistent, we have noticed that from September to December tends to be the [time] with the most requests. The average number of pitches hovers around the 20-30 per month.
SM: Out of all the pitches that you receive, how many deserve a closer look?
MM: Of the 364 pitches, we met (face-to-face) with 45 companies and requested more information from these.
SM: What factors receive the most weight when you’re debating whether or not to fund a venture?
MM: I have written a blog post for entrepreneurs looking to get funded by us at https://bestengagingcommunities.com/2011/12/19/what-should-you-really-have-ready-before-approaching-me-as-an-angel-investor/ and more details at https://bestengagingcommunities.com/2011/12/22/how-does-an-investor-decide-to-invest-in-a-company/
1) Entrepreneur(s) – about 60% to 70%
a) hustle-ability – How badly do they want to be entrepreneurs? What all have they tried to get their ideas off the ground? Included in this is their ability to persist and keep going when others give up.
b) education – I prefer an engineering background to an MBA (yes, I am biased). I am not sold on the IIT/IIM background, so I have funded mostly non-IIT engineers so far. That does not mean I won’t fund someone who studied there. It just means I don’t think you need an IIT degree to be an entrepreneur.
c) communication – Can they express their passion clearly? Unfortunately for me and them, if they are bad communicators, but you have great ideas, they will be filtered out.
d) sense of humor — Ridiculous you may say, but I have to like you. I like people with a good sense of humor. If you are not into practical jokes, fun in general, and I don’t enjoy hanging out with you, you will get filtered out.
e) experience (if relevant) — What have they done so far? I have a positive bias, it’s towards certain companies whose hiring, talent management, grooming entrepreneurs and culture, I believe, fits startups more than others. Some examples are Cisco, DELL, Future Bazaar, InMobi, Google and Yahoo.
2. Market you are targeting – about 20% to 25%
a) I prefer small niche segments where the possibility of acquisition is obvious or a confluence of two large markets that are immensely competitive.
b) In terms of geography, I prefer folks who target the US market or global and have been not very positive on B2B market in India. I have avoided companies that target SMB markets in India, but if you are targeting the US SMB market, I would take a look.
c) Segments: I prefer SaaS companies with software to help specific titles within large companies, eCommerce (Global, not just India) and cloud infrastructure (solutions aimed at developers). I have avoided Education, Healthcare, Real Estate, Enterprise software, Generic CRM and Green technology (capital intensive).
3) Quality of your idea – about 10% to 15%
a) I think execution matters, but so does your idea. If you are doing something truly disruptive, I am more likely to take a look.
b) Your willingness to juggle multiple ideas and discern between useful and useless feedback that will change your idea.
SM: How many investments did you make in the last 12 months?
MM: We invested in 3 companies last year (2011).
SM: How much money do you usually invest?
MM: We start at $10,000 and have gone up to $100,000.
SM: How long does it take for a company to receive funding from you?
MM: Typically, if we know the entrepreneur well, from the time he sends the request to money in the bank is usually two weeks. If we do not know the entrepreneur, it takes from four to six weeks.
SM: What is the typical valuation of a company that you invest in?
MM: We don’t have a target valuation, but the companies we have invested in range from $500,000 to $2 Million.
SM: Percentage wise, how much of a company’s equity do you usually seek?
MM: Since we have invested with other investors as part of a round, we have received between 3% and 6.5% of the company for the money invested.
SM: What is the typical return you seek, and over what period of time?
MM: It’s really too early to tell. We are not professional investors in startups, so a target return is hard to expect. We’d like to beat current alternative asset returns, so that’s anything above 30% annually.
SM: In what stage of business development do you usually invest? (an idea on paper, product ready, validated with customers, without revenues, with revenues)
MM: We used to invest a lot more in ideas, as part of a friends and family round, but are seeing more traditional AA series investments now. I have written about the raised bar for angel investing recently at https://bestengagingcommunities.com/2012/02/20/the-maturity-of-startups-and-why-the-bar-has-been-raised-for-seed-funding/
We have been seeing more product-ready-with-a-few-customers (either with or without revenues) companies in the last year. This was not the case in 2009.
SM: What should be the TAM (total available market) for the company’s product/service?
MM: Since our primary goal is also to learn and help entrepreneurs, we try to do smaller market deals. Unfortunately, it takes more time and more money in India than the US to get exits. So, we have to depend on follow-on rounds by venture investors. As most people know, venture investors do not like smaller investments, so we have only focused on large markets (that means entrepreneurs who target global markets rather than just those who target India as a market).
SM: What do you do with your rejects, (businesses you don’t invest in), if anything?
MM: We either provide them introductions to incubators or introductions to potential customers.
SM: Do you have to have an exit strategy, or would you invest in deals that can go on generating dividends over a long time?
MM: Don’t have an exit strategy, and we have invested in dividend generating investments.
SM: What is your preferred investment type? (common shares, preferred shares, royalties)
MM: We have done convertible notes, common and preferred shares. There’s really no preference; it depends on the entrepreneurs’ needs and their goals.
SM: Do you do debt financing? Convertible? Non-convertible? Terms?
MM: Yes, convertible mostly, and we have done one non-convertible. Typically, 12 to 18 months’ discount of the next round of valuation are what we have seen.
SM: OK. Great. Thank you, Mukund, for taking the time.
MM: Thank you for your interest.
This segment is a part in the series : Seed Capital