‘Startup to Proficorn’ is a successful serial tech entrepreneur’s journey and what Rajesh learned along the way about launching and scaling startups. This book offers a roadmap to every aspiring and existing entrepreneur to build lucrative businesses without relying on external funding.
Extract from Startup to Proficorn by Rajesh Jain, Founder & MD of Netcore Cloud
In 1998–99 when I was running IndiaWorld I faced a similar decision. We had good momentum in terms of traffic and advertising revenues. But the internet was hot and competition was intensifying. Capital (domestic and international) was more easily available. While I had some surplus, it was not enough for me to expand the senior management team and spend on marketing as many of the other funded competitors were doing. Every time I saw a full-page ad in a newspaper from another internet player, my heart skipped a beat—we could not spend on marketing, unlike our competitors.
I spent many months trying to raise capital, traveling often to the US to meet potential investors. I even met some Indian investors. In all meetings, I would state my expected valuation upfront—to minimize the ‘how-much-are-youworth’ dance that can take up a lot of time. And I kept increasing my valuation with every failed meeting! I also did not budge from my valuation. A few months before I sold IndiaWorld for Rs 499 crore, I got a pre-funding valuation of Rs 17 crore. I was stuck at Rs 17.5 crore. Neither of us moved to bridge the gap and the deal did not happen. Sometimes, luck favours the brave!
I could say no because I had money in the bank and the business was profitable. The portals we had built (our product) had a natural virality. I would tell my team: we can advertise and get people for the first time on our website, but after that, it will only be the content and the user experience—and not additional ad spend—that will determine whether they return. So we focused on the product. A delighted audience spread the word and kept our traffic (and therefore ad revenues) growing. The pressure on me to finalize a deal to raise capital to fund losses was not there.
Take the example of Ferns N Petals too. They made decisions that helped the firm get visibility, branding, and even new business. These decisions involved minimal spending and revenue-sharing deals. Moreover, they fervently ensured that only a part of the profits was required for reinvestment in the company. As a result, the company could grow without relying on debt or external funds.
This is not to say that one should not talk to potential investors. These meetings are always useful. I would meet interested VCs regularly. In a meeting or two, I would understand the competitive landscape and some of the gaps in my business. This outside-in view and advice (for free) helped me strengthen IndiaWorld without diluting equity on unfavorable terms.
My recommendation to entrepreneurs is to delay raising any external capital as much as possible—and completely avoid it if you can. This will require much greater thought for ways to get revenue quickly. If one wants to build an enduring business, this has to be solved—so you might as well do it early. The best way to fund a business is by generating profits. Instead of spending time dealing with raising funds or reporting the health of the business, an entrepreneur is better off thinking about the business models and talking to customers.
As I look back to my IndiaWorld journey a quarter century later, I realise that my inability to raise capital created my eventual success. Had I raised either startup or growth capital, I would have expanded too fast too quickly—which could have been fatal in those days because the market was not large enough. What investors want is high growth—followed by the next capital raise. That becomes a treadmill. Angel investing followed by Series A, B, C funding and so on—with each new series of funding, the entrepreneur’s stake diminishes. I have seen capitalisation (cap) tables where the original entrepreneurs have a stake so small that the business is in effect owned by the investors. The once-entrepreneur becomes nothing more than an employee with limited decision-making powers.
Prashant Pitti agrees. “Many VCs approached us over the years. After all, we were a very cash-rich company with good standing. We weren’t against the idea of raising money. But we couldn’t come to terms with it. Especially with the idea that soon, we’d have investors asking us: How soon can you use the $10 million in your growth so that you can raise the next round? We want to grow profitably. We didn’t want to burn money just so that the investors could get another equity round,” he says.
“We don’t need the money, so there’s no point in raising money just because someone is ready to give it to you. We are profitable, have zero debt. We don’t spend on marketing and advertising, which is probably the single biggest reason for folks raising money. We don’t want to grow just for the sake of growth with random businesses. We want to build things around our core competency, and do it well,” says Zerodha’s Nithin Kamath.
Raising external capital may be right when the business absolutely needs funds for growth. But my belief is that most tech businesses are asset-light and thus do not need too much capital. While it is fashionable to become an entrepreneur in college, it must be recognised that the likely outcome for most ventures is failure and not success. All experience is good, so the earlier one gets it the better.
But what the entrepreneur must ask is: how can I maximize my chance of success?
Creating a venture that is bound to fail is not the best way. Of course, there are exceptions to every rule. There are many stories of college dropouts who have built successful ventures. That does not make my point invalid—it is just that 99.99% of startups fail and entrepreneurs need to keep this in mind. The job of an entrepreneur is not to take risks—it is to go to work daily to reduce the risk of failure.
Entrepreneurship is not just a fad for those in their 20s, even though those are the stories we tend to hear more often. Age is irrelevant; the idea and execution are what matters for eventual success. Age is no bar for an entrepreneur. Experience working in other startups or mature companies can deepen one’s understanding of how to build a successful business.
Also, the additional time spent working can create a pool of surplus capital which the entrepreneur can use for funding a new venture. This is exactly what I did. The two years I spent working at NYNEX in the US gave me the necessary experience and $30,000 savings (Rs 7.5 lakh in 1992) which I could use to start my entrepreneurial journey in India.
I am probably in the minority when I say that entrepreneurs should delay raising capital as much as possible—and ideally not even raise it. I have built companies twice, both times without raising capital. While not raising capital in IndiaWorld was a mix of some luck and pluck, in Netcore it was much more of a conscious decision. I have spoken to many VCs and PEs through Netcore’s 25 years—my ability to invest along with Netcore’s profits always gave me the advantage in such conversations. While we may have grown faster with external capital, it would not have been without costs—either in operating freedom or stupid expansion decisions which I could later regret.
Other proficorn founders agree. Zerodha’s Nithin Kamath, for example, said: “Once you get used to your liberty, you never take it (funding) and you don’t miss it.” It’s only a bootstrapped company that could decide to sell mutual funds worth Rs 30,000 crore and never earn a single rupee from it. As I look back, I tell myself and my team—we chose the path less taken. Only time will prove whether we made the right call or not. But we can all sleep easier with the belief that our destiny is very firmly in our control.
Startup to Proficorn: A Private, Bootstrapped, Profitable, and Highly Valuable Venture book is available on Amazon