First time entrepreneur – raising capital or NOT!

The topic of first time entrepreneurs and specifically the experience of raising (or not) of venture capital is a recurring theme on a number of blogs, including Sujai in his Wireless India blog, Sramanamitra, To add to the discussion, here is a brief snapshot of my experience.

I have had the singular fortune of trudging up and down Sand Hill Road, Embarcadero Road and even places East of 101 the first time in 2000, about a year after we had started Impulsesoft to try and raise a series A with valley VCs. And then again in 2004, this time with a customer, with whom there were short-lived discussions of a prospective merger, to raise money as one (new) entity. While our business plan got better (not to mention our presentation skills) we had little else to show for it. We were of course flummoxed that direct competitors such as Widcomm were busy raising their series B, with pretty much the same game plan and San Diego burn rates. Luckily our inability to raise venture money was a blessing in disguise, for it turned out that we knew very little about communication systems (which is what we were building), product development (our first products were at least 18 months late) or even running a company.

In the intervening years, we spent a reasonable amount of time in India with both white-haired and as-yet-to-begin-shaving VCs. The most interesting insights I gained with the Indian VCs in the early years, was how new they were at it themselves; most of them were playing bankers without any venturing and many of them evolved to be investment bankers giving up any pretense of venturing. While we did get definitive term sheets (they wanted 40% of the company for a series A) as well as tentative offers (as early as 2001) from a interested corporate buyer, the best thing we did (in hindsight of course) was not raising any venture money. For had we raised money in 1999/2000, I seriously doubt we’d have survived the first industry downturn we faced in 2000/1 or subsequent periodic announcements by market pundits of the imminent death of Bluetooth. We saw funded Indian companies such as Karna, Kshema and Microcon being encouraged by their investors to merge or divide in an attempt to multiply. Others companies, such as SiliconWave (private and $90M raised) were picked up for a song; Conexant and Lucent quietly exit the Bluetooth business. Poverty, in addition to being character building was responsible for our survival. Of course, lack of capital did choke many internal initiatives so I don’t recommend it as a business strategy.

NS Raghavan, ex-CMD of Infosys through his Nadathur Investments did invest in Impulsesoft as an angel investor (and he truly was an angel investor) and provided us with a line of credit as well. That and good old revenue served as well for nearly seven years till we were acquired by SiRF Technology Inc.