Dr Dhruva Nath is Professor and Chairman of the Centre for Entrepreneurship at the Management Development Institute, Gurgaon. He is also an Angel Investor. He can be reached at firstname.lastname@example.org.More From The Author >>
So You Want to Create a Tech Startup
Winged Angels had invested in over thirty start-ups to date, and if you were to ask any of their members, they were – quite frankly – a little bored.
The atmosphere in the room was electric !
This was the monthly meeting of the Winged Angels Network, or WAN, one of the leading Angel Investor networks in the country. Winged Angels had invested in over thirty start-ups to date, and if you were to ask any of their members, they were – quite frankly – a little bored. They had got into angel investing for a lark, and it did seem interesting in the beginning. But the initial excitement had worn off by now. “Too many “Me-too start ups” they would say. We want something different. We want a breakthrough !”
But today they were on their feet. They sensed (and even smelt – if you could smell things like this) a breakthrough. Making a presentation to them were three final year students from one of the leading Engineering colleges in the country. Along with their professor. And they were presenting a product that cried out to be bought – a device to reduce pollution levels within homes and offices.
Now, the intelligent reader (and I’m sure you are one – after all, you read the Business World, don’t you ?), would immediately say, “But hang on. Don’t such devices already exist ? What’s the big deal about one more ?”
You’re right. They do exist. But this particular device used a far cheaper technology than the ones in the market. After all, it had been developed in the labs of a leading Engineering college. And therefore, it would be priced at less than half of what existing devices were selling for.
“My God ! Reducing pollution levels in our cities. At less than half the cost.” This was truly mind-blowing. Of course, there was the inevitable question about marketing, and the founders said that they were planning to appoint distributors, which satisfied the angels.
And so two deal leads were appointed (for the reader who is unfamiliar with the fun world of angel investing, the deal lead is a representative chosen from the angel network, who follows up with the start-up, evaluates their business, negotiates with them on behalf of the other investors, keeps the other investors informed, and at the end is responsible for closing the deal). As you might imagine, there were minor fist fights in the room, because everyone wanted to be the deal lead – but finally better sense prevailed, and just two were appointed. These two were asked to give their recommendations during the next monthly meeting.
The members could hardly wait for the next monthly meeting. Some of them even dreamt of the Jaguars (and other miserable, low cost cars) that they would buy with the moolah they would make from this investment. Finally, the next monthly meeting arrived, and the deal leads made their presentation. Yes, the product did what it claimed to. And their analysis of production as well as marketing costs indicated that the final end user price would actually be half of what current devices were available at. The founders were then called in (they had been waiting patiently outside the room), and asked about their marketing plans. “Oh, we plan to appoint distributors,” they said.
“But haven’t you progressed in the last one month ? You need to be quick to market – this technology can be copied by someone else.”
“No we haven’t yet spoken to possible distributors, because we were working on enhancements to the product.” And here the excitement of the founders was palpable, “We are now working on an even better version of this product !”
The angels were nonplussed. Here was a product crying to be taken to the market. And the founders were focusing on enhancing it rather than on marketing and sales. But because of the tremendous potential of the product, the investors were willing to be patient. “Please focus on marketing now. The product is adequate, and you can work on enhancements later.”
The founders agreed and left the room, but a careful observer would have noticed that the excitement level in the room was perhaps a notch lower than in the last meeting.
Next month arrived, and the deal leads trooped in looking dejected. “They are very excited working on improvements to the product. And no, they haven’t yet started appointing distributors.” The angels looked at each other and shook their heads in disbelief. “One more set of bright techies, who can’t think beyond tech.” And the case was summarily dropped. Along with the plans to buy Jaguars of course !
A few days later the founders were speaking to their mentor. “We just don’t know what happened ? There was so much excitement, and the product was getting better and better…..” They were almost in tears.
The mentor listened to them patiently. He had seen this so many times in the past. “You must remember that a great product is only half the story. Somewhere you have to stop the development process and take it to market. After all, you’re planning to start a business, not an R&D outfit, isn’t it ? By the way, you’re not the only ones. This is very common with founders who have a tech background. Either you have the capability yourselves, or get someone from outside – perhaps as the CEO. After all, you’ve got to make money. And the world will not keep waiting while you work on enhancing the product.”
The youngsters listened to the mentor, and nodded. They had just learnt a key lesson in starting a company. And with this they all trooped out for a cup of coffee. Over which they would now make their marketing plans !
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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