Money in, money out: the whole cycle

Chitra Narayanan | Updated on September 23, 2019 Published on September 23, 2019

Title: Secrets of Sand Hill Road: Venture Capital and How to Get It Author: Scott Kupor Publisher: Virgin Books Price: ₹799

The book is a crash course in getting a company off the ground with VC funding

At a time when India is looking at its start-ups to fire up the slowing economy and provide jobs, here comes a really valuable book for entrepreneurs.

Although it’s on the Silicon Valley ecosystem — Sand Hill Road is the arterial street running through Palo Alto and Menlo Park and known for its concentration of venture capital companies — there are enough lessons here for Indian start-ups seeking funding.

The VC-entrepreneur alliance is often an uneasy one, fraught with tensions. It’s seen as a necessary evil, but there is an animosity as capital often holds the upper hand in this relationship.

However, as Eric Ries points out in his foreword to the book, Scott Kupor attempts to re-frame this equation and make it an equal partnership. As Kupor points out in the introduction, “My hope is to help us stop thinking divisively in terms of one side or the other, one side versus the other.”

A ‘how to’ book

The book is almost a textbook guide on getting capital and working with it, a “how to” book aimed at entrepreneurs from a person who has seen things from both sides — the start-up side and the VC view. Kupor distils it down to absolutely practical wisdom, complete with term sheets and spreadsheets, including capitalisation tables.

But even though it is a pure guide, with no unnecessary frills, it’s by no means dry theory as Kupor writes it in a lucid manner and packs it with real examples. For instance, the story of how gaming company Tiny Speck pivoted to the enterprise collaboration software company Slack is absolutely fascinating.

The book starts with a bit of Kupor’s own story, a child of the tech bubble of the 1999-2000. The Stanford alumnus who worked with Lehman Brothers and Credit Suisse First Boston jumped headlong into the exciting world of start-ups at the peak of the bubble, joining LoudCloud, a compute utility firm co-founded by Marc Andreessen and Ben Horowitz, and a business that Kupor says was probably ten years ahead of its time (think what Amazon Web Services does so successfully today).

But the dotcom crash happened and suddenly LoudCloud’s customers couldn’t pay for their services anymore. The only option for the low-on-cash firm was an IPO or to sell out. It did both. Andreessen and Horowitz eventually went on to start a venture capital firm in 2009.

Kupor became employee number one there. Obviously, having seen the whole game up so close, he has the insights to share all the secrets of the business. The fact that he trained as a lawyer is an additional bonus as he shares some lovely legal case studies as well.

The book is beautifully structured. It follows the VC life cycle — from delineating what goes on inside a VC set-up, how they choose to invest, the motivations of the funders, to moving inside the start-up world and discussing why a start-up seeks funding. It then gets into the whole financing process and the operations — that’s actually the meat of the book itself and the section bound to be most useful for entrepreneurs — to finally the exit, whether through an IPO or an acquisition.

All in all, it is a good crash course on managing funds and scaling up the company. It even delves into stock options for employees and the various ways in which to do this.

Governance issues

But it’s one thing to get the money and grow the capital, what about the governance issues within companies. These are not really talked about much. Kupor addresses these too, and it is here that he plays to his legal strengths. Board composition is where the VC and entrepreneur play a cat and mouse game.

To prevent VCs from forcing a CEO exit, many start-up founders take care with board composition (also you need to prevent a deadlock if it comes to a vote) . The Uber example is a famous one. A lawsuit had to be filed by one of the major VCs before Travis Kalanick could be convinced to resign.

The role of the board and its fiduciary duties during an acquisition is also dealt with.

What the book does not do is to tell you where to go and get the capital, but what it tells you in great detail is the things to keep in mind when approaching VCs for funding, the guidelines, what could go wrong, the jargon, the motivations involved, how to pitch it.

Complexities addressed

Even if during the pitch the VC finds much wrong with the pitch, Kupor tells you how to respond to the situation. It also tells entrepreneurs to be cognisant of where the VCs’ funds originate from.

There have been several other books aimed at helping entrepreneurs get off the ground, but where Kupor scores is in its extreme focus, and the way it gets into the very basics as well as addresses the complexities.

It is particularly useful when you consider NASSCOM’s projections that India will be home to over 10,500 start-ups by 2020 and is already the world’s fastest growing entrepreneurial ecosystem.

We could actually do with a similar book totally based in India by someone cognisant of our realities, the peculiar challenges faced by our entrepreneurs, and back stories and case studies of start-ups and VC funding here. The good news is that a little bird tells me that such a book is in the offing.

Published on September 23, 2019
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