1Mby1M Virtual Accelerator Investor Forum: With Mohit Gulati of ITI Growth Ventures (Part 5)

Sramana Mitra: So your hypothesis is that a lot of these surplus IT workers with different levels of IT expertise will get absorbed by, at least a portion of them, the startup ecosystem – the technology startup ecosystem.

Mohit Gulati: I would refrain from using the word will get. I would use the word should get if they are open and willing to be absorbed. An older person typically carries a lot of baggage about his expectations in life. When you work with younger people, you need to come with a clean slate. Only when you have a clean slate do you grow.

Sramana Mitra: Clash of mental models. They’re very difficult to get around actually. So let’s switch to a few trends questions. 

This is very much a US issue and I think it’s an Indian issue as well. How do you process the Series A gap?

In the US, a lot of companies are getting seed financing. For 2013 to 2016, there have been 50,000 to 70,000 seed investments, but the Series A is reasonably constant at 1,200 to 1,500. So there’s, obviously, a big drop off.

Predictably, these are companies that have not found product-market fit, haven’t found velocity so they don’t really qualify for the Series A. The Series A benchmarks are much higher nowadays. What is the transpose of this situation in the Indian context? Of course, there’s not as much liquidity in the seed ecosystem in India. How do you view the seed to Series A equation in India? 

Mohit Gulati: I think India is also facing the same challenge. My personal philosophy is when the top of the funnel – the IPO market – opens up, you’d see the trickle down effect coming into the entire ecosystem. For the longest time, the biggest problem plaguing most ventures as well as investors was the fact that they were stuck in some other investments made as early as 2007 to 2009.

Sramana Mitra: Yes, very long.

Mohit Gulat: When the money comes back to IPOs, only then are you going to be active again because you have money that should be given back to your LPs. You are going back to them and saying, “Listen, I made a crazy amount of money for you. I’m doing a bigger fund. I need more money to deploy across series D and E.”

When you have more number of people coming in and showing interest in the space, only then can you push-start this entire backlog of companies stuck between series A and pre-series A. In my opinion, a pre-series A is literally one of the worst things a company should do because it tells you that you’ve not been able to do a good job to deserve the series A, and you don’t want to shut down because you’re still not that badly screwed.

Sramana Mitra: The companies that do not hit velocities are better built as bootstrapped companies because the velocity equation is what determines what should be a venture-funded company. Most companies do not have velocity. Hyper-growth is not a natural state.

The problem with the ecosystem is that the ecosystem wants to ignore that fact. That fact is a fact of life. There is no negotiating on that fact. There aren’t millions of companies that have velocity.

Mohit Gulati: In my opinion, I think there are just 5 or 10 companies in each country that have that kind of velocity.

Sramana Mitra: Yes. There are probably a bit more in the US because of early adopters of new technology that has developed over a long period of time. Globally, absolutely.

There are only 5 or 10 companies at most that would hit that velocity. So now we’re operating with thousands of companies born every year and they all want to raise venture capital. This is one other thing that we have tried to do with 1M/1M. It is to educate the market that, please do not view venture capital as the ultimate goal or the ultimate success of your  journey.

If you build a company and let’s say you have a $5M a year company. You employ 50-100 people. You have a profitable business that is a success story in my opinion. If it’s a bootstrapped venture and you have a profitable sustainable business, that is a very okay scenario. People have to make a living. People have to have dignity.

The way the world is designed today, a lot of dignity of life is in having a good job. So that concept is lost from how the startup ecosystems are being developed around the world and I have endless problems with the approach and the attitude.

Mohit Gulati: I think it also depends on the entrepreneurs. You don’t want to go do something just for the heck of it. This appeared between 2014 and 2017. Being an entrepreneur was a cool thing in India. We score dates on Tinder because we’re an entrepreneur.

I said, “You guys are bound to fail and you deserve to fail, because you’re not doing it for the right reason.” A true entrepreneur will tell you that the hardships around entrepreneurship are immense. There are very few entrepreneurs in the world who can say that it was a bed of roses.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Mohit Gulati of ITI Growth Ventures
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