1Mby1M Virtual Accelerator Investor Forum: With SC Moatti of Mighty Capital (Part 6)

Sramana Mitra: You are preaching to the choir. It’s exactly our philosophy. We have a very clear philosophy of bootstrapping first and raising money later. We don’t take any equity. We are the largest virtual accelerator and we don’t take equity because I don’t believe you should be taking equity as an incubator or accelerator.

If you are an accelerator fund like YCombinator, they do have great ecosystems. That’s different. The vast majority of accelerators actually don’t add much value. They take away a lot of equity. Exactly the scenario that you described happens.

Our preference and our advice is not to raise too much money, do not try to go through these drib drab financing. Try to build your company on customer money and go straight to a significant round of financing when you have validation. If you don’t get there but you are getting customer money and making progress, just bootstrap the business.

There are many more million dollar to $20 million ideas out there than billion-dollar ideas. Losing your company by doing seven rounds of financing and having 5% left for yourself is not the way to build a company.

SC Moatti: I totally agree with you. Any professional VC will agree with you. There has to be something in it for everyone.

Sramana Mitra: Let me just make one point. The reason I said it’s very complex is for a first-time entrepreneur, they don’t have the knowledge to make these decisions without help. They make very bad decisions. We often see companies who have already given up 50% and they’re barely at seed. They don’t have enough goods to even raise any reasonable of financing.

SC Moatti: One additional point on this that we observed on the exit side is we often hear companies tell us, “I will not settle for a small exit.” I want to challenge that and help them see things in a slightly different light. Every time I speak to a room of entrepreneurs, I ask the question, “You have a small company. Someone comes to you and they want to buy your company for $15 million.

There’s always one person in the room who has this reaction, ‘You just insulted me. I’m going IPO or nothing.’” I’m going to challenge that view and say, “$15 million can change your life. For most people, it changes their life.” If you’re into cars, you can buy five Ferraris. If you want to start another business, you can entirely fund it.

One thing that I tell entrepreneurs is that if you’re going to be an entrepreneur, you don’t have just one idea in you. If you’re a first-time entrepreneur and you’re offered an opportunity to land your plane at a $10 million to $15 million exit, do it. Your next company will come. Think about how differently you’re going to start that next company.

Sramana Mitra: Completely agreed. This is also very much part of our core philosophy. Excess is not required for success. We have a lot of case studies where an entrepreneur did a first company, a small exit, bootstrapped the second company and then did a much bigger company with that.

We constantly push these early exit scenarios as well. If you have a smaller TAM venture, there actually are some small funds that are starting to acknowledge this opportunity. The fact is that the vast majority of acquisitions in our industry happens at the sub-$50 million price range. Everything beyond that is a very low probability event. If you are working in the tech industry, you should reasonably be comfortable with probability. Do you want to play a very low probability game?

If you have an idea that is very big, fine. That’s a different trajectory. The vast majority of companies do not have that trajectory. Hyper-growth is not a natural state. Therefore, you should be thinking more in terms of how to do a capital-efficient business, get product-market fit and find an early exit so everybody makes money off the deal instead of stuffing up the cap table with lots of capital and ending up as a zombie.

SC Moatti: Right.

Sramana Mitra: We are completely in agreement. It was a wonderful conversation. Thank you for your time.

This segment is part 6 in the series : 1Mby1M Virtual Accelerator Investor Forum: With SC Moatti of Mighty Capital
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