By Abhishek Verma
I was first introduced to the term “Start-Up” in my first job in Bangalore when it was still a sleepy town. India was riding the software outsourcing boom and a software services company could be found in every nook and corner of the city.
I was one of the first employees of a startup called ITspace.com, incubated by Microland, an IT company led by Pradeep Kar, a visionary entrepreneur who recognized the potential of the Internet in India and probably started the first dot-com wave. Our office was a group of young designers, product managers, former journalists, IIM graduates, and software developers. One could spot men with ponytails, there was rock music playing in the background, and an air of not-so-quiet confidence.
Stories of company burn rates, VCs making big bets, and how ESOPs would change lives were part of conversations over a beer at Pecos. So much so, that we all thought that many of us wanted to start a company. A friend and I also participated in a McKinsey Business Plan competition, made it to the final few rounds, met a couple of VCs, and soon realized that mere enthusiasm without a solid product will get any form of funding. It was about building for scale, attracting users, and not bothering about revenue. Every company soon added a .com to its name.
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As they say, history repeats itself while things have changed in terms of scale, capital, and Internet penetration, the startup world has found a new darling and it is the unicorn. A unicorn is a mythical creature, and yet in this world, it is not a myth. Aileen Lee, founder of Cowboy Ventures, a Silicon Valley seed fund wrote about unicorns in her famous Tech Crunch article and now it seemed to have taken a life of its own.
Her point was straightforward. She said that entrepreneurs and investors want to build billion-dollar startups because extraordinary returns typically come from a few companies in any fund’s portfolio. A larger exit is required for a good return and a 20 per cent stake in a billion-dollar company at IPO or an acquisition.
She called the companies with billion-dollar valuations a part of the unicorn Club, and only 0.07 per cent of venture-funded start-ups were unicorns. And Facebook, Amazon, and Google were super unicorns with over $100 billion in valuation.
Now, in 2023, post-Covid, how things have changed. Spreadsheet business models that were created with the basis of the assumption online behaviour suddenly crashed. Valuations plummeted, and a funding winter was declared. Layoffs became common, and over 20,000 workers have been laid off by startups in India. Interest rates have gone up and the cost of capital both debt and equity had changed, leading to VCs changing their investment thesis.
So, if you are a startup, what do you do now? I read about the emergence of cockroach startups, a term used by a leader of a VC fund, where he talks about companies that have the characteristics of cockroaches, that is, the ability to survive amid chaos.
Frankly, we don’t need a cockroach, we need a scorpion. A scorpion business is one that survives, thrives, and grows. After all, a scorpion can survive a nuclear attack better than most creatures. A scorpion company that is not opportunistic and can solve real consumer problems by efficiently using technology.
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Peter Thiel, entrepreneur and venture capitalist said that a small group of people that have come together with a sense of mission have changed the world for the better.
Therefore, what are the characteristics of a scorpion startup?
- Ability to imagine new categories or technologies.
- Revenue increases and cost optimizes.
- Obsessive focus on customer
- Long-term plans, it intends to build a sustainable business.
- Growth with judicious use of capital
One needs large VC capital because it is the fuel that can exponentially drive growth and create new categories. It can often change the world. It is riskier and infinitely more rewarding. And the end goal is to create a sustainable business. And great products often create great businesses. That should be our north star.
Abhishek Verma is the Chief Marketing Officer of Intercell. Views expressed are the author’s own.