And I Continue to Conquer My Fears — Sour Grapes Chronicles
Fear led to the demise of my startup
For a startup to be successful, it has to perform phenomenally well on multiple attributes. At RoomLion, we did extremely well on parameters such as hiring, retention, technology, product management, burn management, and business fundamentals. However, we failed miserably at speed of execution, marketing, public relations, and timely investor outreach efforts. But what ultimately led to our demise was — fear. Fear manifests itself in many forms and often unknowingly drives outcomes.
Fear is also what drives investors
For investors, it is either the fear of missing out (fomo) that makes them invest in a company OR the fear of losing money on the investment that drives their decision of not investing in a company. This emotion of fear can be regressed against overlapping and co-dependent emotions such as greed, conviction, optimism, and certainty.
And these co-dependent emotions are in turn driven by the investor’s and entrepreneur’s weighted perception of:
- offered business valuation (greed)
- understanding of the business plan (conviction)
- belief in the market size or ability to gain market share (optimism)
- exit strategy — which in the Indian context often boils down to ongoing trends in upward deal flow (certainty)
Fear of raising money too soon
In our initial days, RoomLion received considerable inbound interest from name-brand institutional investors. This interest was generally timed around the serendipitous press coverage that we received in national dailies (specifically, this, this and this). But I discounted the seriousness of such interest because I felt like we had not yet found the right market positioning. Conversations with investors seemed like a big distraction from working heads-down on the product. This lack of attention was visible in the lousy quality of my investor deck and pitches. In hindsight, I should have paid more attention and taken advantage of the implicit confirmation bias in this inbound interest to raise money.
Over the next few months, we iterated the product and business model. But reliance on bootstrap capital started weighing down my spirits. As an entrepreneur, I thought I had conquered my fear when I left my job at Google to startup in India. But it strangely crept up when I was 2 years into my startup journey. My fear led me to scale back our already lean team of 10 down to 2.
Interestingly, soon after I scaled back, our previous and ongoing efforts towards growing the business started showing results. We succeeded in generating profitable revenue without any ad based acquisition costs or discounting. I started feeling pretty good about the product-market fit, ability to generate organic traffic, levers for growing gross margins, and a reasonably defined recipe for scaling. I finally created an introductory pitch deck and another detailed investor pitch deck (redacted version of the detailed deck below)
(now with the knowledge of this, this and this — check out slide 6,7, and 21 on my view of the competitive landscape back then. The deck also includes speaker notes when viewed in edit mode)
Fear of self destructive chaos from funded competitors overpowered the fear of missing out
On several occasions, I reached late stage conversations with investors but each of these timepoints coincided with a big fundraise announcement by our direct or indirect competitors (namely, Housing, Oyo Rooms, Stayzilla). It is no longer news that each of these startups were playing a self-destructive game of chicken that was enough to foster fear among the bravest of investors.
Over the course of my fundraising efforts, I met many extremely smart investors, including some veterans of the Indian Internet industry. Most expressed strong interest but I did not succeed at stoking enough of a fomo in any of them to follow-through an investment.
Investors generally expressed concerns on one of the following points:
- The small team size of 2
- The size of the overall market
- Capital pressure due to the competitive landscape
Ultimately, my fear of slow organic growth got the better of me and I decided to move away from actively running RoomLion to being a passive advisor.
Among the numerous investor meetings, I recount only one complete jerk of an investor. For the startup-porn seekers, I have narrated that story at the bottom of this post
Conquering my fears
I still strongly believe that a curated discovery engine for niche use cases such as temporary housing and senior living has strong potential at the global scale. However, I am too busy conquering my fears to do any justice towards targeting this market in the short term.
Nevertheless, I am very keen on hearing thoughts on my not-so-current deck embedded above. Also happy to chat with anyone who has an interest in this broader domain.
Side-story: Even when desperate times called for desperate measures, I failed to sell my soul to the DevilDuring my startup journey, I met lots of very smart and savvy investors. Almost all of my interactions were very professional and graceful. But only on one occasion I walked away from a conversation with extremely vindictive emotions.Towards the tail-end of my fundraising efforts, a few angel investors referred me to the Mumbai chapter of a popular angel network. They indicated strong interest in participating in a round and recommended that I pitch to the network to generate additional interest. After following the application process, I was scheduled to present to the network. Just 4 days before the scheduled presentation, I was introduced to a hotelier angel investor — let’s call him Devil (cough) Tibrewalla. So Devil and I had a promptly scheduled and lengthy phone conversation. Devil expressed strong interest in the concept, especially because he was already in the hospitality industry. We discussed the business model and upcoming plans in great detail. As Devil happened to be a member of the angel network, he was thrilled to hear that I was going to pitch to the network just 4 days later. We ended the call agreeing to stay in touch.At the end of my pitch to the network, I was told by the coordinating staff member that the presentation went extremely well and that it has generated lots of positive interest from members. In fact, the coordinator even announced that, unbeknownst to me, Devil had agreed to be the lead investor on this deal and so by extension a representative of the network for leading due diligence.Over the few days that followed, Devil and I went over detailed documents. Over multiple email exchanges and phone calls, I provided cash flow statements, financial projections, hiring plans, product roadmap, job descriptions, and detailed milestones with Devil. Then in one of our later conversations, Devil expressed concerns over how I was planning on accomplishing all my listed goals with just Rs. 40 lakhs of capital. On this, I clarified that I was raising Rs. 4 crore and not Rs. 40 lakhs (My deck stated the amount as Rs. 40 million. Rookie mistake on my part to use the term million instead of crore or khoka while presenting to the angel network. But plain stupidity on Devil’s part to have assumed it meant Rs. 40 lakh that too until such a late stage of the conversation). After a stumble and pause, Devil said that Rs. 40 million was not going to be a problem. I should have at least probed further on how a 10x change in perceived vs actual investment capital did not create a problem. Then a few days later, the Devil asked me to meet him in person in Mumbai. I sought clarification on the state of his mind and the stage of his decision making process. Devil responded that he was very positive on the deal. He just needed to discuss the valuation of the company before committing to an investment. He assured that this meeting will help close the deal.Since I was not in Pune at this time, I bought a last-minute air-ticket for next day in the morning by paying a price equivalent to a round-trip ticket from India to Singapore. Devil was supposed to meet me in the morning at a 5 star hotel, but kept me waiting for 5 hours before he showed up. The next 2 hour long conversation that followed lacked complete structure with a cyclical line of arguments for why Devil thought it was not a good idea to invest in RoomLion. He had clearly scheduled this meeting just to find the fault in my stars and save face on his first due diligence on behalf of the network. In reality, the paradigm of leading a Rs. 40 million deal was very different from leading a Rs. 40 lakh deal. So this was no longer a deal that he could afford to lead. My biggest regret from that meeting is that I did not call his bluff to his face.A few days later, the network sent me an email that they will not be moving forward. Neither Devil nor the network had the courtesy to communicate this message over the phone or provide any additional context despite the stage at which they turned it down. Rejection by the network obviously fostered fear in the 3 other independently solicited network members who were originally very keen on participating in an investment round. I believe in karma, but still hold vindictive emotions towards the Devil until today.
