Nandini, Co-founder Madhouse, informs via email about two significant developments –

1. Madhouse completes its first round of angel financing.
2. They have partnered with Netkode Solutions, which also provides end to end technology solution to HollywoodClicks, Singapore ’s largest online DVD rental service.

Netkode has done some pretty neat work on their Website. I invite you to check it out:

Also, Sameer has an interesting take on Joining a pre-VC Startup.

Via Arun Natrajan  –

As part of its Mobile VAS Connect event on December 12, 2006, Venture Intelligence is providing opportunity to select companies to showcase their technology products to an exclusive audience – consisting of Venture Capitalists, Investment Bankers and experienced entrepreneurs – in the form of demos. Companies that have developed a technology product in-house AND are planning to seek VC funding within the next 12 months are welcome to apply to demo at this exclusive event.

More information is available at

Abhijeet points me to this.

I think its a much needed effort. First time entrepreneurs in India face considerable difficulty in seed funding and mentorship. What would I want to see in a Y Combinator done in India?

1.  Mentorship. Yes, not just money but mentorship. Money is difficult to come, but can still be arranged – at least as much as in required to pull off a technology company for the first few months. But valuable mentorship is more dear. It involves an understanding of the line of business, an insight into markets and future trends, people skills and contacts.

2. Focus Teams – to take care of HR, Finance, Law, Taxes, Sales Processing etc so that intially I can focus on what the venture is about. Of course, once the business is up and running you need to hire people for these things as well.

3. Freedom – I would luv to have the freedom to work out of anywhere. But I know it conflicts with the idea of mentorship. Mentorship involves communication, and communication is best done face to face. Plus startups need to do lot of networking, and networking opportunity varies with the kind of city you are in. So maybe I will have to give up this freedom. But as long as the city I am in offers similar level of ecosystem (networking, employees, infrastructure etc) I should not be required to move to the city this YC India is based out of.

But I think BoA will have some challenges in doing a YC in India.

1. The Paul Graham factor – he inspires an army of entrepreneurs by his essays, and has a huge fan-following. BoA will need someone who is as great a role model as Paul G.

2. Mindset – there is considerable difference in mindset of Paul G and the typical VC firm. BoA will need to do away with formal business plans, and bet more on the team and ideas.

A YC India would be a good thing.  Actually a great thing! It may help create the badly needed ecosystem for startups in India. I am definitely up for it.

Netflix clicked. Back here we have ClixFlix, SeventyMM, Cinesprite, HomeView, Catchflix and one particular company that I will call Madhouse. Quite a few of these are VC funded. SeventyMM in Bangalore and ClixFlix in Mumbai are considered the top of the ladder at the time, Cinesprite in Delhi is considered not very far behind. I agree its too early to even think of rankings – they are still evolving and not widely accepted. And there would be other companies in various phases of idea/implementation.

With so many players, and more to come, I can’t help but think about competition. Consider a hypothetical (but probable) scenario – VC funded SeventyMM moves to Delhi for expansion and meets Madhouse (which we will assume for now is operating in Delhi and is not VC backed.) What happens?

Scenario 1. Since Madhouse is bootstrapped, it didn’t have the luxury of expensive advertisements, or huge inventory, or iconic brand ambassadors (Bollywood stars/ Cricket personalities) and hence they haven’t built up any defendable base yet. SeventyMM (with its VC money) runs huge advertising campaigns, launches free trials, and hires scores of talented developers to build the best delivery system. And heck, it even launches a price war – offering the same service at much lower rates. Soon Delhites are hooked to the new guy in the town sporting his Merc – SeventyMM. Madhouse withers along the way and eventually closes down a year or two later.

Another scenario. Suppose Madhouse guys were an absolute ‘magic’ – really innovative – and even with their limited money they have built a strong defense to competition. This defense could be in various forms – a huge customer base, or a trustworthy brand, or a better technology, or a good distribution channel or something else that matters. SeventyMM being not only rich but also intelligent figures out (luckily) that even with all their money they will not be able to woo customers on their Merc – Madhouse’s minivan is old and noisy and leaks as well, but people are happy with it. Perhaps because all their friends are there, or due to some other reason. SeventyMM offers a premium for Madhouse – there is no other way Delhites will be friends with him, not even if he has the Merc. Since Madhouse (as assumed) is self-funded, the owner agrees if he finds price ‘right’. It is what an entrepreneur generally is after – to build something which would get acquired at sufficient premium. SeventyMM gets to be friends with Delhites, and Madhouse guys buy a yacht, and go vacationing in Maui islands before coming up with their next startup.

So far, so good. But what happens if Madhouse is also VC funded?

Acquisition becomes a distant dream for either. Why? VCs are not after petty gains – they want waterfall returns. That’s their business model afterall. A entrepreneur who bootstrapped might be happy to sell for $5 million, but a VC who has invested $2 million won’t settle for $5 mil. He will rather invest $5 million more and continue the competition for the possibility of higher returns later. So what happens in Delhi now?

SeventyMM does X Rs in ads, so Madhouse does XX. SeventyMM ropes in Irfan Pathan, so Madhouse ropes in Mahendra Singh Dhoni. SeventyMM raises $2 mil in VC, Madhouse ups them by raising $5 million. SeventyMM offers Rs 199 a month, Madhouse responds at Rs 159 a month. Its money against money.

Since money is no longer a differentiator, and ideas are public, and replicable (given sufficient money) – hence the deciding factor now – is – execution.

That much about the ‘spectators’ view. Now think from the entrepreneur’s angle. As a startup entrepreneur you have a choice – bootstrap or VC funded. Infact, you may not have this choice if you are in a captial intensive business. But suppose you are not in that kind of business, and do have a choice.

You can bootstrap and remain self-funded – being self-funded you are more easily acquirable when competition comes along. (Its a conservative strategy – you are building a strong fort in one ‘area’, which a national player will be interested in and hence pay you for.)

Or you can raise VC money. And pray that another VC funded startup does not opens in your neighbourhood. (This is an aggressive strategy – you are building a bigger army, to pan out nationally and acquire others on the way.). The problem is when you meet another company who is not willing to join forces – then you have no option but to fight it out.

So much about the dynamics that VC money can play in competing startups. Now about the online rental business. Personally I am not very upbeat about DVD rentals per se, I am much more bullish on allied businesses that can be built around it. Recently I had a conversation with Madhouse CEO, Sameer. It only reaffirmed my faith – Madhouse is the dark horse to watch for in this race.

But yes, execution matters – so much that I can say – only execution matters. And I believe they need to step on the gas there.