‘Start-ups’ has been a buzzword across the globe for many years – perhaps more so in the United States where the climate for entrepreneurship is more encouraging than in other countries like India. But it’s now that this buzzword is taken seriously by the industry and the government in India – and its impact is being felt in waves strong enough to be reported regularly in the media and enter the minds of those seeking careers or changes in their careers. Many of these start-ups have become contenders for hiring talent against large Indian and MNC businesses.
Mind you, India has a history of successful start-ups which is enviable by global standards, though this fact is overlooked in the milieu of new start-ups sprouting up all over the country and the media hype that generally accompanies it today. Take for instance IT/ITeS companies like HCL (founded in 1976 as Microcomp), Infosys (established in 1981), Wipro Infotech (established in 1981) NIIT (established in 1981), Tally Solutions (started as Peutronics in 1986) among several others which are giant businesses today with global operations and market share.
No doubt these companies have hired talent by the hundreds of thousands over the past 35-40 years, but no one really talked about joining start-ups in those days. They simply said that they joined a new company. And, unlike many start-ups today which offer lucrative compensation packages to attract talent (both executives fresh from colleges and those in mid-career) to match many of the best MNCs, start-up companies of yesteryears like HCL and NIIT didn’t offer much in terms of pay. Their lure was the excitement of joining a new company, a young team and of doing something new.
But joining a start-up is not for everyone. Start-ups carry uncertainties and risks (like sailing on uncharted waters) – and often demand the temperament of an adventurer, no matter what skills and expertise, people (the entrepreneur or the employee) bring to the table. They usually offer compensation packages that contain a smaller component of salary and the rest in equity or delayed earnings of some sort such as sweat equity, stock options, milestone-linked compensation. This type of compensation model is attractive only when the start-up grows in business revenues and in profits.
Dan Reich, in an article titled Five Questions to Ask Before Joining that Start-up from an August 2012 HBR Blog Network article described the situation aptly:
“Unlike big, established corporations or what we might classify as a “steady job,” start-ups present more inherent risk because there are more variables and questions for a prospect to consider. Things like: Does this start-up have the right team? Do they have money? What if I choose the wrong company? Nevertheless, this risk is often overlooked because start-up employee prospects realize that new ventures are more fun, are intellectually rewarding, and could have big paydays down the line.”
And yet, as more and more start-ups fill our business maps, they attract more and more talent from across the globe. This seems to be a trend in India too – particularly for many mid-career executives. Citing the example of Anuradha Narsimhan (45) who left Britannia Industries as marketing head to join a consumer food start-up (not named, except to state that it is funded by Goldman Sachs and Mitsui Global Investment), Ratna Bhushan and Anumeha Chaturvedi, in an article titled Executives quitting cushy jobs at big firms in exchange for challenging assignments in start-ups in The Economic Times from early July 2014, report that:
“The move reflects an increasing trend— mid-level officials quitting cushy jobs at big firms in exchange for challenging assignments, stakes and equity in start-ups, or milestone-linked compensation packages. Many are giving up top jobs at high-profile companies, regarded as the pinnacle of achievement for managers, because they find their professional lives too humdrum. While the risk of failure is ever present, a start-up offers the prospect of excitement and challenge apart from a more flexible role.
Aside from this, while the take-home amount may be less, dramatically high financial returns are also possible thanks to steep valuations.”
The same Economic Times article also quotes Nitin Dubey (32) who left ITC to join Ola Cabs and then move to Qikwell as saying, “The start-up ecosystem in India is the place to be at right now.” Adding later,”The success of a company would depend on growth, exits and valuations but if those fructify, financial gains could turn out to be way better than ITC.”
We spoke to Sasha Mirchandani, Founder and Managing Director of Kae Capital (www.kae-capital.com), an early-stage sector-agnostic fund based out of Mumbai, with investments in mobile, eCommerce, healthcare, education and consumer internet verticals. According to Mr Mirchandani, the candidate’s compensation is usually a combination of salary and equity; and the start-up’s growth determines the final pay-off for the candidate, which can be lucrative.
This, of course, means a slightly longer-term reward for the candidate as start-ups are often unable to offer attractive salaries. Since the candidate may be uncertain of the start-up’s growth and, therefore, hesitant in accepting the offer from the start-up company, Mr Mirchandani and his team sometimes play a key role in building confidence and convincing the candidate of the merits of the start-up company.
Here are edited excerpts of our interview with Sasha Mirchandani of Kae Capital:
YPP Advisors: There are various types of VCs operating in the market today. How would you describe Kae Capital?
Sasha Mirchandani: Kae Capital is a seed and early-stage venture capital fund. We invest in very early-stage companies, sometimes at prototype stage, sometimes after they reach product market fit. We invest in the seed round, then we invest in the Series A round, and we invest up till the Series B… when we think it’s a winning round. We can invest upto two and a half million dollars in the life of the company.
YPPA: When the entrepreneurs approach you with their projects, do they come in with a ready team of people working on the project? Or, do they come in different stages of company formation?
SM: It depends. We’ve funded many companies where things aren’t fully ready yet, at the first stage – but, over a period, they get built out. Having said that, and going forward, in fund two, we prefer that the teams are complete before they approach us. Or, at least, have a few basic things in place like their co-founders, etc before they come to us.
YPPA: Is there a role that you play in helping entrepreneurs hire a team and put it into place?
SM: This, too, depends. In some cases, we have helped entrepreneurs find co-founders. But, actually, that’s not ideal. It is better that they already know the persons from before. Because, data shows us that, when entrepreneurs know each other from before, or have worked together in the past, they turn out to be better co-founders to each other… as it has everything to do with the trust that is developed between them… and they know each other’s strengths and weaknesses rather than learning things on the fly.
YPPA: As the project starts, the company would also need to hire people in key positions. Do you play a role there as well?
SM: Yes, we do. It depends on the company. Some entrepreneurs don’t need us to help them with hiring. In some companies, they certainly do. We help with the headhunting firms; we help with the interview process; we help with our inputs after we interview candidates. So, yes, we do. We’ve seen in some firms, some candidates are more comfortable knowing that the firm is being funded and, therefore, are willing to take a chance to work for the entrepreneurship… versus working for unfunded companies.
YPPA: When it comes to hiring the team, there must be combinations of compensation packages that the company offers the candidates. In the case of start-ups, does the compensation structure differ very much from that of a big company like a Tata or a Unilever?
SM: It should. Ideally, it should be less basic and more equity based. That is, less cash and more equity. In India, people still prefer to get as much cash as possible. But they also want equity. That’s a bit of a disconnect! So, the ideal candidate is someone who is willing to take a bit of a risk. Take a steep decline in the salary, but make up by getting equity which… over a period of time, should the company perform… should be more than enough compensation to make the risk worth his or her time.
YPPA: The equity component, can you please explain it further? In the sense that there are terms like sweat equity, milestone-linked compensation, etc. How does the start-up decide what to offer the candidate?
SM: Once again, it depends. It depends on how much the entrepreneur needs the candidate. Sometimes, if they need the candidate very badly, then they are willing to take a chance and pay top dollar for the candidate… if the candidate is not swayed by the equity. Sometimes, the candidate believes in the value of the equity, and is willing to take a lower salary. Ideally, as I’ve said a little earlier, it is preferable that the candidate is willing to take a bigger equity chunk because most start-up companies have limited cash… so every dollar counts. That’s the best case scenario. In certain cases, there is no choice. So you pay up for the candidate… if the company has the capital.
YPPA: What would be some qualities or traits in candidates that you would look at when hiring for start-ups? One would certainly be the willingness to take risk. Any others?
SM: One would be the domain expertise in that particular vertical, of course. Years of experience there… where he or she has built teams, where he or she has a track record in that vertical. Say, for instance, if we were hiring for branding and marketing, then we would look at the candidate’s record of building successful brands and successful marketing campaigns… and if he or she has specific sales expertise. In short, a proven track record. That’s the obvious one.
YPPA: Thank you so much for your time. Thank you for giving us this interview.