Rajesh John

(L-R) Rajesh Sawhney, Co-founder, GSF and John Harthorne, Co-founder, MassChallenge

Editor’s Note: Here’s a story from our archives we feel is relevant even today and deserves your attention.

It is not everyday that you run into stalwarts from the startup industry. So I knew my stars were aligned when on a windy afternoon in Seoul at Hanwha S&C’s Dreamplus Day 2014 event I saw two major players together. On one side was John Harthorne, Co-founder and CEO of MassChallenge, one of the world’s largest startup accelerators, and on the other side was Rajesh Sawhney, Head of one of Asia’s most prolific accelerators, India’s GSF.

Getting two heavyweights — one from the East and one from the West — to sit down and talk about the startup world was an opportunity I could not let go and in five minutes I had convinced both for an impromptu fireside chat.

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My agenda was simple: To understand investor mindset in the two parts of the world.

I first asked them to describe their investment and business philosophy.

People, people, people
“First and foremost, I invest in founders. People matter the most. I want to invest in people that want to change the world,” said the very candid and personable Sawhney.

He went on to add that he disliked what he termed as “MBA white board ideas” — ideas that people come up with because they think it will work in theory, not because they personally feel the need for the idea to exist. “The biggest companies have been formed by those that have felt a pain and want to solve it,” Sawhney stated.

Harthorne followed up saying, “I would like to emphasise that almost 80 per cent is about the team. It’s not necessary that they have the best education or the best access or sources or whatever. It’s about their passion for the problem.”

He explained that he started MassChallenge during the economic depression in 2008 because he saw that the only way to get the American economy moving again was for people to be “more focussed on a creative impulse than a value capture impulse”. Money could not be the driving focus of a company anymore; it had to be a byproduct of a process that inevitably had loftier goals.

At first, he continued, MassChallenge was a for-profit accelerator, and in that model it was not very successful. Harthorne then realised that he had to follow his own advice; together with Co-founder Akhil Nigam and with initial capital from the likes of Gururaj Deshpande, MassChallenge went the non-profit route and hasn’t looked back. With a chuckle, he ended his point by saying, “If people are too obsessed with making money, the less likely it is that they will actually make money.”

The event we were at was actually a startup pitching competition, where teams from all over the region had arrived to win a US$300,000 prize. So inevitably, the topic did switch to pitching with Harthorne and Sawhney both discussing how there had to be a balance between product and team. They both said that teams couldn’t get by with flashy presentations and amazing showcases, rather the product had to stand as a testament to the vision of the founders.

According to Harthorne, “You want to invest in a team but you don’t want to invest in them just because they pitch well. There has to be something real — how they collaborate, how they work together. It cant just be about the presentation and charisma.” To which Sawhney added, “A lot of startups fail exactly because of this; they believe that they can dazzle investors in a presentation, but they need to realise that investors aren’t stupid. We can see a product for what it really is.”

What’s wrong with Asian startups?
The single biggest problem is that Asian startups seemed to think very locally without much of a plan for international growth, according to Sawhney. He added that in massive markets such as India or China, it is not so much of an issue, but the same does not hold true for smaller countries such as Singapore or Thailand. They don’t have enough of a local market to truly become world-class companies.

However, there is hope. In something he calls ‘The Israeli way’. “Israel is a very small market; so from day one companies there think about placing their product in the global market. They might get validation from one or two local customers, but they are always thinking globally,” said the GSF Head.

Sawhney then shared a valuable piece of advice, “Think big, execute small. Take baby steps, but plan big.”

Harthone mirrored Sawhney’s statement, “It’s not that much harder to launch a big company than it is to launch a small company. They’re both hard, so there’s no point focussing only locally. You might as well go big or go home.”

Also Read: Indian startup whatfix takes home US$300K at DreamPlus Day 2014 in Korea

Another problem, according to the MassChallenge Co-founder, is lack of capital that comes with mentorship and networks. “There is a lot of money out there but it is very important to chose the right kind of money; not all capital is created equally.” He explained that unlike the US where startups are used to VCs and the whole investment model, and understand that there are far more valuable things investors can give a startup besides money, here in Asia, the glut of money coming in from the West has to some extent blinded startups. At the end of the day, VC money is not free money; you are giving something of equal or potentially greater value in return, he said.

In the West, the current model has existed for nearly 40 years. Harthorne said that most VCs don’t provide the much needed mentorship, guidance, experience and expertise. The finance sector of the ecosystem needs to be disrupted. The VC model is not well designed; it is just one of what should be many possible investor models.

As for the East, specifically India, VCs are still trying to find their way. What started of with companies like Sequoia Capital coming in with Silicon Valley sensibilities is transforming into something unique to the region. “Indians prefer the personal touch,” said Sawhney.

He went on to say that it is essential that India and the rest of Asia take a look at the VC market in America and learn from it; take the good and turn away the bad. “Right now, there are a lot of VCs looking at India, which is good. India is a country with a lot of raw potential to be nurtured, hopefully by the right sort of VCs.”

India under the spotlight
So which markets in the region are most attractive to Harthorne and Sawhney?

“India,” replied Sawhney, “in the not too distant future, India will have the world’s largest number of mobile internet users. The market right now is at a tipping point with 200 million internet users — a number that will double in the next two years.

“Asia is not a market I claim to be an expert on, it is why I am here to learn about the region. But if I have to choose, I would guess India or Singapore for the simple reason that English is viable in the two nations and both nations have a long history of dealing with the West,” said Harthorne candidly.

With my time coming to an end, I called upon the gods of list making to help me end this interview with succinct points that you, dear readers, could take to heart. So below are three pieces of sage advice from two people who understand the industry better than most.

John Harthorne:

  • Demonstrate a global vision and thing big
  • Try your best to get some early market traction before approaching investors
  • Be prepared to fail

Rajesh Sawhney:

  • VCs look for startups with exceptional outcome. For this, you have to be willing to take a bigger risk
  • Believe that you are the best
  • Show a willingness to create a big global company