Given the fact that funding is the dimension along with a startup’s perceived position in the totem pole is decided, it is easy to fall for the temptation of raising as much capital as possible when the opportunity presents itself. But when venture capital becomes vanity capital, it forces a startup down unhealthy paths, most notably the path of chasing growth at all costs.
Minjar consciously eschewed taking in more funding despite having the option to do so. What the company sacrificed in terms of capital, it made up in terms of optionality—having the flexibility to choose getting acquired at the time it did. Larger VCs who might have invested larger amounts into Minjar would have required the company to aim for a much higher exit.
One interesting rule of thumb that can be generally applied is for founders to try and choose investors whose total fund size is congruent to the size of the exit you can realistically target. Minjar had the option to raise funding from larger investors but chose Blume Ventures (a $60-million fund at that time) and smaller VCs; a decision that served it well in retrospect.
The Craft Behind the Math
Besides the numbers, Minjar’s startup journey is a fascinating story as it demonstrates the craft needed to build and exit a startup. Delving beyond the cosmetic layer reveals a treasure trove of titbits. Little jigsaw puzzle pieces that can be assembled together in an emergent manner to reveal the full picture.
While it would be wrong to treat these pieces as prescriptive recommendations for all other startups, they nevertheless offer a valuable opportunity to peer into the mind of a startup founder and learn from his journey.
The downside of raising lower amounts of capital is that the startup has to be really disciplined while spending money to build the business. This takes both time and effort and requires the company to be frugal wherever possible. Values that Rayapati and his team embraced as first principles. For instance, despite largely targeting customers in the US, Minjar did not hire people there.
They engaged a consultant to help out for a brief period of time, but more importantly, ensured that one of the founders was always present there to handle customers and partners. This meant that Rayapati or Anand initially shacked up in the US, either at a friend’s place or at an Airbnb, to keep costs low. Once the company gathered some traction, they rented an apartment to stay in but continued to operate in a bare-bones manner with no US employees.
Of course, it is trivial to say that discipline is important – the real world is far more complex. Operating with a small amount of money is a challenge while your competitors are raising much larger amounts and cornering talent and skewing market economics with discounts and low-ball pricing. The fact that Minjar managed to actually achieve success without sacrificing discipline is both rare and credit-worthy.
This facet of selling in the US without having any employees there reveals another interesting aspect of Minjar. That of going contrary to popular wisdom when the situation demands it. Most VCs will tell you that if your primary market is the US, you have no choice but to shift base there and hire local employees for sales and marketing. Not only did Rayapati and the team not hire people there, but they also sold to enterprise and mid-market customers without having a US sales team.
How did they do this?
Rather than adopt the conventional strategy of selling products, Minjar originally started off as a services company offering managed services solutions around cloud hosting. These services not only served as a customer acquisition funnel for Minjar to sell its product offering (Botmetric), it also helped the company build and refine product features and requirements.
Interestingly, a large VC offered to fund Minjar with the condition that they drop services and focus exclusively on products. Needless to say, Rayapati did not accept this offer and chose to go contrarian with good reason.