Since 2015, all VCs in India have a fair idea of the good, the bad and ugly among their investments. The bridge rounds should not confuse an onlooker, because those are driven by a different set of compulsions.

In 2014–15, the VC funding process was hacked, perfected by the IITian fraternity. It went like this: Discuss the hot areas that VCs are looking at, make a plan, raise some angel money from a ‘brand’, ship a sleek looking product, show proof of cohorts by carefully planting discounts, hire some credible resumes; basically get all the ‘ticks’ for a Series A. Then you work with your board to hack a series B, doing more of the same. Some even had a factory model for this!

The skills such teams brought into play were not trivial- they were mercenaries who could iterate not just their UX but business models, even iterate between B2C and B2B. After getting funded, they could ship fast, attract their IIT batch-mates to build a formidable looking team, growth hack on SEO and social media and implement some of the most outrageous promotion schemes.

As the reality dawns on every investor, the evaluation criteria are changing, bringing the focus back squarely on the CEO. Many of these teams that went past Series B had no real CEO. For those that had a CEO, well, a lot has been written about them.

Somewhere there has been a fallacy that being a ‘failed founder’, or a mid-senior level employee of a large startup makes one automatically safe all the way to Series A, if not B. There are so many ex-Snapdeal and ex-Housing people in the market now that it’s no longer a title that stands out. I think the bar will be much higher now.

I have not had the privilege of working with highly funded startup CEOs, but have worked with a few great CEOs who continue to lead their markets. There are a few things that have changed from 2015, and we are going back to basics as demonstrated successfully by these gentlemen.

The hard skills are the gating factor. I am listing just 4 of them here.

1. Designing a business for Capital Efficiency. One measure of capital efficiency is Gross annual revenue per dollar invested. A good business would have this number at 4 to 10 times, depending on the margins involved. Most companies we have seen recently did not do more than $1 annual revenue per dollar invested. Redbus generated about $100Mn revenue, and was sold for $110 Mn all while using less than $5–6Mn in capital.
2. Designing for Operational Efficiency. One measure of operational efficiency in a tech company is Annual revenue per employee. You are disrupting your industry through tech only if your revenue per employee is way above the incumbents. This number is near $1M for companies like FB, Google etc. This number is $20–30K for Indian IT services. Bloated managerial layers, call centers, manual operations and finance activities led to this number being unquotable for most companies.
3. A clear plan of winning that does not involve more marketing money than competition: Redbus did not have more money than their competition. But only they had enough inventory of seats, and they focused entirely on this aspect. On days their competitor put ads in papers, they would sell more because only they had seats to sell. ‘Let’s raise money and be the last man standing’ was the canned response of most CEOs in 2015 and investors alike. And we know how that went.
4. Ability to build a team differently: Most CEOs have a plan that includes poaching people from incumbents or competitors. Hire the talent from the companies you want to disrupt? That hardly sounds like a plan. Lendingkart, a small business lender, has built a 150 member team without hiring a single person from the banking industry. In 2015, hiring was only about courting your friends in allied industries, and paying them top dollar to execute a short term plan.

Here is a list of some soft skills, which are essential, but tough to judge for investors in early stages.

Humility and Frugality: Phani of Redbus — A very humble person who really cared about the business he was in and his role in it. He never saw himself as a ‘Startup founder’, never bothered about aping the Silicon Valley startups or even the Indian startups. I still remember when I walked into his new office in Bangalore in 2010, I commented on the lack of air conditioning, and he said ‘Anandbhai, we are in the business of booking bus tickets for the masses of India. Neither our travellers, nor our bus operators care much about air-conditioned offices. Why should we?’

Every office was fancy in 2015, and founders would brag about their office, take selfies of their team and post on FB pages — ‘Look Ma, I have a fancy office now!’ And this isn’t difficult to execute!

Passion and love for the domain: Once I needed help in picking a car and Mohit Dubey, CEO of Carwale, stood up and pointed at about 100 people (he used to sit in one corner, no cabins) ‘Everyone in my company is a car expert. HR, Admin, Tech. Ask anyone and you will be happy with their advice’. Mohit loves his company, and his cars. He drives a fancy Audi now after a part exit, though I think he deserves a Ferrari. He stayed on as the CEO and shareholder when Carwale first got sold to Axel Springer in 2010. He stays on now when Cartrade bought over and continues to hold a sizeable equity. It’s been 12 years since he started, and he still feels he has just begun.

The personal connection to the domain was missing in most founders in 2015 as they pivoted from B2B to B2C and from one vertical to another.

Attention to detail: Recently, Mohit talked to our founders about recruiting, we were amazed to see the attention to detail Carwale has brought to the art of recruiting. From the beginning, he built a culture of adhering to numbers and plans. There were formal meetings every Monday in the company and the only discussion was around targets, around gaps and corrective measures. Mohit would invite me to these meetings to get my opinion on how to conduct these meetings more effectively, or how to refine metrics better to bring out the right action items. Every employee of startups founded in 2014/15 knows how little attention to detail was being paid to internal processes.

Creativity and ability to build a brand: Taking on Dominos in India was no mean task, but Jaydeep of Faasos had the creativity, hunger, and audacity for it. Faasos built a brand around reliability, convenience, and quality. This was so refreshing when every food brand was built only around taste. The same art of branding was in play when Faasos advertised for ‘Entrepreneurs in Residence’ and promised an opportunity to change the way India eats.

In 2015, we saw brand building being neglected because the focus was only on buying consumers through discounts. And nothing is left of these companies because they failed to build any emotional connect with consumers.

Leadership, and ability to assign responsibility and accountability: Especially to co-founders and senior management, and yet be responsible for everybody’s outcome. A CEO’s role is not to preside over a happy, fun loving, cool office. The role is to facilitate creative tension, push people hard, hold people responsible for company goals and ultimately give them a sense of accomplishment, even if accompanied by sheer exhaustion. Org design and MIS design to meet goals is a very important role of the CEO and but most neither seek help nor apply science to it. Instead in 2015, too much attention was paid to ‘Culture, coolness, happiness of team, being the best place to work etc’.

A lot of executives and founders of funded companies don’t qualify today to start again. Not yet. They need some detox perhaps. And they need some learning. Same applies for investors too. Don’t jump in. Do you really qualify?

This article was originally published in medianama.com