OfStartups

Author: ofstartups

  • What is Venture Capital?

    All the large corporations we see today have started small with disruptive and huge potential ideas. And it requires money to execute these ideas to manifest into the great products and companies that we see.

    Venture capital is a private equity that invests in emerging startup companies

    Venture Capital

    Venture capital is a private equity that invests in emerging startup companies. These startup companies may or may not have an operating history, but have a huge growth potential. High risk, high reward. Venture capital comes into play when traditional banking institutions, without a strong operating history, do not give loans.

    Venture Capital Firms

    Venture capital firms are companies that raise money from institutions or HNIs and invest in promising startups. They are composed of professional investors who have in-depth knowledge about building companies and funding them.

    Venture capital firms typically invest in high-growth startups for equity. They earn from the returns made by the investee company from profits or from exits. Nine out of ten startups fail, so the VC firm has to make sure that the returns made from that one successful startup cover the investment made in all.

    Benefits of venture capital

    1. Startups get the required capital to develop new products, scale their operations, hire talent, and expand the market. 
    2. This fund is without the obligation to return the capital which is the case for a loan. As VC typically funds against equity shares, all the stakeholders grow together. But in case of failure, there is no obligation to repay the startup.
    3. VC brings with them a powerful network that can be useful for getting new clients, as well as help in further investment rounds. VCs bring their experience in strategy, marketing, technology, and legal which is helpful for startups.
    4. Venture capital firms can help in collaboration with companies operating in similar domains to consolidate the market.
    5. Venture capital can help startups to make successful exits like mergers & acquisitions, IPOs, and further rounds of investments.

    The risk associated with venture capital

    1. Venture capital funding leads to a significant equity dilution in a startup and, hence, dilution in the control of the company to the founders. All the major decisions need to be approved by the board, unlike prior to the fundraiser when the founder has the freedom to make all the decisions.
    2. In cases where the founders and investors have a conflict of interest, conflicts can arise within the board which is a high risk for the company.
    3. Venture capital raising is a time-consuming and non-guarantee process. Startups may find it difficult to find the right balance between the continuation of operations and raising funds.

  • The $69 Bn Microsoft Activision Acquisition

    Microsoft acquired Activision Blizzard at $69 billion. This is the largest deal in the tech world. Why did Microsoft acquire Activision?

    Microsoft acquires Activision Blizzard at $69 billion whose games would be introduced to Xbox

    Gaming market scenario

    The gaming market in which Microsoft competes is the gaming consoles.

    Here it has a tough fight with Sony. Microsoft’s Xbox competes with Sony’s Playstation. But if we see the gaming consoles market landscape for the United States, Sony is a clear winner. Sony beats Microsoft with a huge edge with its market share going to a peak of 87% in 2022 as opposed to 12% of Microsoft. The lifetime sales of PlayStation’s latest PS5 which was released in 2020 is 32 million units. It is around 20 million units for the Xbox Series X and S. In the lifetime sales, this number is more intensely seen. In the EU, it is 80% Sony and 20% Microsoft. Globally, Sony has a 70% market share as opposed to the 30% of Microsoft.

    Gaming console market shareSonyMicrosoft
    US87%12%
    EU80%20%
    Global70%30%
    Market shares of Microsoft and Sony in Gaming Consoles

    With the addition of Activision, Microsoft aims to widen its gaming offerings. Activision is the owner of popular games like Call of Duty and Candy Crush Saga. Microsoft would make avail these hit games on Xbox.

    The Future of Gaming: Cloud

    One of the reasons for PlayStation being a market leader is Sony’s expertise in hardware. On the other hand, software is the forte for Microsoft. Operating systems and productivity software being the flagship Microsoft products, it has unparalleled expertise and talent in building software.

    This is exactly where Microsft is betting on and by far has succeeded. Like the trend for many, gaming experiences are now being introduced on the cloud.

    Microsoft has pioneered this domain of cloud gaming. This is like Netflix for gaming, where the subscribers have to pay a monthly subscription to play. And the best part is, it can be hardware agnostic. It can be played on gaming consoles, computers, or on smartphones. Cloud gaming is a very flexible option for customers as well, with huge prices not paid at first.

    If we look at how Microsoft has progressed in cloud gaming, it had around 20-30% market share in 2021. But by the end of 2022, this market share rose to 60-70%. Large companies like Google shut down their gaming services after this.

    Cloud gaming market shareMicrosoftSonyNvidiaGoogle
    202120-30%30-40%20-30%5-10%
    202260-70%10-20%10-20%0-5%
    Microsoft leads in the cloud gaming market

    Conclusion

    Clearly, with the acquisition of Activision, Microsoft aims to diversify its gaming portfolio in terms of the varieties of games on Xbox and, especially, on cloud gaming. This acquisition also opens up a new horizon of mobile gaming which it was not on before.

  • Startup funding winter: Blessing in disguise

    In 2021, the startup funding in India peaked at $37 billion. After this peak, however, it steeply decreased in the following time period. In the January to July 2023 period, the number was $4.4 billion. This reduction is due to the gloomy macroeconomic environment of the world. But the fact is startups are finding it hard to raise funds. But this is the right time to introspect for startups. This, in fact, is a blessing in disguise for the startup ecosystems.

    startup funding has drastically decreased from it's peak in 2021

    Profitability over growth

    Growth is good, but growth at any cost is certainly not. With the difficulty of accessing capital in the market, it is essential for startups to be having liquid cash, which comes from strong cash flows and profits. When the capital access is easy, “growth” is prioritized over the profits. Though this can work, it is a high-risk and high-reward game. With startups forced to focus on profits over growth, it results in good financial management and long-term success.

    Stronger business models

    Startups are forced to introspect on the current business models. If the current models are not working they must be changed. During difficult times, only the models with a clear roadmap towards profitability will be relevant. This will eventually lead to stronger and more sustainable companies.

    Innovation

    Necessity is the mother of all inventions. Building businesses in the limited availability of resources leads to innovations that can lead to advantages on the top line as well as the bottom line of a company.

    With a more competitive funding landscape, startups may be motivated to innovate more rigorously and differentiate themselves from the competition. This can lead to the development of more unique and impactful solutions. And this is a win-win for both – startups and customers. Also, innovation for cutting the cost of internal operations will ensure good margins.

    Market consolidation

    The funding winter can lead to partnering, and mergers & acquisitions of similar businesses, making the market positioning stronger in the competitive landscape. Also, with few startups getting investment, there can be less competition which can lead to fast capturing of the market for the sustainable and established startups. With the limited funding, investors may be compelled to invest in the companies that have proven traction and road to profitability. This would increase the investment in the companies which are more likely to be successful.

    Long term success

    All the above-mentioned factors will contribute to the long-term success of the startups. Those navigating the hard times will be winners. In history, it has been seen that successful companies often have emerged out of the worst economic conditions.

  • What is ARM? – The largest IPO 2023 debutant company

    What is ARM? What exactly it does do? Not a well-known name, but how it is a super important player in the semiconductor chip supply chain?

    Arm became the largest IPO of 2023

    ARM (prev. Advanced RISC Machine)

    Arm designs architecture for CPUs. These designs are then used by chip makers like TSMC, and Samsung, as well as chip designers like Apple, Nvidia, and Intel. As Arm’s CEO Rene Haas says – “We don’t build chips but license the brains to someone else who will”. Essentially, it provides intellectual property.

    How does it earn?

    Arm has two revenue sources – licenses and royalties. A company that wants to design its products based on the Arm’s architecture has to pay an initial cost for licensing. If the designed product has to be productized to sell to the end customers, Arm charges them royalties per product sold.

    How significant is Arm in the semiconductor chip supply chain?

    99% of the total smartphones sold have Arm-based processors. So pretty much each of the phones that we see around us is powered by Arm. With more than 250 billion chips sold, the company highlights that 70% of the world’s population are using Arm-based devices. So imagine phones, laptops, gaming consoles, and consumer electronics devices that we see around, and fairly assume they are using Arm. It has emerged as a leader in the emerging market of IoT where Arm powers 90% of IoT chips.

    Arm is unarguably one of the most important tech companies in today’s world.

  • The cost of the largest traffic jam in the world

    When you hear of the largest traffic jam, you must be imagining cars, buses, and trucks waiting on a road for hours or days. But what if the largest traffic jam in the world is not on the road? Yes, you heard it right. It is in the sea. More than 200 ships are waiting at the Panama Canal to cross with an average waiting time of 21 days!

    ships waiting to cross panama canal in the pacific ocean
    Satellite image captured by NASA showing ships waiting in the Pacific to cross the Panama Canal

    How does the Panama Canal work?

    Panama Canal was built to cut short the distance from the Atlantic to the Pacific oceans and hence save the time and costs for the ships. With this nearly 80km canal, ships skip the encircling around the whole southern American continent. To give a context, a ship from New York to San Francisco sails 8370 km through the canal as opposed to the 20,900km route around the Cape Horn traveling around South America.

    importance of the panama canal
    Panama Canal cut short the distance between the USA’s east and west coasts by skipping encircling the Southern American continent

    The canal works on multiple locking and unlockings. As the Pacific Ocean is at a higher altitude than the Atlantic Ocean, a ship entering from the Atlantic has to go up the sea level to finally reach the Pacific. The canal is watered by the freshwater Gatun Lake.

    The way it works is when a ship enters the canal from the Atlantic one of the three locks is filled with freshwater to raise its height. This is repeated two more times until the ship reaches the altitude of Gutan Lake. It then travels through the Gutan Lake until the altitude is finally lowered with the help of locks and it reaches the Pacific. One ship crossing uses around 190 million liters of fresh water from Gutan Lake and it is released into the ocean.

    anama canal working with the locking and unlocking mechanisms
    The working of the Panama Canal

    Why is the huge traffic?

    Because of drought. The source of water for successfully passing a ship to either side is from the Gutan Lake. But the Central American region is facing one of the worst draughts in recent years. Like the other parts of the region, the source of freshwater is from the rains. The Gutan lake gets the water from the Chagres River and its smaller affluents, on which it is dammed, which depend on the rains.

    With fewer rains, the water level of the Lake is decreasing. As it’s the only source of water and give the water level decreasing, the number of daily ship crossings has hence been reduced than normal. As of mid-September, 32 ships are allowed to pass each day which is less than the normal of 36 ships per day. This has led to the change of container ship equations and led to the traffic.

    What is the cost of this?

    Shippers pay a hefty amount to pass through the Panama Canal. During normal times, the fees that have to be paid to cross the canal are anywhere between $150,000 to more than $1 million. This is dependent on the size of the ship.

    Many shippers book the canal for transit well in advance. The canal has now limited the advance bookings and some shippers have opted to pay extra amounts to skip the line of waiting. A shipper paid $2.4 million on top of its transit fee to skip the line!

    The economic impact would be most felt by the United States, as 73% of the total traffic is from or towards the United States. This accounts for $270 Bn in value. Imagine $270Bn worth of goods delayed to the market! This would possibly result in a rise in prices. The shipping companies are in a huge loss because of the loss of time and money.

  • Challenges of internet of things (IoT) implementation

    As someone who has worked in the Internet of Things (IoT) industry for more than five years, I have an unpopular opinion. The IoT industry has not grown at the pace at which it was expected to grow. I’ll focus this article completely on Industrial IoT. I feel this because of the number of challenges that businesses are concerned with this type of digital transformation, which are technical as well as financial. Let’s see what challenges businesses face while implementing an Industrial IoT system.

    Challenges of iot implementation faced by industries

    1. Hardware installation and working with legacy systems

    Factories generally have a wide variety of machines with different makes and models. Every machine has its own way of working and connecting with 3rd party devices. Industrial IoT implementation starts with connecting with the existing assets. With such a range of legacy devices, it is a tough task to connect IoT devices and sensors to them. There are multiple cases that arise from this.

    Does the machine support sharing data at all? If it does, what are the ways? If not, can the data be taken from raw circuitry? Different machines supporting data sharing by specified protocols might be locked and need to be paid to share the data.

    The Cherry on the cake, different machines will take different amounts of time and many times unpredictable amounts of time to install sensors and share the data.

    2. Data security

    IoT devices are distributed across different parts of a factory. In many cases, they are distributed across geographies. Different devices generate different types of data. The data has to be processed in real-time to provide quick insights to the clients. This is necessary because if there are any anomalies, actions have to be taken quickly. This data then has to be stored in different locations depending on the architecture. It is distributed across local edge devices and cloud storage.

    Such complicated architecture means a lot of points of failure. With new threats and vulnerabilities rising every day, there is always a threat of cyber attacks on IoT systems. Especially given the fact that we are working on physical and costly machines, and the confidentiality of the data generated.

    3. Connectivity losses

    Let’s say the IoT system has been implemented in a successful way. All the installation and security aspects are taken care of. But what if the connectivity itself of the place is gone? This is something that is not under the control of either the solution provider or the customer. Such external issues do mean a loss to the client in the end. What is the point of implementing an IoT system if one cannot get the analysis and reports they need, right?

    4. High implementation cost

    Let’s get straight to the point. Industrial IoT projects are very costly. Right from the initial surveys for feasibility to installation of the system to the configuration to the handoff, it takes a huge time investment as well. This huge investment will typically take months to years to get returns. The returns may not solely come from the system that is installed. Additional equipment may need to be purchased and installed to do so.

    Hence it is very difficult to predict from where the returns would come for organizations.

  • Product market fit

    What is product market fit? 50% of startups fail because of a lack of product-market fit.

    no of startups failing due to lack of product market fit

    What is product-market fit?

    When a product solves a customer’s pain point and adds the required value, it has achieved the product-market fit. In simple terms, the product is benefiting the customers to a level where they are ready to pay for it.

    In most cases, startups build products that are not required for the market or the market is not yet ready for adoption, and hence fail.

    How to achieve the product-market fit?

    By identifying the pain points of a customer segment, defining the value proposition & testing it with iterative minimum viable products (MVPs), the product-market fit can be achieved.

    This is usually an iterative process with feedback from customers. If one solution doesn’t work, change the solution. If the customer’s pain point is not a genuine one, work on another problem. The faster you move on, the more the chances to succeed.

    The basics behind this are not to remain attached to your idea and to be flexible to provide value to customers until you hit a target!

    How to identify product-market fit?

    After implementation of the minimum viable product, customers willing to use it actively at first is an initial sign of being in the right direction. Some signs of getting a strong product market fit are – 

    1. Willingness to pay, 
    2. Active usage of the MVP
    3. Active feedback
    4. A smaller number of customers churned
    5. Increased interest from other customers

  • Microeconomics vs macroeconomics

    What is the difference between microeconomics and macroeconomics? How are they related?

    Microeconomics

    When will my car be delivered? When would the new model of my phone be available? What price should I keep for my product? What is my profit margin? How much is the demand for this TV model? 

    These are some normal questions asked by us as individuals or in our profession on a day-to-day basis. These are the questions that directly affect us as individual customers, producers, or suppliers.

    Microeconomics deals with how the supply and demand for goods and services affect the stakeholders of an individual market. It studies how individuals and businesses respond to the economic environment under specific constraints.

    Macroeconomics

    How much is the inflation of a nation? What would be the GDP for next year? How much would a nation grow for the next 10 years? What are the current interest rates?

    Now these are a set of some very trendy and newsworthy questions that we normally hear on channels or newspapers. These questions might not directly affect us as individual customers, producers, or suppliers.

    Macroeconomics deals with a broader and high-level impact on an economy, typically a nation, of policies, and politics. It is concerned with how a nation would respond to a given economic environment.

    The relation of microeconomics and macroeconomics

    Both fields complement each other as they study different parts of a larger picture. Microeconomics focuses on the verticals of an economy – individuals and businesses. Macroeconomics focuses on a larger horizontal – a nation.

    Macroeconomy is the net result of individual microeconomies. Individual microeconomics contribute to a greater effect on the national or international level. The same macroeconomic conditions affect different microeconomies in different ways. For eg; the net export of a nation depends on the demand and supply of the products delivered by individual companies. Here the net export is a macroeconomic factor of study, whereas the demand for a particular product and the supplying company is a microeconomic factor of study.

    To summarize, macroeconomy defines where a nation is heading which is dependent on the net effect of all the microeconomies.

  • Minimum viable product (MVP)

    Post the prototype stage in the product development process, the minimum viable product (MVP) is meant to test of product’s ability to solve a problem.

    Making hypothesis

    A startup is nothing but a solution to a problem of a customer. Naturally, the starting up process starts with finding a pain point of a customer/s.

    When the problem statement is finalized, certain assumptions or “hypotheses” of the problem are made, upon which the validations are to be made. If the hypothesis is successfully validated, it can be further developed or associated with the final product. If not, the hypothesis gets rejected & new ones are built.

    Hypothesis testing

    These hypotheses are tested by minimum viable products or MVPs.

    MVPs can be as simple as a button in your existing web-based solution or newly developed “minimum” product. Depending upon the complexity of the hypothesis, the time required to launch and get results from MVPs differs.

    The sole purpose of MVPs is to test a product to the market in the quickest way possible before building a full-fledged one. Once the MVP has been successfully tested, the risk of failure is reduced and startups can go ahead with the actual development of the product.

    A lesson that I’ve personally learned is to keep the MVP bounded by time, along with features. This has helped us reduce the time investment.

    MVPs assure product development and enhancement with a minimum cost of money, time, and resources.

  • Customer delight

    What is customer delight? And how is it different from customer satisfaction?

    Customer Delight

    A good publicity for the product occurs when you bring a smile on a customer’s face. Customer delight happens when you provide something more to the customer apart from the basic proposition of your solution.

    It is not the same as customer satisfaction

    Customer satisfaction is when you deliver what you promised the customer and meet their expectations. Customer delights when you deliver what you promise and provide extra value to them. In short, you exceed customer expectations in this case and make a lasting positive impression. 

    Some good ways to delight customers can be quick and exceptional support, acting upon the customer queries quickly, etc. To under-promise and then over-deliver.

    Why is customer delight important?

    Because it eventually strengthens the brand. 

    1. Increased loyalty
    2. Positive reviews and publicity
    3. Increased lifetime value of customer

    Conclusion

    Making a lasting impression is what will make you stand apart from your competitors, no matter how big and strong the competitor is. In the end, people buy products from people. Thus keeping this aspect, and building a very people-centric experience, and exceeding their expectation will always help in the longer term.