By 2005, a company I had co-founded called Mobile2win (originally started in China in 2001 and then brought into India in 2003) was sailing…
We were first movers in the India Mobile VAS (value added services) space and things were looking up – thanks to all our learnings in China. The first Indian Idol voting platform had been successfully handled by us (and ever since) and Sony India had made us a long-term partner. We were partnering with lots of media companies, selling our mobile games on Vodafone and creating creative marketing platforms. Rajiv Hiranandani – head of the business was doing a great job.
The success was also creating a sweet problem:
The business needed a series B investment to scale and my existing investors – Siemens Mobile Acceleration from Munich and Softbank Ventures from China were not at the best of terms with the management of mobile2win.
Just a month earlier I had come back from Shanghai and attended the most bizzare board meeting ever in my memory. The meeting started at 9 am and by 9:30 am, there was war in the boardroom. 2 Germans (Helmut Struss and Oliver Kolbe from Siemens), 1 Indian (Gopala Krishnan (GK) – the CEO) and 2 Chinese (Peter Hua and an Observer from Softbank) were all screaming at each other simultaneously in German, Chinese and in Hindi (me telling GK to control himself). The issue was typical start-up stuff – scaling up, finances, hiring, firing etc, etc, and while I let them go at each other (Softbank shouted at GK for pointing fingers with this hand – a very ‘disrespectful’ act in China), clearly this was a board that was not going to co-operate with me for raising money in India.
Back home, when I started showing mobile2win around, there was massive interest. Sandeep Singhal of Sequoia India was kind enough to stay up late night in his room at the Taj, Mumbai and hammer out a term sheet for me the next morning.
All these and more got no responses from Softbank and Siemens. So I asked them what they really wanted?
Softbank was not going to put money in and Siemens wanted out. They were non-Indian VC’s and only Indian VC’s would understand Indian Mobile VAS space and hence invest.
This was going to be a tough deal to close out.
One afternoon, I met Pramod Haque and Vab Goel of Norwest Venture Partners. ( I later learnt that Anupam Mittal of shaadi.com fame had turned down a term sheet of Norwest for funding Mauj.com).
Norwest stepped on the gas and took an active interest in talking to Siemens and Softbank and understanding their motivations. They engaged with mobile2win management and also spoke to other investors.
A few days later, late afternoon I received a phone call that precipitated into the ‘toughest decision of my life’ :
Vab indicated that he had settled all issues of valuation, exit and new investment between Siemens and Softbank and the management of Mobile2win (GK and Rajiv), and that Norwest and another VC was ready to go ahead in massively funding mobile2win at great valuation terms.
Except, there was one condition:
Alok (me) had to exit the company!!!
At first I thought he meant Alok had to be distanced from management and I told him that I was barely involved. “Exactly” he told me – “You have no role to play, do not have the capacity to invest more money and your chunk of equity will free up lots more space for new investments”. Essentially Norwest wanted to buy out the promoter, make the company totally VC owned and then drive the management themselves.
Over weeks, I understood that this was a non-negotiable stance by Norwest. Also, the other 2 investors – Siemens and Softbank were sold on this solution and began to pressurize me to exit (For the innocent – if most VCs want an exit to happen, they can force the promoter to do the same using the ‘drag out’ clause).
So, here I was – someone who had founded a good company, sitting on the brink of VAS value explosion in India, and now being offered millions of dollars to walk out. It became a very puzzling and difficult situation to handle..
Since the Company was structured in China, I took a legal view from a historic law firm in Hong Kong called Haldanes and I remember the very polite British accented lawyer talking to me for 1 hour non stop till I interrupted and asked him – “Do I have a case to stay in”? He replied “No Alok”.
I then consulted my most supportive VC and guardian of all these years – ICICI Ventures. Bala Deshpande and Nandini Satam were so objective in their advice and mentoring – I still regard ICICI Ventures as the best thing that ever happened to me as an entrepreneur.
Late night at 2 am, I got up and sat in my living room and brooded about the exit from mobile2win. I would be rich, the company (contests2win) would receive substantial cash to do other things etc, etc … At the same time I would also have to sign a 3 year non compete from doing anything mobile in the world (!!) and have to live without what may become a billion dollar company without me.
Legally, I could battle it out… A ‘drag out’ would take months to execute and kill the deal and also the funding – so it would finish the company. I would have at the most won a Pyrrhic victory…
The next morning I called Vab and said ‘ I’m selling’.
The deal closed within 4 months. It made me a dollar millionaire and more importantly put cash into the mother company (since share were held by contests2win) that allowed us to pay a 1250% dividend to shareholders. We invested 1 million US$ into games2win that jump started the business and received funding from Clearstone and Silicon Valley Bank.
The months that passed were dark. VAS continued to haunt me and I would wonder if I had lost the biggest opportunity of my life… Mobile2win India hired big wigs from TV and elsewhere and moved into a 10,000 sq feet office (from the 1500 sq feet office I had). They hired over 200 folks and seemed to the hottest company around…!
So, what was the outcome you may ask?
In 12 months post the deal, the cracks in the VAS business began to appear in the Indian Mobile space. Operators were unrelenting to share more than 20-25% revenues, payments were delayed by months and the business became strangulated with lots and lots of wannabes giving away content and revenue share for free.
24 months later, mobile2win was flipped over by the VC’s to a Chandigarh company called Altruist for a non-cash deal. The business had collapsed and this was clearly the VCs saying it was over.
For me, this was not sweet revenge but just the toughest decision (to sell or fight) that had turned out so positively!! Added to this was the fact that the non compete got over in 2009, so I became free to do anything in VAS!
And what happened to Mobile2win China? GK left and a smart Chinese called Nick Zhang was hired by Softbank and Siemens as the CEO. Nick turned the company around and then astoundingly sold it to Walt Disney (USA) in a multi million cash $$ transaction. Softbank China, Siemens and my group got lucky again!
If you liked this piece, you may also like my blog ‘Confessions of a digital entrepreneur‘
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Fantastic article Alok. It would be interesting to know what you are doing now..
Harish – I run games2win.com – a global top 20 online games business
Alok I think more entrepreneurs should come up in open and share their story. Its great for the rest of us. There is so much of talk and write up about how to raise money. I think equal amount of talk must happen what happens post that. You are a winner.
wonderful insight…ur instinct turned out right. but let me ask you a question, if you had stayed back what would you have done differently from thereon ?
I would have sunk… The industry just turned too hostile…
Do you regret the decision. As an Entrepreneur and a Spirited Founder, do you think you gave up irrespective of what happened in VAS Space later. What made you quit.. Personal Interests or motivation for your child to take next steps without you…
I had no choice!! The cash was too hard to resist vs. Making the company go bankrupt… Finally, I don’t believe in the vas space in India… It’s like a ‘dalal’ business… Playing broker for a mere few % points and then begging operators to pay you on time etc etc…the world is a bib big opportunity and who cares about mobile vas? Online games for instance – the business I am involved in is the farmvilles and mafia wars opportunity … And in these businesses, the creator keeps the bulk of the revenue – not the operator!!!
Hi Alok
I’d say sometimes destiny has its ways and gives us chances and you took it (probably many a times before – as u turned entrepreneur). Its good to park the ego.
Glad it worked out for you!
Wonder (& hv been for a while) when’s a good time to take the plunge and how attached should one be to his own thoughts & ideas. How to get investors to see the point of view as most of them are not for “passion” led business, but want numbers ONLY.
Very interesting post and really appreciate the honesty of the post. The most renowned incident similar to this was with Apple; although Steve Jobs was back in business to turnaround the company from almost bankruptcy. Check this link.
http://www.thedailybeast.com/blogs-and-stories/2010-06-06/why-i-fired-steve-jobs/
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Great Post. Good for young entrepreneurs.
Superb stuff.
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Hi Alok,
Respect your honesty and courage.
BTW, why did Norwest and company want you out of the business ?? Could not understand that part of the story ??
oh – coz i was not part of management at all. Rajiv Hiranandani was the country CEO and was running the show. I was a founder and hence undesirable (but very expensive) furniture
Hi Alok,
Given a choice is that a decision you would have taken differently? Meaning, would you have run the show yourself instead of roping in other folks just for management?
I also happened to read your other post where you strongly advocate the cause of non-founder CEOs. I also believed in the concept till I came across the below post.
http://blog.pmarca.com/2010/04/why-do-we-prefer-founders-as-ceos.html
You also seem to advocate the cause of long-term focus/value creation for creating a company with strong fundamentals. Somehow according to this post, long-term value and non-founding CEOs do not gel; and they have very strong data to back that up. Would be keen to know your views about this.
Arvind – Its a tough question coz knowing how VAS companies collapsed around the Industry between 2007-2009, in retrospect, I would have not done anything differently.
I totally endorse professional CEO’s as the best way to grown Companies. Founders are very narrow minded and attached to their businesses – which sometimes need to be junked!
Finally, in terms of re-thinking how to be in a better negotiating power than the one I was in Mobile2win – I don’t have an answer… In simple words – I cant think of a solution.
I think you have expressed the dillema faced by every entrepruner when it comes to leaving the company by whatsoever reason. This time it worked for you (Can I say fortunately ?) however if mobile2win would have been a successful & growing business house anyone can understand feelings of the father who gave birth to a child like this and had to abandon it. I always wonder what should be rated first idea or money ? In absence of Idea and an entrepruner pouring efforts into his idea, money is just a heap of paper currancy then why still entrepruners are traded like commodities ? I am in an early start up phase and everybody I talk to demands more & more equity. They say its a big risk for them and I feel I am trading a gold mine with them becauase I know what’s my idea’s worth. Anyway really liked to read your ‘moment of truth’, this will help others like me while planning our business lives.
Alok Touching piece. Thanks for sharing!
Alok, interesting insights in what goes behind those walls. Do you regret taking VC funding in the first place? I am guessing that a mobile VAS startup couldn’t have been bootstrapped. But do you think if you go back in time, would you have taken that funding?
Oh absolutely!! Entrepreneurs always raise money and VC’s always chase entrepreneurs… its the ying and yang of value creation!
Also, dont forget – this deal got me my first million US$
Money in the bank feels very nice 
Oh yeah! What I meant was that do you think this was the only way you could have got your first USD million
Good luck with your existing and future endeavors.
Thanks for sharing this story. I don’t think I would have a problem leaving. I’ve found that in most cases, I can affect a company’s operation whether I’m employed or not.
How long did you keep active with operations after the “payout”?
zero. nada. they never let me enter!
Thanks for the clear talk. I’m an entrepreneur in Bangalore and it’s very refreshing to hear something more realistic than the usual “i-want-to-be-my-boss” kinds of postings.
So far the stories and anecdotes we can relate to and learn from are all in US (venturehacks et al)
Perhaps you can do this on a regular basis?
cheers!
Very inspiring and interesting story. Though, I never though a Web Entrepreneur could have gone through so much in India. Until now, I was of the idea that we have negligible number of young entrepreneurs with a vision. You achieving so much makes me see things differently.
Would the non-compete be enforceable in California?
If it isn’t, then what would prevent you from simply moving to california, and freely competing?
Doug, the non compete was global since mobile2win was a global play. Having said that, it freed up in 2009, so I am now a free man! and sure, got unto the iPhone and now iPad band wagon…
It sounded so easy the way the story was told, that is, to the point where you had made it happen in China and move into India but I’m sure it was hard work (being a partner in companies here myself). Glad it worked out! Hope it does it for me!
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Whatever happens always happens for the good…
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Good piece. You started the company and then chose to distance from day-to-day ops and handed over the reins to someone else. Why so? I see that you are passionate about your business, so why didn’t you choose to run it?
Cheers,
Indus
Wow… Amazing question Indus. I was distracted running contests2win.com my first company and love… And assumed that GK and Rajiv would honour the trust I placed in them… They didn’t!!!
Hi Alok,
Infact, its very difficult to convince any other male to play father of my child. But, still there has to be a controlling string, to keep things under the belly.
Rather, i endorse your decision. Its always a wise act, seeing someone more capable and powerful (assumed), to take the idea to its destination, if we have a trouble doing so. Being in love with the destination of the idea is more important than making yourself drive the chariot there.
Cheers.
Aalok
wow…. so well written….why dont you contribute blogs to rodinhood?
With the non-compete, do you still long for the mobile? Maybe, look at other alternatives?
Interesting article. Honest. Easily read in minutes by readers but am sure it takes guts to do this!
The non compete got over in 2009! So I got into VAS on the iPhone etc…
Hi Alok, thanks for sharing. Great read and learning
All the best.. Rgds Shailesh.
A very inspiring and great experience. I have read this 4 times in single sitting. Thanks for sharing this experience. But then the question remains unanswered:- How an entrepreneur can save himself from drag clause? Can a exit period lock help in such situation? You didn’t have such a lockin period?
You cannot escape drag out and latch on clauses if you are going to get vc funded. What is an exit lock in? That’s if the new buyers want to keep you in for managing the company…not for founders who play no operating role…
Alok, hats off to your guts and honesty in discussing a sensitive subject as this, im sure 99% of the people out there would rather let these things stay under the rug and maintain ‘dignified’ silence ……
You rightfully mentioned that you being a non-managing founder made you into ‘expensive furniture…..therefore if you were to look at it from the VC’s perspective they weren’t they right in buying you out and creating the critical ‘space’ in the co to bring in further equity ?
They were right… no questions on it. I just got very very lucky…. what hurt was that I was not allowed to even keep 1-2% in the Company at the exit… When I asked for it (ir return to still guide and consult), I was told to BUY it at the funding valuation!! So I had live for 2 years with the dread that the % that was snatched away would be Billion $ worth rather than the Million dollars odd that I got….
Connecting the dots, I will say that decisions does make a difference but I have seen that committed fellows make almost all decisions work for their own advantage. There can be less bad days vs more bad days with a bad decision but certainly nothing means no good days for a committed fellow. I have seen my share of good and bad days in last one year but I haven’t played big guns yet, I have one more year to fix up SFC and then I will move with other ventures of TechShu. Keep writing.
Hey Alok,
Though i worked with m2w for a short time & had some small interactions with you as well … i had felt too bad when i read the m2w story & about your exit. Surely it must have been a tough call. I guess you have the Midas touch & would make gold out of anything that you lay your hands. Wish you luck for games2win. Just one thing, VAS is surely more than dalal business … at least the area we work on
Br,
Kinnari
Good one Alok. Liked your candor.
In terms of drag out I believe it usually applies if majority or greater than 50% of voting shareholders want, then the founders have to exit. It requires the VC’s to be united, depending on who owns how much.
How did Contests2Win do ?
Ravi,
The holding was 33.33% each between Siemens, Softbank and Contests2win.
So Siemens and Softbank collaborated to effect the drag out – the internal understanding Softbank had with Norwest was that they would be let in again into the company (since they wanted to remain a shareholder).
Hi Alok,
Superb article!!! Hope one day i will write smthng similar which will help youngsters to move ahead in bizness.
Thanks
Bobby
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You must be so happy you get to deal with VC’s who just got off a flight from the US and offer to deals on figures based on the American Market.
Snatching is expensive, Vab. Very expensive. (But it isnt your money)
Hahaha!! So well put!!
Is getting shot in the head actually better than dealing with Vab Goel.
(I dont expect you to answer this but you know what I am talking about.
Oh I will sure answer it. It pained like hell when I got shot in the head. I died actually, but interestingly enough, the journey took me ultimately to heaven. When I looked down, I saw something very interesting. The Gun had recoiled on its fire and had injured the shooter badly. After a while it took his life
Doesnt the LP kick them in the nuts when the run a ‘bani banaye’ company to the ground? Or simply for their foolishness?
I mean sure valuations took a hit but screwing it up so totally.
AND
Vab, if you are reading this, please buy my company as well. And no, it all yours for XX Million without having to resort to dirty tricks like making a side deal with my CEO. You can take him, he will help you wreck the company.
Just dont let sense and rational thinking come in the way of ego and arrogance when it comes to valuation. Thats all. Thanks Vab. Love you Vab.
Let me be objective about this. Firstly, mobile2win shareholder were given equity of Altruist – a going firm that may or may not return value back. So technically the investment is not ‘dead’ till its pronounced dead. Secondly, Norwest Venture Partners is a massively successful VC firm. Pramod Haque has the ‘midas touch’ (this was part of the file folder presentation that Norwest showed me when introducing themselves). The firm has returned multiples to LP’s. So, why would LP’s care if 1 transaction in puny Indian goes a bit haywire? I know that Vab stepped down from the Yatra board also and hasn’t been spotted in the India market for a while.
Thats because too many people will undertake a yatra to the airport to do a deal. If the flight doesnt land aisa lagega log hartal pe baithe hain.
But the larger point is not even the valuation. It is the way our man likes to treat the entrepreneur. Straight out of American culture(ok, most of it isnt bad) when a VC with an imperialist mindset would aim below the belt to screw the entrepreneur any which way possible. Dirtier the better.
Its clear what was happening in m2w. They had an understanding to get your original VC’s to drag out your holding. A symbolic 1-2 percent wasnt much for them but it showed how deep the rot had set. Even Jobs kept back one share after Markkula Vabbed him.(Ok, he could have bought that from the market.)
They start off the deal by looking for the dirtiest way they can screw the entrepreneur. If that fails, they look for other cleaner ways. Thats the issue.
But it clear that the time of the Visiting Vulture Capitalist is passe.
A wave of VC’s is rising in India, Alok. The guys who actually breathe the air here and understand the Indian mindset. And they will play a pivotal role in making India the worlds most powerful economy in the next few decades.
“Markkula Vabbed him” Nice phrase. By the way VAS business in india is still flourishing and will reach new heights. As you said alok there were cracks in indian VAS but I think the “big wigs from TV” didn’t understand to compete in VAS business. Afterall showing programmes on TV channel is different than selling “Tring Tring”