The Failure Club
On Dec 11, 2006, I celebrated my first significant ‘failure’ by finalizing the sale of my nascent venture capital fund, Horizen Ventures, to one of the largest venture funds in the world. Not even 3 years old, the fund that had been teetering on the brink of spectacular collapse practically from its inception was suddenly the biggest player in the investment world’s hottest new market – India. While most would likely consider my improbable success to be a crowning achievement, I am confident this will be merely the first of many intentional ‘failures.’ This project, and my counterintuitive embrace of failure, was the result of an absurdly ambitious endeavor, The Failure Club.
A favorite quote of mine extols: “If you’re not living on the edge, you’re taking up too much space.” Even with size 13 shoes, I take up anything but too much space. For me, living on the edge means constantly pushing the boundaries of what we believe is achievable. Accordingly, in 2004, my friend Gunil Chung and I co-founded The Failure Club – a transformational, life-altering book club-like, support group, of sorts. This then, is the story of valiantly trying to fail, and failing.
In The Failure Club, members learn to defy the fears associated with ‘failure’ by pursuing seemingly impossible goals that they set for themselves. From the outset, failure is not only a highly probable outcome, it is the desired outcome. Only through embracing the reality of failure can its’ societal stigmas be stripped away and replaced with an inspirational alternative.
Thomas Edison famously experimented with some 10,000 materials before discovering the filament necessary to complete the light bulb, and consequently, illuminate the world. Had he feared and avoided failure, we would still be stuck in the dark. To the contrary, he celebrated each failure as another definitive step towards ultimate success. In much the same way, The Failure Club embraces failure as a critical step on the pathway to authentic fulfillment. All too frequently, ’success’ is what people are willing to settle for when they are afraid to risk failing at something truly life-defining. To give 110% and still come up short means that one has discovered the actual limits of his capabilities – a rare and inspiring accomplishment that is worthy of genuine celebration.
We believe that once ‘failure’ becomes acceptable and even fun, it is only then that one discovers that his limitations are self-imposed and determined primarily by fear. When we overcome that fear, we blow away our self-inflicted limits, and we will each achieve results that appear miraculous. Horizen Ventures is one such miracle.
Horizen Ventures
I founded Horizen Ventures in early 2004 with a dear friend, Anil Viakara. While we had each independently toyed with the idea of a venture capital fund in the past, the inspiration that truly launched it was The Failure Club. Participants in The Failure Club each agreed to choose a project that would be nearly impossible to accomplish within a year. Because all the members had accepted the high probability of failure from the beginning, there were no stigmas attached. This left me free to fail in the most extraordinary fashion I could conjure up.
Anil and I had been close friends since 1996, and had collaborated on various business ventures in the past, including his defunct software company and my defunct online venture. Emboldened by our stellar records, it took little more than a casual lunchtime conversation at a local diner to convince us to join forces and launch Horizen Ventures.
The first formative step was to open a bank account, and we launched our $10,000,000 fund with an impressive deposit of $20 – a foreboding sign of things to come that neither of us seemed to appreciate at the time. By the end of the first year, our bank account was showing real signs of growth, having moved briefly into the land of three digits before settling back down at $50. We discovered that small round numbers are easier to track than all those extra zeroes. On other fronts, there was similar progress. Over the course of our first year, we racked up an impressive volume of emails, meetings, and conference calls. We mostly discussed our fleeting chances of success. We also settled on a logo.
By years end, a combination of factors including Anil’s visa status, the strain of his 22 hour flights, and his growing desire to settle down back home, led us (yet again) to the conclusion that Horizen Ventures had no chance of success. It was simply impossible for us to build a company in NY while he was building a life in Bangalore. But just when we had resigned ourselves to throwing in the towel, it unfortunately occurred to us that we could reorient our fund to focus on India-based companies. Failure had again eluded us.
As a bonus, because the costs of running businesses in India are much lower, our new focus had effectively multiplied our fund size by a factor of 5. We were in the big league now. As it turns out, Bangalore is the Silicon Valley of India, and in 2005, was on the brink of an entrepreneurial explosion. The only thing lacking was source of start-up capital. Enter Horizen Ventures, an early stage Venture Capital fund deep in experience and flush with cash – at least, that’s what our website claimed.
Having spent much of his life in and around Bangalore, Anil’s local connections, combined with our supposed $10MM, proved invaluable. In no time at all, high-quality business plans were flowing in. Truth be told, it was starting to look more like a monsoon. While $1MM in start-up capital in the US will get you little more than two guys and a laptop, the equivalent capital in India can fund a mid sized company. This was the greatest thing since sliced naan. We could not believe this turn of events, and immediately reworked our pitch to the investors we expected would be falling all over themselves to get in.
As we began making calls, we came to realize that we had somehow overlooked a minor detail – that neither of us had ever done this kind of thing before. And another even more minor detail – that no one else had either. Contrary to popular belief, the people who invest in venture capital funds are not high-risk kind of guys. To limit their downside risk, they have perfected the herd mentality. They look for indicators such as experience, track record, market surveys, competitive analysis, and other perfectly reasonable data points to demonstrate a high probability of success. We had exactly none of those. But what we lacked in those areas, we made up for in cleverness. By mid 2005, we had concocted a brilliant plan.
In an effort to demonstrate the strength, attractiveness, and growth potential of the Indian venture capital market, we decided to compile a portfolio of potential companies that we would consider investing in after we raised the $10MM in investment capital. We reasoned that once potential investors in Horizen Ventures saw the spectacular potential and the low cost of entry, they would quickly gain a level of comfort and just as quickly start writing checks – big checks. To further solidify our position, we worked out a $500,000 contingent funding agreement with our first portfolio company. This reassured them that money was guaranteed, pending certain minor conditions – like our continued solvency.
Surprisingly for us, this company actually needed the funding that we had chalked up as contingent, and as time passed, that need was impressed upon us with increasingly polite enquiries. Anil and I, having both been inflicted with the fatal flaw of integrity and personal accountability, decided that the short term solution was to borrow whatever we needed to tide them over. Freshly reassured of our imminent success, and having averted an embarrassing financial disclosure to our first portfolio company (at least for 30 days), we celebrated in the most responsible and disciplined way we could imagine – we signed a second contingent funding agreement – this time for $1MM.
What made the second company particularly impressive was that we had to compete with the largest, most successful VC firm in the country for the honor of making this investment, because the company was founded by the same guy that had founded Hotmail, which subsequently sold for $400MM. The competing fund was so shocked that we had been chosen over them that they first offered to join us on the deal, and then the lead partner on their side left the firm. It was the ultimate validation for our fledging fund, and we again geared up for the flood of investors that were sure to come knocking.
While we were waiting, we passed the time accumulating more debt. As the idea of contingent commitments had gone completely out the window, we were now making installment payments on $1.5MM in financing commitments. During this period, I came to appreciate the phenomenal amount of trust that our friends had placed in us. With no track record to speak of, we were able to borrow hundreds of thousands of dollars secured by little more than our good name. I had never felt more honored – or more terrified.
Having only just completed a 7 year effort to pay off the debts resulting from the collapse of my first start-up, the situation was starting to look alarmingly familiar. As we stumbled into the spring of 2006, we were all but out of options. While the funding requirements kept rolling along, relentlessly on schedule, the funds coming in were simply not enough. We were approaching a critical juncture, and we started planning for the now inevitable conversations with our two portfolio companies. Failure was finally in our grasp.
In June 2006, deliverance came in the form of a random call from a life-long friend of Anil’s. Kabir, who at this point knew nothing of Horizen Ventures, announced that he had just recently been hired by Softbank, one of the largest venture funds in the world, to launch an early stage venture fund in India. With $10MM sitting in a dedicated bank account, he was ready to hit the ground running and was hoping that Anil might have some good advice on where to start. Somewhat in shock, and half-expecting the whole conversation to be a joke by his friend, Anil nevertheless highlighted all the progress that Horizen Ventures had made since its launch. It was quickly apparent to Kabir that an established local firm with an office, a full staff, and two thriving portfolio companies, was the perfect partner for Softbank, and they quickly presented an offer to merge.
Given that India is such a small, intimately connected community of only maybe a billion or so people, the fact that the guy Softbank selected to lead their new fund would be one of Anil’s lifelong friends seemed to fit with the overall theme of improbability that had defined the entire endeavor. Anil and I were now faced with the toughest decision in the history of the company, to continue our painful slide towards inevitable collapse, or to effortlessly secure $10MM in funding and join forces with one of the world’s most successful firms.
Within a week, a merger plan was drafted, and on Dec 11, 2006, we formally became the India office of the Softbank China India fund, with Anil as a Managing Director. The fund has continued to gather momentum and is expected to close with $125MM in June 2007.
My Failure Club project for 2004 was to raise a $10MM early stage venture fund within one year. I failed – it took three.
Philip Kent Kiracofe, Jr
March 2007
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