It’s only been one and a half years into Fund II, but the stark realities between the exuberance of 2015 to the rationalization of 2016 inspired me to pen down some thoughts on my Fund II learnings.
Disclaimer: It’s a 7 min read..
“A traveller came to a village and asked the sarpanch what kind of people live there. When asked what people lived in his village, the person replied, ‘evil and rude’, to which the sarpanch replied that the same people lived in his village. When another traveller came by and told the sarpanch that good and kind hearted people lived in his village, the sarpanch gave the same answer”… you attract what you are.
I genuinely believe that people is what makes successful companies, not the market nor the idea.. Both the latter are being disrupted and are changing at a phenomenal pace and thus one can only hope that the people you have chosen can keep up with this pace and relentlessly execute. Having a well balanced team has become imperative while working with portfolio or looking at new opportunities. It no longer can only be good technology, folks, though that will always be the bedrock of teams that I would like to work with.
The first three months are the most intense, and basically decide the equation one shares with the team throughout the investment. This constitutes mainly softer issues like trust, humility and respect. Some companies have taken us on roller coaster rides, whether it was due to changing market realities or competition and the only anchor that held fast was our implicit confidence in the team and hopefully, visa versa. I am proud of the kind of disruption that the companies have created in their own spaces be it hyper local logistics, student lending, insurance or re-thinking the communication layer. Unfortunately in today’s shallow investment world it’s sometimes more about vanity metrics as compared to building an economically sound, well thought-of model.
Our success, assuming we have chosen the right founders, is, I think, to ensure that we spend an inordinate amount of time getting senior level hires to ensure that scalability does not become a challenge when all else is working. Moreover, strategic and tangential thinking can be helped with recruiting seniors / advisors from different industries and not necessarily from the ‘startup pool’.
Warren Buffet puts their acquisition/investment philosophy very succinctly. “Berkshire, however will join only with partners making friendly acquisition. To be sure, certain hostile offers are justified: Some CEOs forget that it is shareholders for whom they should be working, while other managers are woefully inept. In either case, directors may be blind to the problem or simply reluctant to make the change required. That’s when new faces are needed. We, though, will leave these “opportunities” for others. At Berkshire, we go only where we are welcome.” 4 years of your life should be spent with people you want to work with..
“ Most people think of Alibaba as a story, it’s not a story it’s a strategy.”… Jack Ma
At every stage of the journey either the market changes or the competitive dynamics change. The only thing that’s constant is change. How one adapts to it is going to determine ‘temporary success’. Being in complete sync with how the founders are thinking helps in ensuring that advice/feedback is in line with what their focus is at that point of time. Every quarter, I think a founder can focus on one thing and plan for another for the next quarter. Strategizing on how to keep having a differential strategy or competing intelligently is critical. Some insights can be derived from research papers, publications and secondary data.
Moreover as each of us is trying to assert our credibility with our companies so that we are the first port of call (whether it is the next round of funding, who to raise from, people leaving, hiring people), getting very deep into the business is a good option. This also helps enormously when a company is looking to raise future financing or potentially getting acquired. Helping them veer their way to an acceptable and reasonable ask from the right parter in a fund is quite critical to ensure that the probability of success post Series A is also high.
Ensuring that the promoter teams remain humble (Mohit@Runnr), rational (Arpit @Runnr, Deepak@Slicepay, Mukund@Dunzo), passionate (Kabeer@Dunzo), persistent (Rajan@Slicepay), thoughtful (Anand @Turtlemint) and aggressive (Dhiren @Turtlemint) with laser sharp focus (“Customers first, employees second and shareholders third” .. Jack Ma) is quite an uphill task.
“A butterfly coming out of the cocoon was given a helping hand. The man cut the cocoon to enable it to come out due to which the butterfly came out swollen and could never fly.” … value-add the right way.
Identifying the right functional gaps in the organization and getting the best people to fill them is quite critical. Identifying the specific right gap was the tougher one. Moreover, focusing on providing assistance in one area as compared to distributed assistance turns out to be more helpful.
In my experience, convincing the promoters on potential hires only happens when you review the current people in the organization handling that function, with the founder, and then get an expert in that field to expose the gap. Most of the time the promoters will potentially see this once an expert has given his feedback, so following this route has been a helpful aid. It’s also helpful to interview candidates that the promoter has liked and then have the promoters talk with some of the candidates that you have identified without providing your feedback. This helps eliminate bias.
“A king saw circles with a bullet hole dead centre, all through the town and assumed there was an excellent marksman. He then discovered that the person shoots first and draws circles later!” Do VC’s do the same, building conclusions first and then creating the premises?
External Investors are probably not the best judge of a model and thus having them decide what might be wrong / right and letting them dictate the future of the company will be detrimental to the confidence and success probability of the entrepreneur. The optimum amount a company should need to raise to try and reach unit metrics and trending towards profitability in my opinion is around $1.5-$2mill. Thus as investors, if we can get aggressive and shut out the noise in the ecosystem and build companies that sustain without necessarily requiring another round of capital then I would call ourselves successful.
“The rule in the monastery was not ‘Do not speak’, but ‘Do not speak unless you can improve on the silence.’”
Collaborating with the Series A / B fund is a tricky one and I have learnt to be the underdog. They have the responsibility to be be able to deploy large sums of money and create a potential to make the company a $200mill+ company, so working with them / assisting them even if they take the credit might still be worth it.
Keeping points focussed on what the lead VC is trying to ascertain (generally though a questioning round as compared to an authoritative voice) has helped me. Trying to ensure that both the investors’ advice / language / opinion are communicated together either through f2f meetings or con-calls ensures that the entrepreneurs do not play one against the other and the value is amplified.
I’d like to end with Jack Ma’s words
“Today is brutal, tomorrow is more brutal, day after tomorrow is beautiful. However the majority of people will die tomorrow night.”… so how does one create immortality even though they are mortal?
Thoughts shared above are based on my experience working with the sub-portfolio of companies that I actively manage at Blume Ventures.