Your investor is like your spouse... Cyrus Driver, Managing Director, Helix Investments
Tips to win over your investor from a VC who is also an entrepreneur
Lesson 1: You need a CFO. NOW!
"In God we trust. Everyone else, email us monthly investor updates."
- A good CFO will repay his salary/stock cost a hundred times over.
- A good CFO is often the difference between success and failure in fund raising.
- If you don't keep your investor busy with financial updates, he might start thinking up ways to re-engineer your business. Keep him busy
Lesson 2: Wait for the right contact
- Junior members of the team have the power to say "No" but not "Yes"
- Pitch directly to those that have the power to say "Yes"
VC firm hierarchy
Lesson 3: Be conservative
- Surprise No.1: Some VCs do "get it".
- You don't need to over-promise to claim value.
- Surprise No.2: Many VCs are gullible (and that's not good news for you).
Lesson 4: Fixed versus convertible valuation
- Fixed valuations mean immediate disappointment. Convertible valuations mean disappointment
- compounded with time.Bargain as hard as you want, but don't start believing your own spiel
- if you want to close a deal.
Lesson 5: Flattery will get you everywhere
- 90% of VC's (or their investment committees) suffer self-doubt:Why me? Why is he signing up with me? Am I overpaying? Why haven't other firms bid? Am I missing something?
- Pander to the VC's desire to win deals through "value add". Tell him
- again and again why you love him and need him (yes, just like your spouse).
Lesson 6: Exit rights – there's no escaping them
- Most VC/PE firms are US headquartered and bring over US mindsets to India.
- Understand where they're coming from. Exit terms are a deal breaker for the VC/PE. Don't take a hard stand. You can't win. Avoid the drag right if you can,
- but don't sweat too much if you can't.
Lesson 7: Bank on a banker
- A good investment banker will make your business plan "investor ready"
- Introduce you to the right investors. Get you the best terms
- You need to guard against:High fees: Anything over 3% is extortion.Approaching too few investors
Lesson 8: Don't overestimate your investor
- Herd mentality is quite common (forgive them, for they're just like you … )
- Value add in certain limited areas. Extremely useful in M&A, overseas information gathering, future fund raising. Typically don't have operating experience. They
- can ask the right questions, but are not good at providing the right answers
Lesson 9: Honesty really is the best policy
- To get the best out of your VC/PE post investment:
- Give bad news as early as possible
- Give realistic and accurate updates
- Don't embarrass your investor/investor nominee director. He's your most loyal ambassador.
Lesson 10: Focus
- Keep it simple. PE's love "more of the same".
- Avoid unrelated or loosely related diversifications
Lesson 11: Overused cliches
- Terms/arguments investors are fed up of hearing:
- Hockey stick
- Inflexion point
- Low penetration / low per capita consumption in India