Your investor is like your spouse... Cyrus Driver, Managing Director, Helix Investments

By Team YS|27th Sep 2008
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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

 

Partner /

Director

 

Principal /

Vice-President

 

Associate/ Analyst

 

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
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