First of all apologies for having vanished suddenly from the YourStory circuit. Some people say a hiatus is good for recharging batteries. I hope this break has done just that and I am able to share more insightful articles on startups.
One of my key learnings from the last 7 years in investment banking is to have immense amount of patience. There are long periods of inactivity only to be followed by a frenzy of activities that sometimes make it difficult to manage the whole show. In the time in between, however, we ensure that the intensity is maintained and the focus is not lost. That’s a universal truth for not only business but also life – which is why you need the right investor. Let me just highlight a quick checklist for the right investor:
a) Sector- based investor: Ask Obama and he would accept that the carpet bombing in Afghanistan never worked. The point I am trying to make is that most investors have preferences to certain sector/ business. A quick look at their website and their past investments is a good indicator. So unless an investor clearly mentions that they are sector agnostic, it is prudent to approach the ones who have some understanding of your industry/ sector/ business.
b) Prepared investor: A common yet irritating aspect to raising funds is to repeat the same story again and again. But you will find that while most investors listen to it very intently, only a handful of them have actually prepared to listen to your story. They “want” to know the why and how it happened. Tell your story with the same zeal to everybody but watch out for those whose most excited expression is “Hmmm… interesting..” Remember – they are not worth it.
c) Fast moving investor: The whole business plan is built around the fact that on “x” date, the money is going to hit the bank. So, while in the real world there will be delays, they won’t be to the extent that accommodates the growth of the company. Speed is the essence. It makes sense, hence, to set the expectations right to the investor about the timing of the funding. A prudent investor will ideally communicate their process expectations and timelines beforehand ensuring that they do not waste the company’s time.
d) Participative investor: Most marriages fail because the partners stop communicating with each other. While the agreements set forth the rights and obligations of investors, there are many who seldom provide inputs. Please bear in mind that while you may enjoy the benefits of the investors’ non-interference in the day-to-day matters, such dormant investors carry a lot of nuisance value when it comes to taking key decisions where their approval is necessary.
e) Strategic investor: Funds are important, but there are investors who can bring in considerable value to the business with their experience and connections. Not only do they provide funding to the company but give the company a much needed edge/ fillip. The only flip side is that they are extremely hands-on and at times can suffocate innovation in a start-up.
f) Deep pocket investor: Very few businesses are able to leapfrog into the big league with little or no investment. Most of them require regular doses of capital infusion to ensure that the business stays ahead of the curve. While raising capital may not be a frequent exercise, it’s an exercise nevertheless that stares at your face every 3-5 years (at times much before that as well). It might make sense to select an investor who (if the business does well) is willing to commit more capital if need be. It saves significant mental and financial effort in the future (of course it does put our future business in jeopardy as well).
Pragmatism apart, I would also suggest you listen to your gut feeling. There are some people with whom you really come together like a “house on fire”. Might make sense to go with such guys.
As I have always maintained that I am not an expert and I am also learning as I share my experiences with you guys. “Learning from your mistakes” – old idea. “Learning from others mistakes” – new idea. Thank God! Abhishek Bachhan is not around to say – “What an Idea, Sirji!”