[Matrix Moments] Do investors with running startups work better or others, asks Tarun Davda, Managing Director, Matrix India
Are you an operator VC or an investor VC? This question is an inherent part of the startup ecosystem.
In Silicon Valley, there are VC firms like Kleiner Perkins and a16z that are classic examples of successful operator VCs. For better context, an operator VC is someone who “has been there and done that” as an entrepreneur or intrapreneur.
So does being an operator in your past life significantly help in this business?
“I don't think there is any single formula for success. In any business and venture, you know just one of the businesses. I think there are enough archetypes on both sides of what it takes for you to know how to be a successful investor,” says Tarun Davda, Managing Director, Matrix India.
Citing some examples of Operator VCs, Tarun names Andreesen, First Round Capital - all US-based companies. In India, he takes the example of Matrix founded by Avnish Bajaj, an entrepreneur who successfully built and sold Baazee to eBay.
“Suvir Sujan, from Nexus Venture Partners, was also with him as a Co-founder; Bejul Somania from Lightspeed, from what I know ran a couple of companies. Shailendra Singh from Sequoia, K Ganesh from Growthstory, and a couple of the partners at Prime Venture were there too,” says Tarun.
Success on both sides
He adds that while there are successful examples of operator VCs, there are several successful non-operator VCs as well. Tarun explains,
“These are people who have come from consulting, financial services, or banking backgrounds. If you look at Michael Moritz, John Doerr, or Bill Gurley in the US - all of them are extremely successful investors but haven’t built or run companies themselves. If you look closer home, Ravi Adusumali from SAIF Partners has been very successful. He comes from financial services, banking, and consulting background. In both, I think one can build success. There are multiple formulae for success - one just needs to find their formula in terms of what works and stick to it.”
From an intrapreneur to an operator VC
While Tarun Davda currently is the Managing Director and Partner at Matrix India, earlier, he was an intrapreneur and successfully led two internet businesses – StepOut and BigRock. Tarun calls his entry into the venture capital ecosystem - Tarun accidental.
“I was running StepOut, pitching various Series B investors to raise my Series B round of funding. In that context, I met a bunch of people from venture funds both in India and in the US. I met Avnish from Matrix in that context, we hit off, and I thought he asked me some of the smartest questions as he understood the business well.”
“For various reasons, though Matrix was interested in investing at that time, we didn’t go ahead with the investment and this was more from our side. The interaction left a very good impression in my mind in terms of the kind of work and the quality of team Matrix had at that time. Our fundraise didn’t go off smoothly after that, and so we decided that it would make sense to sell the business. So, we ended up selling it to match.com," adds Tarun.
He continued to stay in touch with Avnish, and soon Tarun joined Matrix.
An operator VC can always tap into the insight and expertise that comes from being an ex-entrepreneur, and on the other hand, there’s always the risk of slipping back into operator mode and trying to micro-manage and get over-involved with your startup and founder.
The positives of an operator VC
Tarun believes that by definition an operator VC has more empathy because he has been in that position. They have seen what it is like to run a company, and go through all the difficult times.
“An entrepreneur has all eggs in one basket, you have been through that journey so there's a lot of humility and respect for what any founder is going through. There's a lot of empathy. So, I think that is definitely one advantage. The second is more obvious, you’ve got a bunch of experiences that you have been through as an operator, a lot of mistakes that you have made and you can pass on some of those learnings to founders, especially in early-stage ventures, where a large number of founders we back are either running their first gig or are very young and it is their first attempt.”
The pitfalls - the idea
Tarun says that as an operator VC, one tends to get overly excited by an idea because at the back of the mind somewhere, they keep saying “I can see how one would execute against this idea,” and then they quickly realise that as a VC they aren’t the one executing it and so the entrepreneur needs to be able to see how that idea would be executed.
Tarun says it is also important to understand over time as a VC you are going to be involved in around 10-12-15 companies.
“You are not going to have time to keep up with how quickly the businesses are evolving, keep up with every minute detail, you are not going to be hiring the team, or setting strategy. So, you quickly realise that even though the idea makes a lot of sense, you probably backed yourself and not the person who is going to be running it. So, that is one pitfall. I think, there have been examples where I have done that and you know it has not gone as well and it clearly is a learning.”
Getting too involved
The next problem is that there is a bias early on to get too involved. One of the biggest advantages of a VC is that you’re able to stay away from the day-to-day details and observing things from a distance gives a lot of perspectives.
He believes when you have less emotional involvement, you have a broader perspective without the day-to-day involvement.
“Also, the best founders just don’t like it, they just want you to stay away. You have to put your faith in them. You have backed them for all their positives and negatives and they expect you to then trust them in building the company the way they would want them to be built. Sometimes by staying too involved there will be natural disagreements and that’s not something that one wants to get into,” says Tarun.
Bring in a distance
Citing his personal example Tarun shares that when he joined, Avnish was clear in the first 12 months that there “would be no portfolio work until you spend at least 12 months sourcing yourself”.
“I remember for the first 9-12 months I didn’t attend a single portfolio meeting, I didn’t get involved in any work related to any of the companies that Matrix had already invested in and in some ways, it was more like 'hunt what you eat.' Go out there, source deals, meet people, find somebody you want to back, and that’s when you get involved in helping build a company. It was extremely hard because as an operator you are used to seeing results every week, or every two weeks,” he says.
“Also, there is always something happening, you are running some marketing campaign and or seeing some experiment working or not working. It did help me correct that early urge of getting involved too deeply with any of the portfolio companies. The last problem is that of micromanagement. I see the role of an investor as guiding, coaching, and asking the right questions but, eventually helping the founder get to the answer versus answering because I think that is, a dangerous territory,” adds Tarun.
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(Edited by Rekha Balakrishnan)