[Matrix Moments] VCs should give inputs but not mandate what a founder should do: Avnish Bajaj

The relationship between an investor and founder is nuanced and governed by multiple factors. In this episode of #MatrixMoments, Avnish Bajaj, Founder and Managing Director, Matrix Partners India, offers a primer on the boardroom etiquette and practices that a first-time founder should keep in mind. 

Fund raising can be a daunting task for any founder, and more so if you are doing it for the first time. Not only do you have to navigate the complexities of the process itself, but also ensure you strike the right engagement with the investors. 

If a founder has multiple VCs who are interested in investing, how should they go about picking the right VC for their business? 

Avnish says, “The best investors add value. But the reality is that the best value an investor brings is money for the founder. I joke with founders often saying that that if I had to add value to them, then I am probably making the wrong investment, because they should hopefully know a lot more about their business and how to build it than I do.”

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Choosing the right investor

However, the Indian ecosystem is now maturing to a stage where good founders are spoilt for choice. They can therefore measure VCs and choose them based on their own criteria, a trend that is seen abroad right now as well. The important thing is to understand what kind of investor you are looking for. Are you looking for a domain expert? 

“In the US this has been very critical. And, it’s largely been for enterprise SaaS kind of businesses. Somebody who is able to open their network to you, and get you a number of business leads,” adds Avnish.

Then there are founder-turned-VCs versus VCs who haven’t been founders. While many founders think it makes sense to go for a founder-turned-VC, Avnish says data says otherwise. 

“The data is that two-thirds of the best investors in the world were not founders before. But they may have had operating background like John Doerr and Bill Gurley, who were not founders before. In fact, sometimes a founder VC may be actually too operationally involved and that maybe a challenge,” adds Avnish. 

Set the rules of the relationship 

Avnish likens the relationship between a founder and their VC to a marriage.

“It is all about going through scenarios and asking each other questions. ‘What happens if I am missing budget?’ ‘What should I expect from you?’ ‘What should I expect in this relationship?’ ‘What happens if you are 50 percent behind plan?’ ‘Are you going to keep spending money at the same rate?’,” says Avnish.  

He adds that getting that kind of alignment with each other is important, and so is asking for and understanding the VC’s commitment to the startup. 

It is important to understand very early on if you will enjoy working with a VC. “Now there is enough track record and founders should be checking with other founders what it is like to work with a particular VC. Chemistry with the VC should be tested by gauging how one feels while sitting across from them,” says Avnish. 

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The rules of engagement 

But what are the rules of engagement? Avnish believes the best partnerships he has had with founders is when they have transcended from the strategic over to the tactical.

“If I can be a thought partner to a founder when they have the biggest dilemmas, that’s when I think the relationship works best. But, that’s not how company building works. It is not just strategic stuff. The what and the why is strategic; the how is tactical. And I think some level of engagement on both fronts actually works best,” he adds. 

Typically, the tactical engagement with the founder would be on a weekly or a fortnightly basis. 

"I would definitely have a monthly catch-up. The monthly catch-up would be typically us as Matrix and the founder. Because if there are co-investors, it’s a little bit of a tricky balance, because then for the founder it’s effectively a board meeting. So I want the guard to be down, but at the same time not increase the overhead for the founders. In some cases, we have those monthly updates with co-investors,” says Avnish.

He explains that the Matrix team looks at a pull engagement, rather than a push engagement.

“If you are going to keep calling them with some question or the other, it can get annoying. But, you have to earn the pull. So, you have to demonstrate enough value addition along the way such that they pick up the phone and you become what we call the first port of call, especially if it’s a tricky situation or bad news,” says Avnish. 

Board meetings 

As companies grow, their engagement by definition moves a little bit more from tactical to strategic. And there are the board meetings. 

“Companies sometimes confuse operating reviews and board meetings. A board meeting is an update, but it is a strategic event. And if a real operating review-style deep-dive is required that should be outside of a board meeting. A good board meeting, depending on the stage of the company, runs for two to three hours,” Avnish says. 

He explains that board meetings are not for information dissemination.

“They are for discussion. So information should not be disseminated at that time, as people will need to absorb it and there is going to be no strategic discussion. So send out the information in advance, at least three hours before the board meeting,” says Avnish.

Working around differences 

It is human nature to have differences no matter how well you work with someone. So how does one work around differences with one’s VC? 

“There is a wonderful opportunity for you as a founder to learn from your experience. As a founder, you still end up wanting to make your own mistakes because the power of a founder is that courage of conviction, that gut feeling that you can make it happen. And you will ultimately make your own mistakes. But a VC should give inputs early enough as a warning. Most decisions are fixable, even if there is a mistake,” Avnish explains. 

Finally, he adds that a VC should never mandate that a founder should or should not do something, as that would kill their spirit.

“Give enough inputs as to the milestones that will decide whether this is working or not working. And then have an honest discussion on how to reverse decisions if those milestones are not working. I have found that that works almost all the time,” says Avnish. 

Listen to the podcast here.

(Edited by Evelyn Ratnakumar)