[YS Learn] Great founders will always have options; it is the investor’s job to read the signals: Rajat Agarwal, Matrix Partners India

Rajat Agarwal, Managing Director, Matrix India, has invested in companies such as Razorpay, Ola Financial Services, Jupiter, OneCard, ziploan, Avail Finance, Liquiloans, Testbook, Toddle, and Pesto. An IIT-Delhi and ISB alum, Rajat was at McKinsey as a management consultant for close to five years, with a focus on telecom and financial services. 

Hailing from a family of entrepreneurs in Delhi, Rajat also has operational experience in streamlining his family business. 

In conversation with YourStory, Rajat discloses what he expects to see in a pitch deck and the founding team, and what founders should keep in mind and avoid. 

Edited excerpts from the interview: 

YourStory (YS): What do you look for in a founder and the founding team? 

Rajat Agarwal (RA): Let me step back and say this: Pitching isn’t an exact science. That said, judging that pitch also isn’t a science. There is no one answer to what works in a pitch, and you will see a wide variety in everyone’s portfolio. 

That said, there are a few things that investors do look for to make the process simpler. When you look at the early stages - seed to Series A - we are looking for three things: 

The team, and why this specific team for this particular idea or business? 

The question here is what does this team know about the space that is unique? What is it that you know that others don’t get? It could be that someone on the team has spent a lot of time in the space or industry, or if you are young founder and don’t have the experience but have done enough research to form a unique and different point of view.

Early product-market fit (PMF) or customer love

Are there early signs that the product is working – usually visible in how quickly customers are signing up or coming back, how much time or money are they spending on the product, early indicators of customer acquisition costs, and finally NPS. Rahul Vohra, Founder of Superhuman, talks about this in a lot of detail and one thing that has stuck with me is this question that we like to ask customers: how will you feel if the said product is just not there?

If this works, can it be really large? 

There are many good businesses that can be profitable but for the venture capital model to work, portfolio companies should have the potential to become really large – that is a function of market size and profit pools in the industry.

At Matrix, while we look for all of the above, we have a ‘Founder’s First’ philosophy. One way to understand this is as follows: will you still invest in the team and the company when the market opportunity isn’t obvious?

Our philosophy is that we will still invest because we believe great founders are able to find great markets, and are able to create business models that can unlock great markets. 

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YS: Can you elaborate a little bit on the founding team and the founder personality? 

RA: In our experience, almost all successful founders have a few core ‘intrinsic traits’, such as ambition, drive, grit and hustle. Starting up isn’t easy, and building businesses is tough. People underestimate hustle but we think it really matters; it’s a combination of hard work and resourcefulness. These have no substitutes. 

Also, unfortunately, we have also seen too many founding teams disintegrating early in their journey. Hence, we also look for a shared history amongst the founding team, to see if they can stick it out as a team when things get tough. 

Additionally, selling capability matters - whether it is to get the first 10 employees, or the ability to sell their vision to different sets of people such as investors and customers.

Ideally, we like to get to know the founders over a period of time. Multiple examples in our portfolio (Jupiter, OneCard, Toddle, among others) where we have known founders for years while they were working in other organisations and we were the first investors to commit to invest when these founders decided to start up. In other cases, some founders come in highly referenced from our network.

Specially, in the time of COVID, if you’ve not known someone personally for a while, references become extremely important. 

YS: What should founders avoid while pitching to an investor? 

RA: Be yourself; trying to be someone you aren’t will not help your cause. People see through it. Many people get coaching on how they should pitch and what they should be like, but we see too many pitches and a coached pitch is very apparent. 

It is great to get an investment banker if you need help with your pitches and meetings with investors, but avoid bringing one to a pitch meeting. We are investing in the founders, not the bankers. 

While it is a founder’s job to be excited and optimistic about their business and the opportunity, most investors don’t like people who over-promise and under-deliver. It’s fine to a certain extent, but is a delicate dance. 

Most importantly, be a straight-shooter; we are straight-shooters. 

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YS: How do you, as an investor, ensure that personal biases don’t come in the way of investing in a great company?

RA: It is tough because ultimately we are all human beings. I have failed to invest in several companies because of some bias that consciously or unconsciously crept in. As it turned out, the company and the team were great; it was a missed opportunity. 

Putting personal biases aside is a constant endeavour. That is why we get multiple people in our team to meet the founders, where we look at core intrinsic traits and data. If there is traction and you aren’t able to justify it, it is your problem, not the founder’s. 

As much as it is the founder’s job to tell the right story, it also is the investor’s job to elicit the right things in a pitch. It is a two-way street. Great founders will always have options, and it is the job of the investor to read the signals. 

YS: What should a pitch deck contain? 

RA: It should be simple. The purpose of a pitch deck is to excite someone to take the conversation forward. It could be about the product, market, or the team. Whatever the hook is, it should make me take notice and decide to commit time to get to know the team more.

YS: How do you pick the right team when a particular segment is hot and everyone is investing in the space? 

RA: We typically have our own investment thesis in areas of interest. But ultimately it boils down to what does the team know about the space that others don’t know? Is it making sense, and can we work with them? 

YS: What advice would you give founders in times like these?

RA: Don't stress too much! Keep trying and hustle.