How much is too much
There is a growing set of investors who believe that their investment has bought them the right to turn the founder into a general manager and the business is now their personal fiefdom where they will apply any tactic they wish to choose without any real strategy behind those tactics. This is possible only because the founder is just a phone call away for the investor. That privilege however, is getting misused, grossly misused.
Let me be clear, I am in no way advocating that newbie founders are let loose with investor money. The new founders need the investors intellectual & experience capital as much as they need the capital provided by the investor’s cheque book. That in no way means that investors get involved in the day to day functioning of the company and delve into each decision of the founder. The investor needs to give them to freedom to make decisions and run the business because eventually the investor makes money if the founders perform and let’s be clear an investor cannot be running the several businesses as a founder as part of a long-term investment strategy.
As an early stage investor, my team at Artha Venture Fund are as hands on as they come. We will review KPIs on a weekly basis with the founders, we audit their bank statements, we get them to prepare MIS presentations, organize quarterly calls with investors and we will review the periodic audit reports with a fine-toothed comb. Does this process look like too much interference? To the naked eye it does but let me explain the thought behind this approach as it achieves two well defined goals for us.
The primary objective behind this approach is to get the founder (and us) to understand the numbers that the business is throwing out and the correlation between those numbers. As we (the founder & our team) start to tweak a certain metric what is the correlation it has to certain other metrics. Eventually over the course of a few weeks we can narrow down all the numbers to 4-5 major metrics define the business.
Initially this exercise can be painful, passionate & heated because just like a MF Husain painting the interpretation of the numbers lies in the eyes of the viewer – where one side can see opportunity the other sees calamity. We (as investors) fall back on our experience to back our arguments and the founder will back their instinct and many times we will agree to disagree. Whichever strategy the founder chooses to follow the result will show in the new datasets that come up but something bigger is happening now.
The founders have input, discussed and strategized on their numbers for such a long period of time that their instincts start to mature, the mind memorizes the metrics developing in the founders, a knack to choose the right decision and to course correct without waiting for the next weekly call.
In there we have achieved objective number 2 – developing & setting the correct habits into the founder. The failure rate of businesses can be drastically reduced by a founder who has the correct habits as well as a minute understanding of their business. The correct habits can be explained in an hour but to develop them it takes weeks, sometimes months. So, our handholding remains till we start to see that the founders have inculcated the right habits and can fall back upon themselves to figure out solutions.
At this juncture, we surreptitiously start to scale back our hands-on approach. We purposely cancel or miss the weekly calls and we start doing them once every two weeks, then every three weeks and there comes a juncture where they don’t need us at all. This independent founder utilizes less of our perishable time capital and delivers more to the assets side of our balance sheet – a situation we wanted from the very start.
This is and will always be our goal for any investment we take on but when I see investors playing founders and destroying everything they touch something needs to be said.
It is unacceptable.