When is the right time for an investor to give up working with a venture?
As an entrepreneur turned investor and very competitive person, I have had to grapple with this question many times in my seven-year career as a startup investor. There have been instances when the decision was as clear as night and day, instances when I have clearly held on for too long and instances where I have given up too early. My team and I have learnt from those experiences and incorporated those lessons in our future investment endeavours.
However, there is a grey area wherein the venture is doing well, numbers are trending positively, the total addressable market huge but there are certain factors that prevent the venture from achieving the “escape velocity” that separates a good venture from a fantastic one.
Some scenarios include businesses that have transformed into a lifestyle business for the founder, the sector becoming heavily regulated, the inability of the founding team to pitch their business well to new investors or invoke the confidence that can drive bigger cheques. It is these ventures that cause the most heartburn because they have all the ingredients to make a great company but just a few factors make them plateau.
There may not be a 10-point checklist for an investor to decide whether it is time to pull the plug or not, but I’ll leave you with this insightful piece of advice from AVF’s CFO/Growth Partner that helped me seal the fate for a venture that I have been rolling over hot coals for, for the past 2 years. He said, “if after 2 years, this is how they speak to you, how will they speak to future investors 2+ years from now?” and my decision after that, was just that easy.