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Category Archive : Exits

When Should I Pull the Plug?

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 endeavors. 

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.  

58/2018

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6 Books I’d Recommend to Every Entrepreneur

An entrepreneur’s primary role is to sell. At any given point the entrepreneur is selling whether it is

  1. Selling himself on why he is pursuing this idea.
  2. Selling his employees on why they should join or stay at this venture
  3. Selling his friends and family on supporting him in his new (and often crazy) endeavour
  4. Selling his customers to try out the new product or service he has developed (and to pay for it)
  5. Selling his business as an investment opportunity to potential investors
  6. Selling mentors on why their valuable time will be well invested in him
  7. Selling to investors to continue supporting his business

The list of selling activities can go on for pages… and I still would not have even scratched the surface of the number of selling activities that an entrepreneur is actively involved in. Therefore if there a skill that an entrepreneur should learn is the skill to sell.

I have found that the following 6 books made the maximum impact on my sales, investment and entrepreneurial careers as well as the careers of people whom I have mentored and helped to grow in their respective sales and entrepreneurial roles.

Ideally, you should read these books in chronological order since the level of complexity increases as you progress down the list.

  1. The Greatest Salesman in the World by Og Mandino
  2. How to Sell Anything to Anybody by Joe Girard
  3. The Four Agreements by Don Miguel Ruiz
  4. How to Win Friends and Influence People by Dale Carnegie
  5. How I Raised Myself from Failure to Success in Selling by Frank Bettger
  6. Unlimited Power by Tony Robbins

Have any books helped YOU shape your entrepreneurial career? I would love to know so do share them in the comment section!

11/2018

The math of early stage venture capital

Today I met with an entrepreneur in the travel space that kept reiterating that they wanted to grow organically and without burning money. The “startup” wanted to take it’s a offline business model of booking air tickets, where it earned a respectable profit – online. 

Coming from a strong referral I spent a couple of hours understanding what they did. I concluded that while their current business model was perfect for a family run business they didn’t realise that early stage venture capital would demand that they show rapid growth in the value of the company.

So, I explained to them the following math:

  1. As an early stage venture capitalist I want to build a portfolio of startups that will yield atleast 60% irr.  
  2. So if I put Rs. 100 in 10 startups I have a total portfolio investment of Rs. 1000 
  3. My holding period for an investment is 7 years 
  4. After 7 years the Rs. 1000 investment at 60% irr would turn into Rs. 26,843.50  
  5. I expect 9 out of 10 startups to fail 
  6. Therefore I expect that the return from a single startup will return the Rs 26,843.50 
  7. So, the single investment of Rs. 100 should to return a 122% irr or 268x in 7 years to grow to Rs. 26,843.50!  

At the end I explained to them if their business lacked the potential to growing a rapid pace then early stage venture capital was the wrong form of capital to raise. I think something clicked in their mind when I drew out these numbers and they left thanking me.

I just hope I didn’t scare them off venture capitalists, forever! 