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Tag Archive : entrepreneur

Things Not To Do if You’re in the Entrepreneur’s Inner Circle

I have to admit that after my interaction with Dr Marcel, I have been a little obsessed with researching about entrepreneurial stress. So, over the last weekend, I read the treasure trove of links I had been collecting on Pocket and what I learnt was eye-opening.

Some of the most hard-hitting articles I found were The Psychological Price of Entrepreneurship written by Jessica Bruder, The Quiet Price of Entrepreneurship by Chris Cancialosi and 7 Reasons Entrepreneurs Are Particularly Vulnerable to Mental Health Challenges by The Failure Factor podcaster, Megan Bruneau. All the articles were written from a personal point of view and I could relate to them because not only have I been through what they were talking about (as an entrepreneur) but have also witnessed (and continue to) the emotional turmoil that foundership entails as an investor/mentor/board member. Let me assure you, it’s not all rainbows and butterflies.  I should also admit that the strong urge to write these two posts came from a personal episode, I recently faced.

The last 12 months have been nothing short of roller coaster ride in both my professional and personal life. The stress of operating a new business (read: launching a fund) while handing over the reins of businesses that I was previously managing to other partners was exponentially increased due to the diagnosis of a serious and life-threatening illness to an extremely close confidant and family member. This episode took place when things were just starting to look brighter after another close family member’s life-threatening illness was successfully cured. Just when it looked like there was a light at the end of the tunnel, I realized that it was a freight train coming towards me at full speed.

It helped that things at Artha were on a roll. Everything we were doing, we were doing well, and the recognition of our efforts wasn’t happening only in India, but on a global level. However, my stress levels were increasing unchecked and I was working myself down to the bone. However, I did keep up a strong image that everything was okay, that I could handle all that was being thrown my way, until the day my 25th flight of the year (yes, its been that sort of year!) was about to take off.  

Just as my flight was taxiing out, I got some shocking advice from one of my closest advisors which went completely against Vision 2022 for Artha. Normally, I would have reinforced the vision to my stakeholder, and I have done that several times in the past (and at times, even to myself) but somehow this particular advice upset deeply me, and I couldn’t put a finger on why.

The advisor, who was a part of my inner circle had acted on the advice of a third person who did not have a complete understanding of all the things that were happening at Artha.  Therefore, the advice was an opinion stated as a fact and did not hold up to any scrutiny. It was advice that was both, dangerous to provide and to hear.

That I went through this episode at a time when I was researching the importance of mental health for entrepreneurs made me realise the importance of sensitising the founder’s inner circle and the role they play in deriving peak performance from the founder.

As I had mentioned in my last post, most top creators/performers/founders have tight inner circles which provide a cushion from the noise of the outside world, as though it were a sanitised bubble. This inner circle acts as a sounding board that at most times aids a founder to discover answers for themselves. The members of the inner circle could exist in the background, but they have a vital role to play and their importance can be gauged from examples of people like MS Dhoni, Sachin Tendulkar, Warren Buffet, Virat Kohli, VVS Laxman, Michael Jordan, and many more who have openly spoken about the important roles their inner circle has played.

Therefore, while it is as important for the inner circle to keep a check on who they give access to in order to maintain the cleanliness of this sanitised space, it is also important for them to keep a check on the advice that they provide. I have personally witnessed the destructive power of polluting this sanitised space in the case of the swift destruction of my ex-boss’ legacy and have read about it in the case of Vijay Mallya, Anil Ambani, Vinod Kambli, Amanda Byrnes and several others.

I am quite sure that there need to be some clear guidelines for the inner circle to follow, on the things they should “not do”. Essentially, what I have realized is that just like it takes a village to make a man, and an ecosystem to build a start-up, it takes a strong inner circle to build an entrepreneur. So, if you are a friend, an advisor, a mentor, parent, sibling or a family member to an entrepreneur, this is a list of things you have to stop doing (seldom against your best intentions) because it is causing us ‘entrepreneurial- stress’.

  • Projecting your own doubts onto us

By nature, every successful founder has ton of self-doubt. We doubt the assumptions we’ve made on our business plans, whether we will achieve all the goals we’ve set, whether we will have enough time or money to achieve those goals, whether the market is changing against our expectation or whether our competition is pulling a fast one on us. I could go on for days on these self-doubts, but you get the idea.

We do not need any more doubts added to this list (unless it comes from someone working with us). In fact, we need space to clear our own doubts, therefore, adding additional ones (which sometimes aren’t even well researched) is detrimental, period.

  • Making us focus our attention on results v/s the process

The media judges a company by how fast they achieve results, but it is important to remember that the best businesses are (and will be) the ones that spend time developing the right processes which in turn, deliver consistent results, even if it might take a bit longer. Just like instilling good habits in a child, building the right processes take time and patience.

When our closest network lets outside influences cloud their best judgement and then (they) attempt to colour our lenses, it is going to lead to a long term disappointment. Instead, it is imperative for our support system not to judge us based on results – good or bad.

  • Constantly chirping in our ears about our mistakes

We often make mistakes, tons of them, and we will make tons more. Our failures are scars in our memory and I rarely come across a founder who hasn’t learnt from his/her mistakes. What is important is that we understand the reason for the mistake, learn from it and avoid repeating it. Our inner circle can help by ensuring we do not drown in failures. But it is fatal to consistently chirp in our ears about where we’ve gone wrong causing us to relive that stress yet again.

  • Publicly sharing our failures and privately praising our successes

I have learned that the best way to protect a close relationship with anyone is to praise them publicly and criticize them privately. However, I see many inner circlers doing the exact opposite. This creates an excruciatingly difficult social & personal situation for us.

I simply do not advocate false or effusive praises.  In that case, you can avoid praise altogether. But criticizing us openly (or behind our backs) and putting us in a defenseless position is honestly as good as shoving a knife in our back, and I’d request that you avoid it at all costs. Just speak to us directly in private if you have any criticism whatsoever.  

  • Drawing comparisons

Like there’s an Afridi for every Sachin, a Djokovic for every Federer or a Suarez for every Messi, every business has a competitor or peer that could be performing better or worse than them (at some point in time).

While I agree that it is important to be aware and informed about what our competitors (or compatriots) are doing, our business model and path to success do not need to be the same. I believe in emulating versus imitating, but the choice of whether we should change (or not) should be left to us.

  • Forcing on us the opinions of advisors we have not chosen (most important!)

Maybe you’re at a party or a social gathering and you meet someone who gives you their opinion on our venture (with whatever titbits of information they have). You find their opinion/ judgement to be awesome and it completely changes your outlook towards our business. Now, instead of challenging your newly acquired opinion by first researching the advice you’ve been given or checking the credentials and the experience of your advisor, you blatantly pass that advice on to us and present your acquired opinion as fact.

Our entire business plan that could be moments away from validation, is now asked to be altered because you believed this ‘new advisor’ knows more about our business than us. This causes major stress and can affect our relationship in the long run.

If you have been doing this to the entrepreneur who counts you as their inner circle, please stop. Instead of meaninglessly passing on one person’s opinion, you should either put in time and effort and do some research or discuss it with us with full disclosure on who provided the advice so that both you and I can collectively come up with the right way forward.

Just remember that not all inner circle members are needed for advice on the business and each person plays an important role but as long as they do not try to become what they are not. So just like an expensive car should only be tinkered with by a well-trained technician, business models should only be tinkered with, by people who are or have been deeply involved in the business and have an experience in doing so.

You should adequately challenge any ‘random’ opinion you hear, before uttering it to the entrepreneur. Even then, that suggestion should only be followed if (and only if) the entrepreneur is convinced to take action. After all, it is the founders who have to run the business and not the person whose half-baked advice you have been listening to.  

32/2019

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Are entrepreneurs high performance athletes?

While I was in London last week, I was lucky enough to have fish and chips with Dr Marcel Muenster of The Gritti Fund. Marcel has had a unique career path of becoming a fund manager, he studied medicine in Germany, did a Masters from John Hopkins and was an entrepreneur before taking the plunge into becoming a fund manager. Since we were together on a couple of panels for a Family Office conference on alternative investment strategies, we got talking and realized that we have a lot in common despite our career paths having started in wildly different ways. However, when Marcel spoke about utilising his medical knowledge to get the best out of entrepreneurs, I was hooked.

Marcel is setting up a unique accelerator experience for entrepreneurs in the Middle East through The Gritti Fund. One of the important USPs for this accelerator will be that it will require entrepreneurs to work with a psychologist who will mentally condition their minds for peak performance. Marcel believes that entrepreneurs go through similar experiences as high-performance athletes i.e. the performance pressure, a roller coaster of highs and lows and the failures outnumbering successes by a long margin. Therefore, instead of treating the entrepreneurs like a herd of cattle he wants to carefully manage their psyche and bring out the best in each one of them.

I resonate with his thoughts because I have been on the entrepreneurship roller coaster several times as both an entrepreneur and seed investor. I have been through the months and years of sustained pressure and have seen my entrepreneurs facing the same. Many times, I can only watch as the entrepreneur makes a series of blunders due to the pressure that his entire ecosystem has put on him/her; it irks me to be a silent bystander in such situations.

It is serendipity that I am in the middle of reading the autobiographies of two widely successful athletes i.e. Michael Jordan and VVS Laxman. It is clear how the former’s mother and latter’s uncle played instrumental roles in protecting these athletes from parental, societal, friend-related and performance pressures. They built a kind of cocoon around them during their formative years and performing years and continuously steered them to maintain focus on their craft. A similar comparison could be drawn in Warren Buffet’s autobiography where his wife and friends built a cocoon around Warren so that he could remain lost in his world. Marcel had thought through about marrying both these concepts, it was one of the big ‘aha’ moments of my life.

31/2019

3 Things to Learn About Investing from a Founder that Sold his Company for $465 Million in 2013

On Friday, AIMWI  invited me to be a panellist for their 6th annual Family Office Summit India 2018. One of the perks of being a panellist is the opportunity to listen to the speakers scheduled before my session. I can point out many instances where the nuggets of wisdom imparted by speakers have led to impactful changes in my entrepreneurial, investing and even personal strategy and/or views. Today was one of those occasions.

I had the privilege of listening to Hexaware Technologies’ founder, Mr Atul Nishar, who shared the wisdom of putting to work, the wealth he gained after selling his stake to Barings PE in 2013. There were 3 key points that will remain etched in my memory:

  1. Putting money into fixed deposits is the riskiest investment one can make
  2. A part of one’s investment portfolio should be earmarked for investing in start-ups
  3. People that believe that 99% of start-ups fail are misinformed

76/2018

8 Steps to Increase ‘Deal Momentum’ in your Fundraise

It is a common founder complaint that Indian VCs & angel investors take a long time to close an investment. I believe so too.

However, the reality is that founders expend all their energy preparing their pitch decks and put in very little thought and time in the next steps that an investor will take if they are interested in the venture. It is in these crucial steps that the shine & sheen of the presentations start to wean, communications become sporadic and the “deal momentum” is lost.

Founders should understand that VCs do not have any incentive in extending the deal closure process. We know and realize that raising capital is an expensive affair and each day that is wasted because of some routine issue, is costing us too; in associate salaries, legal fees etc.

Thus, based on some recent experiences, I have prepared a list of 8 actions that founders should take BEFORE hitting the fundraising market.

1. Prepare a detailed financial model for fund utilisation

Founders should be ready to whip out the fund utilisation plan during the pitch and prove that the number they are raising is not pulled out of thin air. The first 2 years of the model should be prepared on a monthly basis and quarterly for the last 3 years. They need to prepare the model themselves and vet the numbers so that they can hold up to independent scrutiny. They can also bring in a financial professional to provide a sanity check on the model, but it is important that founders prepare the model ON THEIR OWN. Ideally, a founder should create at least 3 versions of the fund utilisation model:

                    1 that is based on the amount of capital the venture needs to have

1 that is based on the amount of capital the venture should have

1 that is based on the amount of capital the ventures would love to have

2. Clean up your cap-table

Founders should know the investors they have on their cap table. While pitching to a prospective investor, they should make it a point to clearly announce their cap table. Popping up surprises to the cap-table after a successful pitch will destroy investor confidence and invite additional scrutiny which (by design) will delay deal closure.

A piece of advice – please issue share certificates to all shareholders or demat your shares.

3. Know your numbers

Founders should make sure that their pitch and their financial statements show the same numbers.

A disassociation of 2% is understandable but that is the threshold.

4. Get a legal professional to prepare your company for due diligence

Founders usually spend lakhs of rupees in the process of fundraising for their venture. Therefore, investing 30-50k in hiring a legal professional to prepare an internal due diligence report shouldn’t be a problem. A legal professional can help in providing a long list of legal & compliance issues that need to be addressed. Founders can then start working on resolving those issues so that investor’s due diligence is smooth & hassle free.

5. Organise your files

Organising all the files i.e. employment agreements, manuals, rent agreements, licenses, audited financials, etc into physical and digital folders is essential. Founders need to be well-prepared when asked for records and putting them neatly into dropbox folders that are a click away will impress any investor.

6. Prepare a long list of references

Founders need to think of all the people that can vouch for them professionally, personally and socially. Let these people know that an investor could be calling them for reference. They should be ready with the list of these references for the new investors when they ask for it.

7. Pre-select your team for deal closure

To get an investment in a company, it is required that the company has a team of Company Secretary, a Chartered Accountant, a Merchant Banker and a Lawyer. Founders should pre-select a team of reputed professionals who will work on documentation & file requirements of the fundraise once the investor is on board.

8. Apprise your previous investors, mentors & accelerators of your fundraising plans

If the founders have mentors, if their venture has previous investors, or if it is part of an accelerator, it is imperative that they inform about it to the investor they are pitching to, BEFORE hitting the fundraising circuit. It also helps to get the approval of the board for the fundraise (if they are independent or investor directors) before any official fundraising pitches are made.

67/2018

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 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.  

59/2018

KISS for Your Customer

Firstly, I want to thank all the people that have taken the time to reach out with words of encouragement for Artha Venture Fund – I. I have been trying my best to reply to each person individually but if I have missed you out, please do know that your encouragement means a lot to me and my team and due to your support we are more motivated than ever to prove to be ‘the’ investor that an Indian startup founder is looking for.

Last week I connected an investee company in the lending space with an investee company in the product space that was coming up with a higher range of products and wanted to provide a financing option for their customers. The objective was to create a symbiotic relationship between the two parties to create more business for both, so it was a no-brainer from my perspective. However, a week after they were introduced, things were moving much slower than anticipated. Therefore, on Monday, I set up a lunch meeting with the founder of the fintech company to understand the roadblocks that were holding things up.

In an attempt to keep things transparent (his intentions were good) the financing company founder sent over a detailed excel sheet to try and educate the product company founder on how his financing model worked and how the interest that was calculated and collected was accounted for. This excel worksheet completely broke down how this product loan worked. Unfortunately keeping things transparent is not the same things as keeping things simple.

The financing excel sheet became the epicentre of confusion for the product startup and its team and no matter how hard they tried to decipher it, were unable to make any sense of it. This is just like how you or I would look bewildered if a Maruti dealership handed us a bunch of bills detailing out the price of each component that went into our car instead of the final price that we are supposed to pay, the spreadsheet led to little panic at the product company HQ.

Therefore, the financing startup founder, the AVF team and I brainstormed over lunch to bring the loan product to a maximum of 4-5 points. Thirty minutes later we were able to achieve our mission in only 2 points. To test out whether a simpler product would move things along quicker, I reached out to the production company founder yesterday and the interaction you see below is self-explanatory.

Founders make the common mistake of overestimating their customer’s sophistication levels and instead of making the decision to purchase easier – they end up making things more complicated without reason. Founders want to “sound” smart and therefore start to make simple things complicated instead of dumbing them down. This leads to a situation where the customer is overloaded with information that he/she cannot process so they are compelled to ask for time to “think about it”. Although the founder may feel that a person asking for time is a good sign, this may be a clear signal that the customer feels overwhelmed with excess information.

Therefore, I believe that any product’s or service’s value proposition (big or small) should be communicated as simply as possible. The other person should understand the proposition clearly enough to make a quick decision whether he/she wants to purchase the product or not. There shouldn’t be a period of pondering over it, wherein the customer is actually just trying to understand the deal. You can sound smart and make your customers feel dumb (no have no sales) or you can sound dumb so that the customer feels that they are making a smart decision. The choice is yours.

33/2018

Beware of This Type of Angel Investor!

Exactly a year ago, I wrote about a growing malaise in the angel investment ecosystem in the post You are NOT an angel investor. It is serendipity that I am writing about sub 5-lakh ($7500) investments from angel investors that are starting to cloud the cap table.

Founders that are raising multiple small cheques from many different angel investors are only shooting themselves in the foot. They should take a moment and ask themselves (and hopefully the investor) why the investors aren’t willing to put in a respectable investment of at least Rs. 5 lakhs?

Do they

  • Lack conviction in the venture?
  • Are hedging their bets by spraying and praying?
  • Are they testing this new investment class?
  • Do they not have the liquidity required to invest more?

If the answer to any of these questions is a “yes”, the founder has reason to be gravely concerned. Investors that lack conviction in your venture are coming along for a ride only if it is smooth, the moment your ship starts swaying in rough waters, they will be the first ones to jump off. The scenario isn’t any better for the spray and pray investor. Both these investor types will create havoc for the founders not only by paying late on the investment but also reneging on their commitments if the company goes through stormy weather. If the cheque size is Rs. 5 lakhs or more, it is still worth getting these passive investors albeit they pay on time. However, to raise a small cheque from an unreliable investor are two variables that can be best avoided.

The investor that doesn’t understand angel investing or doesn’t have to wherewithal to invest a respectable sum of money into your start-up, is only making you the petri dish to understand a new investment class. Why should your venture be that experiment? Why don’t these investors just pay for executive education programmes on angel investing in India or abroad? This will only set them back about the same amount of money that they are willing to invest in your venture. Let them learn investment lessons on their own dime (and time) and not use your bandwidth to do so. In addition, you can avoid the mess that these rookie investors will, later on, create by needling on non-issues or holding up later rounds because they didn’t get the upside that they envisioned.

A second thing that the founder should be wary of is an investor who has a limited net worth and is investing it in a highly risky investment class like startups. What will they do if the investment goes south, like a majority of startup investments do? (it’s the truth, whether we like it or not) Can these small investors gang up and sue you for selling them an investment opportunity that they did not understand? In most western countries, only accredited investors who have the money and understanding of sophisticated investing are allowed to invest in startups. Despite petitioning different government organizations to bring in this type of accreditation, I have seen no action. Why should your startup become the case study to create that accreditation in India?

I have personally been in investments where these small cheque investors were invited with much fanfare. They were responsible for ruining good opportunities for exits, acquisitions and even raising new rounds of finance. The reward you will get from this small investor is just not worth effort. Avoid this investor at all costs.

 18/2018