I had another call today where co-investors batted for tranched investment to ‘ensure financial discipline’ in startup founders. I am strongly opposed to it. Either you trust in founders and invest, or don’t. Put terms in agreement to ensure financial oversight.
Hate milestones based investing. Things go wrong all the time. Putting founders under added stress of uncertainty on funds is useless.
Early-stage startup founders must’ve often heard from investors/ advisors to build runway for at least 18 months when fundraising. Yet, quite a few founders plan for much less. “We will raise Series A in 9-12 months” is a risky strategy, usually driven by an attempt to limit dilution.
There is a simple reverse-calculation to justify a minimum 18 month runway.
If you’re an entrepreneur raising funds and the investor is keen to put in specific targets in your shareholder agreement & link it to valuation/ investment tranches, understand the following 3 things before you sign.
1. Get ready to be distracted: This isn’t super founder friendly behavior and builds uncertainty on your dilution/ funds availability. It will be distraction that’ll keep from 100% focus on business even after fund closure. Question if the investor is right for you.
It’s common knowledge that the technology sector is booming, almost globally. Tech companies continue to grow and create value at a pace previously unheard of.
Today, 5 of the 10 most valuable public companies (by market cap) are from the tech sector (via Globevestor). One would expect this to get even more skewed in favor of tech over next few years. In 2016, while the tech sector in US employed only 4% of the total workforce, it created 10% of all new jobs.
You’ve thought about it over & over. You’ve spoken to family, friends & colleagues, and everyone’s been supportive. You’ve got great potential and have displayed it in some way or the other in academics or job. People who matter believe in you. You’re much better than most so-called founders these days. If they could do well, you’ll do great.
Media says this is the golden era of startups. Cost of starting a tech company is very little now. And of course, those who take no risk get no rewards.
I have had the chance to observe startup founders both in the Bay Area and in India over the past 2.5 years. While it’s a small duration, it does seem to me that founders in India are relatively less aware about how startup investing actually works. By this I mean an understanding of the VC math, acceptable investment terms, exit paths, cap tables and other nuts and bolts that have nothing to do with technology stacks, target markets or business models.
If you were to ask an average Joe (or Jai!) founder in India, who’s yet to close a round, anything regarding investment terms beyond pre-money valuation and dilution, there’s high chance that you’d draw a blank.
In the past year at Globevestor, I have closely witnessed a few instances of startup fundraises where key investors behaved un-admirably, by failing to honor their commitment or trying to re-negotiate previously agreed terms of investment at the last minute.
Mostly this happened at the round closure stage, i.e. post term sheet/ due diligence & during paper-work/ money transfer, despite the investors being well aware of the limited runway & options available to the startup. At worst, they possibly happened specifically because of this knowledge!
In startup parlance, I’m doing a beta launch for this personal blog. It doesn’t quite feel ready for primetime, but as is said that if it doesn’t feel broken then you’ve waited too long to launch. So here goes. To begin with, have ported here two posts on startups that I wrote a few months ago, as they are quite relevant.
At Globevestor, we’ve been actively investing in India for about two years now, and it’s been a great ride so far.
The past 2-3 years have been a golden period for the Indian startup ecosystem. The exponential growth has slowed a little only in the past few months, as it has globally. Steady growth and positive macro-economic factors since 2008 created a huge opportunity that a few smart entrepreneurs spotted early. Their success has created an environment where entrepreneurs are no more outcasts, but are instead the rockstars.
In parallel, the local angel investing ecosystem has boomed as well. As a result, many investors who aren’t close to the startup ecosystem are beginning to invest in startups. Sometimes, they do it without understanding the associated risks.
Writing a pitch deck shouldn’t be very tough, yet many founders struggle with it. The confusion seems primarily on the level of detail required and structure of the deck. I hope this post is of some help.
To be sure, this is intended for early-stage startups targeting investors in India. In my experience, decks in the US are quite brief and are largely a peg for the investor-founder conversation.