Investor Outlook: Why Founders Can Make or Break a Business
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As the VC market heats up in India, choosing the right entrepreneur to invest in has become imperative. While investors receive hundreds of business proposals, many of which may be innovative and promising, the final decision to fund a business is more than often dependent on the entrepreneur or the set of entrepreneurs.
“The biggest part of the VC funding challenge is to judge those at the helm of it, the entrepreneurs,” feels Avnish Bajaj of Matrix Partners. “It is more of an investment in people than it is on a market. Most of our investments that have worked have been because the entrepreneur was outstanding. And some business did not work despite having a deep market because the entrepreneur could not hold it together,” he adds.
A Subjective Call
While financials and scale proposals can be measured, it is almost impossible to judge if betting on an entrepreneur will work in the long run or not. One way of filtering out and short listing is looking at past credentials, feels Vikram Gupta of IvyCap Ventures, but it can’t be the only parameter.
“It’s advisable to have an entrepreneur from a sound academic background and preferably from the domain area that he/she wants to operate it, but it’s not a guarantee for success,” he says. “Ultimately it’s a trust based intuitive call that we as investors have to make, but it does help spending as much time with the entrepreneurs to understand their thought process,” he adds.
Just investing in a venture is not enough for VCs as they need to constantly be aware of how well their money is being put to use. Vikram Godse of Mayfield India, feels while it is not advisable for investors to interfere in day to day affairs of business, it is crucial to take stock of when things go haywire.
“We personally don’t do controlled deals. But from an investor perspective, we need to be aware of where the venture is headed,” he says.
Bajaj on the other hand feels, interference depends on what stage the business is operating it and how much control the entrepreneur has on it.
“We don’t involve ourselves, unless the entrepreneur himself/herself loses control of their own venture,” he says.