What these Investors Learnt from their Dud Investments
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“In all portfolios, you have businesses that do not perform in the manner in which you had hoped and envisaged,” Gaurav Burman, investor in Burman Family Holding and stakeholder in Dabur India, told Entrepreneur India in an interview recently.
This statement fairly sumps up the journey of investors investing in early stage startups.
For angel investors and venture capitalists, betting on a new, untested startup comes with bigger risks, as there is no certainty on how that product will turn out. Not every bet that may seem promising at the time of closing the deal becomes a stellar investment.
These 4 seasoned investors reflect on their share of misses in their investment journey so far and the lessons they have learned from those investments.
Good Management Team is Crucial
For Burman, the most common factor for failed investments in his portfolio has been his failure to fully understand and appreciate the management team. “A good business with a bad management team will never succeed, whereas an average business with a good management can excel,” he says.
When a management team decides to take a path which is inconsistent with the business values the investor hold dear, the business has suffered. For this reason, Burman avoids passive investments. “We intend to avoid investments in businesses where we cannot exert some form of control on the decision-making in the business.”
Assess the Founders Properly
Amit Patni, founder and director, RAAY Global Investments and director of Campden Family Connect, considers a good founding team as the top factor for picking a startup.
This criterion took precedence after he burnt his fingers in Housing.com.
“The founder did not follow the board’s directive which led to a mismatch in what the board wanted and what he was doing. In revamping the management, a lot of money and the market positioning of the company was lost,” Patni says.
The learning for Patni has been to assess the founders properly along with the startup beforehand and make sure that the founder is on the same page as you. “A mismatch in the investors and founder’s thoughts will eventually lead to wrong decisions and hurt the business as well as the money involved.”
Don’t Blindly Invest in a Trend
Sanjay Mehta, Founder and Partner, 100X.VC, says that investing in trends doesn’t always work.
Mehta invested in a media content startup called Roast when the trend of media tech companies was in vogue in 2014-15. However, it turned out to be a dud.
“I followed the trend and took the investment decision. Founders were very capital efficient but idea didn’t go viral. There was no network effect. The company couldn’t raise the next round of capital. It was a shut down,” Mehta explains, who has started a first-cheque investment fund in July this year with a target of investing in 100 startups every year.
Overcome your Blind Spots for New Technologies
Anirudh Damani, director of the Damani family office Artha India Ventures and managing partner at Artha Venture Fund regrets not investing in BharatPe because he did not understand QR technology fully.
“BharatPe came to me directly and indirectly on multiple occasions, and I could not see the company pursuing their business from something as simple as a QR code,” he recalls.