Entrepreneurs Should Choose VCs and Not Vice Versa

I have been in the Entrepreneural venture for around half a year, and have been scouting for investment for some time. Met many VCs and attended few Start-up summits organized by Proto.in and startupcity. Let me share my experience here.

Indian Market is full of enterpreneurs and there are very few investors around. This makes investors more powerful then the fund seeking enterpreneurs.

Present Investors are of various categories -- individual investors (high net worth individuals), Seed Funds, Venture Capitalists, Equity Partners etc. They invest in different modes, and they enter and exit at certain defined stages.

Let me discuss something about different type of categorization of investors.

Categorization I : Risk Takers Vs Avoiders

Risk takers mostly prefer to be the first company to invest in a venture, and they look low valuation and high return. They have risk taking ability with good vision and judgmental ability.

The avoiders do not posses any of these three traits. All they seek is a area where they can park their fund, and get good returns. They don't know how and they do not make any effort to understand. All they do is look at places where the other companies invest and then become a secondary investor. They believe in other's judgement.

Categorization II : Big Thinkers Vs Small and Beautiful Vs Quick Monsters

Big Thinkers are more strategic. They invests in ambitious projects and are more open to ideas. They take risks but calculated risk, and often help clients grow using their network. They are active but understand the business and its challenges; they also don't bug the management team of the client unnecessarily.

Small and Beautiful are the folks who look around their closed circle of friend enterpreneurs, and make investments. They are not aggressive in growth but invest for medium to long term. They exit partially and value relation with the promoters. They are supportive but prefer not to give too much time for the venture.

Quick Monsters are very smart folks, who are strong in tactical works but not very strategic. They don't value relations, and can enter and exit at any time they want. They neither have long term strategic thought as a Investment Company nor they have for their clients. All they look is an immediate opportunity to get in, and exit when it favors them.

Categorization III : Open Minded Vs Look-up Tablers

Few people I talked with do not believe that VCs can be categorized this way. But I have an experience to support. I visited few VCs were stuck with the questions in his look up table.

They had four questions to ask.

1. Who are you clients?

2. What is your revenue?

3. How long are you in the industry?

4. How experience is your team? Any celebrity entrepreneur with you?

Is this because of the outsourcing culture in India? Does this say people here can't think outside of clients and revenues? I have no answer.

They never asked my what my company do, what is the business plan and how I can work with the investor to bring good value to the customers and the stakeholders of both the companies. I was surprised! I call them the Look Up Tablers.

These class of investors have very good experience in managing money, and they are no better than investors who buy shares from the stock market. They are of no more value than their money. Sometimes even their money can be a problem. I expect them to bug the management team every now and them, and influence the invested company to change its course.

The Open Minded Investors are the other hypothetical class of investors, who understand the team, the product, the potential and the vision. They invest in the company and share the vision.

Sadly, I have not met any such investors. Have heard about them, and would love to meet if there are any.

Investment : Enterpreneurs and the Investors

What I have learned in last few months is, as a entrepreneur one must be strong enough to reject some investors and one must posses a quality to reject an offer to meet the investors too. Companies after all do not run only on investors money; it can run in bank loans, some small borrowings, some quick revenue survival plan, and some cost sharing partnerships with revenue rich companies.

All these strategies do have their own drawback, but going around a wrong investor is more bad. It takes away the valuable time, delay the work, frustrate the team and most of all forces to divert the main vision.

The investors are in the business of investing. They have to invest in order to survive and grow. They are more forceful than the enterpreneurs towards investment.

Ending Thoughts

Most of the Investors we meet are not the enterprenuers and they are the staffs of the investment company. Enterpreneurs need to understand this, and be prepared to be rejected and misunderstood. After all had they been enterpreneurs themselves, they would not come up with questions you cant answer.

It is more important to target a right investor, and find them at the right time. It is also important to find the right partner for the business who bring in money. Wrong investor can be more harmful than a no investor. Enterpreneurs needs to be careful.

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What do you think? I would love to hear from you. Share your thoughts here as comment.

If you have any experience to share, please do it. I am sure, all want to read and understand on what's going wrong.

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