When I started up 3 years ago, I was not a rookie who would learn fast and fail fast. I was someone who carried baggage of 24 years, past earnings and the courage to invest my hard-earned monies into my new venture. I thought I was sorted.
Along with 24 years of baggage, came a long list of friends in the VC circles who spoke very inspiringly about startup ideas they often heard of; how they made investment decisions; recommended many books to me as a budding entrepreneur and stories of how great ideas quickly got monies backing them.
I soon learnt over my 3 years on this journey, that Investors are merely a MYTH. When you hear anyone, who claims to be an investor or PE or VC (associated) or Startup Mentor etc., check on their credentials. Some interesting things to ask before you get too excited to share your ideas to them –
1. How much do they know about your area of work?
2. Have they worked for any startup before or done a startup themselves?
3. Which are the startups they have already invested in?
4. What is the ticket size of their investment?
5. What have been the terms of their past investments?
I may have easily made 100+ pitches in 3 years, got around 10–15 people to invest on my startup idea. Through this journey here is what I learnt –
1. 90% of so called Investors will not go past your 1st question. If they don’t understand your area, it is not worth educating them. No one invests in an area they don’t understand.
2. 98% will fail in your 2nd question. Most people who invest despite not having done a startup themselves, do so only because they know you very well (prior trust exists). If they invest despite not knowing your area of work and not knowing you (as a person), they could only be stupid. That margin of error would be a mere 0.001%.
3. If you get past the first 2 questions, you have a serious investor in front of you. To make sure you are not sharing your idea with someone who could potentially cheat you, it is important to ask the 3rd, 4th & 5th question one after the other.
I would like to elaborate on point no. 3 above. Once 1 & 2 are out of the way, I have come across many people who meet you only to gather information, learn who is doing what and share such privileged information with their other investee companies. None of the VCs, PE funds or individual Investors sign a Non-disclosure contract before these pitches. They don’t share the list of their current investee companies and call out conflict of interest (if any). They position themselves as GODs who are above all this. Since the entrepreneur is the needy candidate looking to raise monies, he/she falls prey to such machinations of these Investors.
While most Investors who go past question 1 & 2 above may have credible pedigree, it would be foolish to assume that they are super-ethical and will follow self-governance mechanisms on their behaviour.
Questions 3–5 above will enable you to learn if the investor is worth talking to? Is there a risk to compromise your ideas and work? If an investor does not sound transparent and forthright on details with respect to their investments, it is wiser to walk away if you are serious about the future potential of your business idea and work. If they are adequately curious about the “top line” of your idea, they will come forward to talk. If not, just walk away. It’s not worth it as the probability for you to get funded is 0.0001% anyway.
I have one disclaimer though — not all Investors are untrustworthy, however important for us as enthusiastic entrepreneurs to make wise calls, if we are serious about our business.
Look forward to hearing your experiences and learnings therefrom too.
Anand Bhaskar — CEO Planet Ganges