The Relationship between Founders and Investors Transcends Beyond Capital

There are over 1500 Venture Capital Funds and over 25,000 Angel Investors in India, the 3rd largest ecosystem for startups globally. This translates into a lot of financial transactions being carried out. And with money, one needs to deal with the outmost precaution.

When the country has seen alliances between notable founders and investors turn sour, there comes a need to address what it takes to build and sustain a good-healthy investor-investee relationship.

During a panel discussion on ‘From Capital and Counsel to Partnerships and Profits: How to Maximize Your Investor Relationships‘ at the Entrepreneur 2023 Summit in New Delhi, leading partners from marquee VC firms came together to discuss what can be done to improve the relationship status.

Moderated by Rajat Tandon, President, IVCA, the panel comprised Ruchira Shukla, South Asia Disruptive Technologies (Direct Investing and VC Funds); Karan Mohla, General Partner, B Capital; Ashish Kumar, Co-founder and General Partner, Fundamentum; Vikas Bali, CEO, Aavishkaar Group; and Rohit Sood, Partner, Bertelsmann India Investments.

So what is the current rapport between the two parties? And what needs to be changed? For one, investor’s role is bigger than just providing capital. “Relationship should not be one of a capital provider like ‘hey here take my capital and come back and show me results.’ That equation has to shift to ‘here’s my capital, here’s my network, here’s my energy and support in helping you build.’ And unless an investor can engage at that level, they should not be supporting with the capital. Because capital alone will not be enough to create the next level of innovation that the country needs. It needs to be capital plus,” shares Ruchira Shukla, South Asia Disruptive Technologies (Direct Investing and VC Funds).

It’s very important to establish your system of communication and commitment before investing. “We’ve just had our fourth company go from seed to IPO, where Aavishkaar was one of the seed investors. One of the entrepreneurs that came up with the business idea, there were four questions we posed. One, are you going to leave your job and do this irrespective of a commitment from a fund to invest in your business; two, where you are working right now, will some of the people there put some small money into your business; three, can you put whatever you have earned into the business, and four; will you shift to a small city to start your business? The entrepreneur went back and four-five months later came back with a tick on all of them. They have IPO-ed very recently. This gives you an example of how the starting point of the relationship is having very clear communication, transparent and open and then working through with investor actually backing the entrepreneur through thick and thin,” shared Vikas Bali, CEO, Aavishkaar Group.

“One of the things that is extremely important is what happens in the initial period. I think a lot of trust and the rules of the game is set up pre-transaction itself. Unfortunately, when there is a lot of completion for capital, this process gets short-lived the most, which I say is the biggest mistake from both sides. If we can get that right, I think it sets you up for all those highs and lows,” adds Rohit Sood, Partner, Bertelsmann India Investments. He further mentions that it’s hard to build it later on if not worked on it earlier.

Trust is a two-way street but when something does not go as per plans, both sides can falter. It’s important to reach a level where things can be discussed without hesitation and with comfort. But before trust, comes commitment, ethics, transparency, and belief. “When there are two independent thinkers, naturally there will be disagreements. And what needs to happen is that it is an entrepreneur’s job is to continue to display why an investor believes in what they are building. Most good entrepreneurs and investors are always willing to listen,” shares Ashish Kumar, Co-founder and General Partner, Fundamentum. Investors, by default, have a tendency to know little about multiple things while entrepreneurs will have a lot more information about few things, specific to their industries. Investors tend to share their insights about what is happening in the industry and what pattern they are seeing, entrepreneurs should be open to taking that input while retaining their core belief, a lot can be done.

So is it all about just handing over a cheque? All entrepreneurs and investors want profit. The good ones want to profit sustainably over a long duration, and not just in one transaction.

With time, the relationship will evolve. “With different stages, the engagement and what you are trying to solve is different. Talking about the early stage, generally, you come in as half the time as first institutional investors. There is probably three different areas where the max value can be done as an investor. One is the governance and compliance side. The second is around hiring, especially in the early days. Because one good thing every founder is looking for is really good talent. And third is around business strategy,” notes Karan Mohla, General Partner, B Capital.