Dear Founders, Learn From My Experience

Dr Aniruddha Malpani has been an angel investor for a long time now. And as he looks back and reflects, he believes there have been quite a few learnings along the way.

At Malpani Ventures, we derive most of our institutional learnings from him. And as someone who rates his investments not by the ROI or the Return on Investment, but by LOI or the Learning on Investment, it is only apt we share his learnings with our founders and hope they learn from his experience.

It only happens in movies

In the initial days, being an angel feels like a romantic fantasy - where you will write cheques to founders based on their vision, while sitting over coffee at a quaint shop, looking at a business model and strategy scribbled over the back of a paper napkin thinking you've discovered the next Google! With time, you understand that this is not only naive but also foolish. It only happens in movies. There are no violins, or eureka moments. Any founder who has interacted with an investor understands this quickly.

 

Its the execution stupid!

Getting cool ideas is never enough. For the money lies in the execution. The idea of Google, if not implemented or executed would not have been worth a single penny today. And this is why we do not fuss so much about the ideas today. Yes, we admire and deeply respect creativity and innovation - but we understand that just those two things are neither sufficient nor necessary for the success of a startup. Moonshot ideas are fun to read about, but extremely hard to pull off. We love simple ideas performed a million times consistently better than a half-assed moonshot!

 

Founder > Idea

It can be a mediocre idea, but a fantastic founder - and they can still make it big. But a fantastic idea coupled with a not so enterprising founder might not move the needle. We understand that it is the founder, and not the idea that makes or breaks the company. If we can identify the right founders, we can increase our chances of success exponentially.

 

Good things take time

While we have become better and more organized over time, we know that evaluating an opportunity is a time-consuming and complicated exercise. In the past, we did pride ourselves in signing cheques quickly. But today, we are a bit more experienced than yesterday. We will say no quickly if it does not fit - candor is our greatest asset. At the same time, we will take our time before saying yes because we want to be on the same page with the founder and trust them.

 

Double or Nothing

We will double our bets when we think we have a winner. However, we will also pull the plugs on the loser and not continue investing in them.

 

Traction gets the Action

We have learned that the best way to reduce our risks is to ensure we invest in a company that has demonstrated traction. We look for companies that have paying customers, which means the product is (kind of) validated. We are no longer willing to fund just the idea, or the potential of it, we will only fund for scaling up!

 

Closing comments

All this means we are willing to let go of certain opportunities and risk being conservative. After all, this is personal capital and we are not professional venture capitalists! We believe our model helps us be nimble, and agile while working with the brightest talent in growing their vision while limiting the number of bets we make. We want to engage deeply with entrepreneurs and not just be financial investors or dead weight on their cap table. We will happily hand-hold entrepreneurs until it is time for them to learn from a professional venture capitalist.

 

The good thing is that the Indian startup ecosystem is still growing and there is room for many players to succeed. Everyone needs to identify their ideal role and stick to it. You can not be everything to everyone. Pick your best allies and work towards growth. For otherwise, you risk burning out due to unrealistic expectations!

How to be an accountable entrepreneur?

Accountability is a rare skill in the world of business. In today's world, especially when large organizations work in silos and tasks get shunned from one department to another, people are quick to say 'none of my business'. The same behavior in a small or growing startup can spell doom for the business.

Accountability is a personal decision and a choice that stems from self-confidence and determination to see through outcomes. While it is not something that is in-built, we can certainly try to become better, and more accountable.

If you are an entrepreneur building a growing business, you must hold yourself accountable to all your stakeholders 

 

1. It starts with one step

Do not expect everyone around you to be accountable if you arent yourself. If you are the one often complaining about your workload, deadlines, competitors, etc then you are setting up an environment around you that has similar characteristics. Reinforce positivity, responsibility, and results.

2. Remove ambiguity

You need to clarify your expectations by being objective about the outcomes and reinforce it from time to time. Help your team understand what the goals are and how will they be achieved. Keep communicating effectively on a regular basis to remove gaps.

3. Set measurable goals and targets

Accountability can be enforced only via objective facts, not just by opinions or ambitions. Set ambitious targets, but do not set targets beyond the realm of possibilities, or keep changing them frequently. Help your team measure their objectives and results. A good book for this would be Measure What Matters.

4. Have an alignment of interest

Your team should be aligned with their departmental goals and organizational goals. If you are launching in 5 days, your product development team can not have an unrealistic target of adding 10 new functional features in that time. Align targets with larger goals - this will help your company stay on track while making the team satisfied by their contributions.

5. Delegate well

Accountability comes with freedom and authority. If you make all decisions yourself, the team does not have the chance to be accountable.

6. Seek open feedback

Seek feedback without any strings attached. Start with why a certain problem happened, and avoid the blame-game. Accountable people need to feel safe in an environment where both challenges and performance can be discussed without feeling attacked. The goal is continuous learning, and not accusations and reprimands.

The best part about accountability is that once ingrained, it leads to change, focus, and learning. These characteristics are vital for people to be entrepreneurial. And being entrepreneurial is the only way to ensure the growth of self and the startup!

Have you considered pop-up retail as a way to grow?

Whenever we think about retail, we tend to think about brick-and-mortar. And in a post-pandemic world, online retail.

But have you considered pop up retail?

Pop-up is a trend of opening short-term sales spaces that last anywhere between a few hours to a few days before closing down! Put simply, these are temporary shops that suddenly 'pop up' out of nowhere!

People in Mumbai have encountered Sweetish House Mafia, a homegrown cookie brand that used to 'pop up' in their car at pre-decided spots in suburban Mumbai. Dressfolk sells high street sustainable and ethical fashion wear without an inventory model. Along with an online store, they also organize pop-ups, take your order, and deliver it to your doorstep in a few days. Fab Box is a healthy snacking company, and also a Malpani Ventures portfolio company. The company has an online store, presence on food delivery platforms, retail chains, and has also started setting up pop-ups in various parts of Mumbai to reach directly to their customers while reducing friction, customer acquisition cost, and greatly increasing personal touch!

Why consider pop-ups?

1. Takes minimal space

You do not need a large space to set up your store. Depending on the size of your products, your inventory, and consequently your sales target for the day - you can customize your space requirements! Moreover, with the pandemic causing downward lease adjustments, closing storefronts and empty spaces in malls or shopping centers, landlords are more than willing to offer a little space for a few quick bucks.

2. Reach your customers directly

You do not want your customers to take the pain to come to you! With a pop-up, you can go where your customers are! And you do not necessarily have to stay in one place. You can be lean and agile, and change your location to smartly track your customer's presence.

For example, knowing that customers are more likely to stay at home than be in malls during this pandemic, Fab Box went ahead and set up pop-up stores in residential communities!

3. Pop-ups can help online visibility

Not everyone has been to your online store and knows about your brand! But if someone sees your pop-up store at a mall or residential community or their office building, they are more likely to go ahead and look you up online. This is a fantastic way of acquiring customers.

We believe pop-ups will become increasingly important in a post-pandemic world as more and more business owners understand the inefficiencies of only an online or an offline play. A pop-up offers you the best of both worlds without simply relying on just one customer acquisition, and servicing channel. A pop-up store is a fantastic way to be frugal, lean, and profitable by keeping fixed costs low, geographic reach flexible, and reach customers directly without a brick-and-mortar presence!

The future is frugal and innovative.

How can founders be great storytellers?

"The Lion King" was released to glowing reviews and massive box office success when it premiered in 1994. Yes, it has made almost a billion dollars till date! It was not a story of an oppressed, underdog (or lion) paving his way back to his family and his birthright, that made everyone flock to the cinema halls. It was the way the story was narrated, that won everyone's hearts. In the end, the story, and not Simba was finally king!

The new age founder knows that being a founder means they will have to keep selling. Founder's sell their vision, their goals, their objectives, their business model, and finally their product! A founder who can not sell will only set themselves up for failure in the future.

Why is storytelling so important?

Many founders we have encountered think it is just the pitch deck with boatloads of data, a quick email, and their business model that will sell itself. While this can also work, the best way to make someone your lifelong fan is by selling them a story they resonate with. Selling the narrative.

But then, stories are not just for investors or customers. The ability to tell, and consequently sell a story makes use of information to persuade or inspire people. This skill helps founders attract investors, and also co-founders, key employees. It helps recruiters close extraordinary candidates, and salespersons win customers.

We love it when our founders can sell stories. Why? Because great storytellers can take everyone along on their journeys - be it employees, investors, or customers! All extremely important in growing a business.

How to be a great storyteller?

1. Give a presentation to your kids or your grandmom

The moment you speak to someone who does not understand jargon, you have to make the material very easy to communicate with them. And invariably, in order for them to connect the dots, you use stories, references, illustrations and examples from time to time. When you do this, look for what they lean into, or pay attention to. Look for when they nod in unison. Look for when they seem disinterested. The more you practice, the better your hooks will become.

2. Use persuasion to tell stories

Tyler Odean says, "For startups and founders, being persuasive is way more important than having vision." We completely agree with him. Why? A strong and ambitious vision is good. But what is great is the ability to sell the vision so effectively that people line up to make your vision into their vision and partner with you in your journey.

3. Share experiences and learnings rather than bland examples

Take a minute, or an hour, and write down your story. Write your experiences, learnings, successes, and failures. Sometimes we think that only success sells. But did Titanic have a happy ending? The story of young love lost forever, in the middle of nowhere still makes people tear up. More than a century later. Why? Because people resonate with failures and successes, sometimes more to failures! Be honest, and open up. Showcase your learnings and experiences.

4. Own one word

Decide on a word. One word that you want to be known for in the coming decade. And then stick to it. Build around the word. Honda is reliable. Volvo is safe. Tesla is disruptive. What is your brand known for?

5. Make your pitch into screenplay

Write your story. Tweak it for different audiences. Have up to ten examples, illustrations, and experiences to share. Practice your pitch like a live play on broadway. Have a structure. Make it seamless. Do not refer to the deck constantly. In fact, never refer to your slides. Keep minimal matter on your deck. Take everyone around on a journey.

Finally remember, great stories are always unexpected!

If you believe you have a great story to tell, that fits our thesis, we would love to hear from you!

Why some startups do not get funded?

We have the privilege to engage with numerous founders who are building exciting startups, and consequently looking to raise funds.

Since the start of 2020, we have had the pleasure of evaluating over 100 startups. We have also invested in 4 exciting companies at the same time.

Most startups get rejected. This is a well-known fact. It is not a big deal, since rejections are often stepping stones to success. But the worrying sign is the lack of feedback post the rejection that makes founders nervous and frustrated.

More often than not, most founders do not even get reasons for the lack of funding. And at times it is due to the lack of understanding, sheer laziness, and neglect from investors. Let’s not be holier than thou!

 

In this post, we are trying to highlight five key reasons why we might have declined to participate-

Does not fit the investment thesis

Let's face it, you can be something to everyone, everything to someone, but never everything to everyone! If you take your consumer product to a B2B SaaS fund, you are bound to be rejected! And it’s a good thing, because you want someone who is a specialist in your industry to fund you!

Marginal product/idea

Are you disrupting the industry? Or are you replicating an existing offering? This has implications! Your deck, your business idea, and all your communication should be easy to understand. If its an improvement on an existing service, most likely the incumbents will improve and overtake you - mind you they will have a more established and loyal customer-base than yours! Then what is your right to win in the industry?

Unit economics and financial understanding is weak

There are founders who do not even understand the basic concepts of Revenues vs GMV, Gross contribution, Fixed vs Variable costs, Breakeven points, Working capital! As someone who trusts you to handle our client’s money and hopefully return - we expect founders to understand, improve upon, and be on the same page with us regarding basic financial terms and concepts! Without measuring what matters (i.e. cash in, cash out, and path to profitability) founders risk themselves running out of cash far earlier than expected.

Far higher ask

We have encountered founders who want to raise a first cheque of straight 5-7 cr! Unless you have credibility in the market, previous experience, a solid network, and a fantastic product - finding the first big cheque is going to be very difficult! You either need a very developed and mature business model, or a strong on-going relationship to be able to command this sort of dry powder. Most investors are comfortable signing smaller cheques (1-2 cr) and follow up with larger amounts once there is confidence and understanding. Your fundraise should be in accordance with what milestones you want to achieve in the future, and not the other way around!

Lack of alignment of interest

We have loved a business model to not issue a term sheet in the end! And this is only because of lack of alignment of interest. There needs to be a meeting of the minds in order to stay on this long journey. But do you want to shortchange investors by keeping all the profits and distributing it back to the founding team as commissions? Do you get irritated with frequent queries? Do you want to create a phantom ESOP pool so we are not aware of who gets the options? Do you not want to give your co-founder enough equity? Then why are you happy diluting equity to us? Isn’t your co-founder more of a partner to you than we will ever be?

 

Today, it has become easier than ever before to start the journey of entrepreneurship in India! Founders with decent enough ideas, confidence, humility, and the ability to work alongside others will always get funding!

Why do we need to be on the same page?

Buyer's remorse is the sense of regret after making a purchase, usually associated with big-ticket items. And it is not just limited to the amount of money invested, but also time and effort, and also the opportunity cost. Sometimes you are disappointed with the service, and most of the time this stems from have an expectation mis-match! If you are not clear about what you are getting yourself into, it will result into a buyer's remorse!

The same can be applied to an investing relationship. Between an investor and an entrepreneur.

To word it appropriately in investing, a buyer's remorse is called alignment of interest. If the interests are not aligned by way of expectations, prior agreement on positive/negative outcomes and a general thought process behind an engagement, then the relationship is bound to face hiccups along the road. To solve this problem, we prefer to be aligned, we prefer to be on the same page before we put money in the bank.

How do we ensure that we are on the same page?

We call it Alignment of Interest. Before we agree to the investment, as a part of our Conditions Precedent, we like the entrepreneurs to share a small document or an email that enlists the following in a broad detail:

Company

  • Long term objectives for the company
  • A 36-month growth plan

Fund raise

  • Fund utilization plan
  • Milestones to be achieved
  • How to measure success in milestones?

 Growth

  • Possible future investment rounds or intervals

 People

  • KMP compensation plan or formula (including Promoter/Founder)
  • CXO level hiring plan

We are asked, why do you ask for this? Especially because we cover all this during the time of the diligence? The simple reason behind requesting this document is to have a reference material that is created with the intent of honoring the commitment. We also understand that planning is paramount, however no plan works 100%.

We also like to make investments in tranches. Our tranches are based on the achievement of certain milestones that are measurable. This ensures two important things: milestones help measure success, and entrepreneurs have a steady inflow of capital.

We do not like to leave things open ended for the sole reason of avoiding ambiguity in the future. We like to front-end the dirty work by way of diligence and tough conversations so both the entrepreneur and the investor understand where they stand. The easiest way to ruin a relationship is to avoid difficult conversations to the point it can break the very relationship. We enter a relationship with the purpose of playing the long game. And we surely do not like unhappy relationships.

Being on the same page is a fantastic way of maintaining trust, honesty, transparency, and integrity in a relationship. 

Two Books Every Entrepreneur Should Read

Why do we love reading?

Everyone should read more. Not only does reading help you learn from the experience and views of others, but it also provides you a perspective to expand your own knowledge and experience.

If we think about it, almost every solution to any problem exists, we just need to find the right book.

As investors, we know what we do not know. And in our quest to find more knowledge and learn from the experiences of others, we read. A lot.

In today's post we will share two books that are close to our heart, and in a way gives people a window into Malpani Ventures.

We will discuss about Company of One by Paul Jarvis, and Measure What Matters by John Doerr.

Company of One

This gem by Paul Jarvis is a fantastic primer on building sustainable businesses. The author stresses why staying small is the next big thing for businesses. This does not necessarily mean do not grow. This means do not grow without having your foundations secured, and do not grow for the sake of it.

The book is a wonderful short read that helps us understand why overheads can mean death for your business. In a world where capital is shoved down entrepreneur's throats forcing them to grow at any cost, we are witnessing linear growth in revenues with exponential growth in losses. The current COVID-19 pandemic has further excaberated cash burn at many startups.

We are angel investors. And unlike most venture capitalists, we prefer a steady and sustainable way of growing a business, while creating value for all stakeholders - promoters, employees, partners, clients, and finally investors.

Entrepeneurs and Promoters who resonate with this book are ideally the ones we like to fund. If you are one or know someone who is aligned to this thought process, please reach out to us!

Measure What Matters

John Doerr is an American investor and venture capitalist. OKRs (Objectives & Key Results) which this book is based on, has helped create massive value for Intel & Google. He introduces a revolutionary approach to goal-setting, evaluation, and management that can help small teams as well as big organizations align their goals towards a common cause.

Our organization-wide objective is to fund frugal startups. Hence, every organizational effort goes towards this common objective of helping entrepreneurs build frugal ventures. Our communication to entrepreneurs we fund is simple - have your goals, enlist how you will achieve them, work towards that, and share your progress on a periodic basis.

Without an OKR - how do you understand where do you want to go, how will you get there, and how will you know how far have you reached? Yes, the destination might change - startups pivot many times. Yes, the path taken might change - there are multiple paths to Nirvana. And consequently, the awareness of how far from or near to the destination you are, will also change.

What does not change - is the effort we as investors, and you as founders take in order to keep telling everyone on the plane- where are we headed, and how will we know when we get there. As entrepreneurs in a growing startup, it is very easy to lose track of focus, priorities, alignment with stakeholders, and accountability. It all moves very fast.

This book helps the reader understand goal-setting, productivity, accountability and tracking progress.

We love to invest in sustainable businesses that are run by passionate founders who hold themselves accountable to their objectives! And by writing this blog, we are sending a reverse pitch to founders inviting them to work with us.

How to build a great board of directors for your startup?

Building a board is a very challenging task for a founder. At the same time, a great board can be a fantastic way of setting your roadmap towards success. Irrespective of the stage of the startup, having a sound board of directors will add value to the business!

How can you build a great board?

1. Find a mentor who can be the Chairman

A Chairman should be one who is a coach-cum-mentor to the founders. Someone who has been there, done that. Someone who has the experience, connections, and farsightedness to effectively guide the board. The Chairman can be someone who can suggest plans, find loopholes, offer M&A opportunities, liaise with bankers, warm up the investors, etc. You want a strong and experienced candidate who can have some skin in the game, and whom other stakeholders look up to.

2. Decide on the board size

Too many cooks will spoil the broth. Decide on a size, and stick to it:

  • Bootstrapped - 4 pax = 1 Chairman + up to 2 Founders + 1 Independent Director
  • Seed/Angel - 5 pax = 1 Chairman + up to 2 Founders + 1 Independent Director + 1 Investor Rep
  • Series A ++ - 7+ pax = 1 Chairman + up to 2 Founders + 2 Independent Directors + 2 Investor Reps 

3. Restrict the number of Observers

Let's face it, despite the fact that an Observer will be a non-participating and non-voting board member who wants to silently observe, they can inadvertently sway meetings. You do want Observers because that is an engagement of intent rather than being a deadwood. However, limit your Observers to a max of 2 people. If there are a lot of investors who want an Observer seat, ask them to nominate one representative amongst themselves. 

4. Avoid people who actively want board seats

Someone who nominates themselves will usually be more interested in their own goals and objectives. You want to choose someone who is an ally, yet is not overly enthusiastic about joining a board. Pick people who are picky about their schedules. This helps in the long run.

5. Look beyond your investors

Remember, your investor syndications should not automatically mean board representations. A board seat is not a right, it is a privilege. Your board should be comprised of people who have built similar successful businesses before, who have a professional edge, and/or someone who is a well-respected professional in the industry.

Building a board requires patience, effort, transparency, and utmost communication! Your board should always have the best interests of the company in mind rather than its representation. In the end, the right board will drive performance and results!

 

 

 

10 More Interview Questions to Build Your Founding Team

After sharing 10 Interview Questions to Build Your Founding Team, we have come back with 10 more such questions!

Hiring is difficult, and while we can not make it easy, we can help entrepreneurs to make better decisions.

 

Understand their Motivation in life

11. Who do you admire? And why?

This question helps uncover a candidate's values. What they admire in others shows you what they feel is important.

12. What is really great about your current role? And why?

This question tells you two things- what the candidate loves, and is important to them; And also understand the logic and rationale behind the same.

 

Understand their Fit

13. How did you prepare for this interview?

This helps you understand how proactive, resourceful and passionate the candidate is!

14. Imagine 6 months have passed, what impact have you made on this role?

You want to get the candidate thinking about the future, and also understand whether they are just interviewing for the sake of it or have they really thought this application through!

 

Understand if they can work with others?

15. What would your boss/co-workers say about you?

You want to understand whether or not the candidate is open and frank about themself, and also whether they are self-aware about their habits, behaviors, relationships, and performance

16. What part of your previous company's culture do you want to bring onto your next role? What do you absolutely not want?

This helps understand team dynamics and culture, and how they intersect. Do they rant about team-mates? Did they consider some specific issues and really thought about it?

 

Understand their learnings

17. Tell me about the lowest point in your career.

Careers will have ups and downs. Do they realize what was a down? Have they learned from it? How did they bounce back?

18. Tell me about the highlight of your career.

What motivates them? What do they feel happy about? What can your organization provide them to top that highlight?

 

Throw curveballs

19. Why should we not hire you?

Understand if they can put themselves in another person's shoes! Can they think rationally?

20. What should we know about you that would make us not hire you?

This surprises everyone! This is an opportunity for them to reflect, think things through, and respond. 

Top 10 Interview Questions To Build Your Founding Team

We always look for advice and learnings that go unanswered or unshared. For us, the learning agenda remains paramount.

Time and again we have seen hiring being top of the mind. How do you ensure your founding team is A1? There is no shortage of challenges in this area, and we could learn from the perspective of others.

Over time, after interacting with our founders, our co-investors, and industry leaders whom we look up to, and the literature we read; We have created a list of the top 10 interview questions to build your founding team!

 

Understand their pivot or transition in life

1. What do you see yourself doing differently in your new role?

You want to understand what they are running towards rather than what they are leaving behind. You want to see if they are excited and motivated about a new opportunity or bitter about the past.

 

2. Past few companies you've worked with (i) Why did you leave? (ii) How did you select your next opportunity?

This is an important question to understand the thought process behind big decisions in life. Are they winging it? Or did they think it through? Also, do they just give a one-line explanation or do they dig deeper and get into a narrative?

 

Understand their Motivation in life

3. Can you share an instance in life where you took an unexpected initiative? Follow up: Can you tell me another one?

Greatest performers are those who take initiative when it is not expected from them. This is a trait that sets consistent performers apart from decent performers. For your founding team, you want someone who makes the effort to independently take initiatives than someone who waits to be nudged or reminded.

4. What is the highlight of your career in the past five years?

This is straight forward. You want to understand their motivations behind the important events. Was it winning a new contract, or getting a salary bump? Were they happy when they got recognition or when they contributed to something?

 

Understand whether they Fit

5. How do you differentiate between someone who is good at a role vs someone who excels at the same role?

Your team should realize the difference between an A performer and an AAA performer. You want them to answer specifics like what are the objectives and how will they measure success?

6. What do you wish to achieve with this role? How does this fit into your career as a whole?

Have they thought out the career progression? Do they understand the role and how they can contribute? Is this role a stepping stone or is it a foundation to build success?

 

Understand if they can work with others

7. Can you share an instance where you very strongly disagreed with someone on your team? How did you settle your differences?

How far can they go to prove what they believe is right? Even at great personal or professional cost? Will they gather support from others? Do they bring cold hard facts?

8. Who is the worst boss you've ever had in your career? And why? And how is your relationship with them today?

Ask for specifics. Then dig deeper. Was it a difference in ideologies? Are they still in touch? Cordial? Has the relationship changed post leaving that job? That shows they can settle differences regarding a particular phase in life.

 

Understand if they want to learn from their mistakes

9. When was the last time you changed your mind about something very important? Can you walk me through the process?

Does the person allow their belief system or core values to evolve over time? How powerful or impactful did the experience have to be to change their views of the world?

10. Tell me about a time when you really screwed something up. How did you handle and address the mistake?

You test for humility, self-reflection, problem-solving, and communication skills in one go. Mistakes are a part of life. How we handle their correction gives us the perspective in life.

 

We will follow up with more gems!

10 tips for making better reference calls

Every founder who has progressed onto our due diligence knows that we love making reference calls. We like to talk to co-founders, key employees, at least five customers, a handful of business partners or stakeholders, other investors, and even college professors! For us, a reference call is as sacrosanct as a term sheet!

Over the years, we have learned a good deal from our failures, and successes. Knowledge gained is winning half a battle, knowledge shared is winning the world! Being true to our words, we want to share our experience with the world.

What are our 10 tips for making better reference calls?

1. Ask for a minimum of 6 references

The good, the bad, and the ugly: With more emphasis on the bad and the ugly. Why? Because we know differences of opinion will always remain, but it takes strong principles to still be connected to someone who is a negative reference, and even more courage to connect them for a reference call

2. The good references will always give a glowing feedback

The moment you put the phone down, another call will go directly to the candidate telling them everything we spoke about in detail. And this is not necessarily bad. All questions go back to the source!

3. You need to ask for specific examples

Everyone can say "Oh they are a delight to work with", but the devil lies in the detail. Can they share an example? Or three? This helps understand a pattern.

4. You need to seek evidence that is discomforting

This is especially with the bad and the ugly references. You can start with "I have heard glowing references for a couple of people, however, some also said X..." And then wait for the ball to drop, or not. You need to go with the assumption that the candidate or the founder is great, however you do not want to be blindsided by something.

5. Everyone has a negative side

Accept it. Do not fuss over it. Focus on areas of improvement.

6. "Some people said THIS about him"

After a couple of calls, you will understand a pattern, and you can lead calls with that pattern. You can say "Some people said THIS about him, what is your opinion on how it can be improved?" You are not letting them say No, he is not like that. You are asking them to elicit an opinion. This also helps you understand the depth of the relationship and the quality of the reference.

7. Get "other" references

Some of the brilliance in reference calls is getting "other" references. Someone who is not a directly listed reference. Someone who might have nothing to win or lose, and is more likely to be honest. End the call with asking "Hey thank you so much for this call, do did mention X worked with you in a team of 4. Can you please help me speak to someone else in that team as well?". Get ahead of the agenda. Dig deeper. We have found that LinkedIn also helps.

8. Have an accomplice

Many times asking difficult questions that reach back to the source can lead to starting off the relationship in a tricky way. One way to get past this is to have someone trusted on your team do some of the dirty work. Many sophisticated investors or recruiters completely outsource this as well. But we prefer to keep it in our network.

9. Do not enter with a bias

Yes, you are trying to seek discomforting evidence. But do not base your interpretation of the calls based on that one piece of evidence. There are two sides to every coin. Your job is to get reasonable clarifications.

10. You will learn on the job

You will not learn via these tips. The best way to learn is on the job. So go ahead and start making these calls.

Why we want more entrepreneurs to share one pagers?

Written material is usually sent to investors by entrepreneurs. And this mostly means whatever they could chalk up.

We want more and more entrepreneurs to share one-pagers. Why? Because they are a pain to create. They entail thinking, and crisp writing and ruthless editing!

What purpose does a one-pager serve?

  • A quick summary of your deck addressed to a specific investor
  • Opportunity to demonstrate thoughtfulness and clarity
  • A ready-made collateral for the investor to share with potential co-investors, that reduces time and friction
  • Summaries are the best way to absorb the essence of any reference material

Should all investors insist on a one-pager?

We absolutely believe so. Summaries and one-pagers are akin to currency in the venture capital world. Do you want to invest in a particular company? Summarize in 3 bullet points. You want to pass on an opportunity? Summarize in 3 bullet points. We love the Rule of 3. Who better than an entrepreneur to share 3 bullet points on why their venture is a good fit? A good one-pager is one foot in the door for an entrepreneur. Why?

  • It's thoughtful
  • It's customized
  • It shows intent

Slide decks are easy, and once made can be sent as a blast to 100s of investors! A true one-pager is a customized summary showcasing the important pieces of your venture, the value addition that can be provided by the investor, and how it is a good fit for the investor's portfolio.

And more often than not, writing helps to achieve clarity, and make the thoughts and words crisper. Our portfolio company founder Rajan Singh (ConceptOwl & HabitStrong) is a former IPS officer who explains How to write well

So what do we look for in a one-pager?

The same things as in a slide deck. But shorter, more concise, and crisper! Ideally not more than 500 words or 1 page. And should contain the following:

  • Simple one-line pitch
  • Explain the business in 2 lines
  • Founding team information (or links to profiles)
  • Customer problem
  • The Solution
  • Target market
  • Revenues, margins
  • Competitive advantage
  • Competition
  • Your ask
  • Why is your venture a good fit for the portfolio?
  • How can your venture work with portfolio companies?

Condensing all of these on one page is a very difficult task, and that brings the thinking hats out. Often, the entrepreneurs get the utmost clarity about their business while writing the one-pager.

In a way, we want one-pagers to be our value add to the entrepreneurs!

What questions do investors ask during due diligence?

What questions do investors ask during due diligence?

Entrepreneurs need to be prepared before pitching to a VC. They can do this by anticipating questions and having reasonable and thoughtful responses ready. The more you are prepared, the more your odds for success.

These are some of the questions we commonly ask entrepreneurs when we speak to them for the first time 

 

Pitching is daunting. For experienced and inexperienced investors alike!

Most of the confusion and fear arises due to the fact that the fundraising process is opaque and tilted towards the VCs. Founders are bound to feel left out in the process.

We value transparency and clarity in communication and also like to make the founders' lives better.

 

In this post, we will highlight the most common questions asked by VCs to founders during the fundraising process. Preparation is the key to success.

 

What is the background of the founding team?

 

Early-stage startups are more about the potential of the founding team rather than the idea because it is the execution that matters. The background, experience, and ability of the founding team is paramount to the success of the startup.

  1. Who are the founders?
  2. What is your background and experience?
  3. What domain expertise do you have?
  4. What role does each founder play in the team?
  5. Are there any key additions required in the short, medium-term?
  6. Why is this team the right one to execute?
  7. How many employees currently work in the company?
  8. Do you have an ESOP pool? Plans?
  9. What are plans to scale hiring in the coming 12-18 months?
  10. What is the endgame of the founders?

 

How big is the market opportunity?

Most investors look for a large market opportunity- because profits maximize at scale. As a founder it is your responsibility to convey either in numbers or in a narrative about the scale of market opportunity available to your startup.

  1. What is the target market?
  2. How will you reach your target market? What is your go-to market strategy?
  3. How will you gain market share over time?
  4. Why and how will you be able to retain your market?

 

Product or Service

Investors expect founders to articulate the features of their product or service. They need to explain the following-

  1. Why will users like or use your product/service?
  2. What value is your product or service adding to users?
  3. Where is the product/service in terms of development at present?
  4. What are milestones in product development?
  5. Can you describe some key features of your product/service?
  6. What have been the learnings in product development along the way?
  7. How is your product/service better than what it was at first?
  8. What incremental features are you planning to add and in what time frames?

 

Competition

Every company has some or the other competition. Any founder that says we do not have competition is going to lose credibility.

  1. Who is your competition?
  2. What is your differentiation strategy?
  3. What are your competitors' strengths and weaknesses?
  4. What advantage does your competition enjoy over you?
  5. How would you rate your competition from 1-5?
  6. How would your competition rate you from 1-5?
  7. What are the barriers to entry for a new entrant?
  8. What explains your dominance over competition?

 

What traction do you have at present?

One of the most important factors for an angel investor is finding signs of traction or early customers.

  1. What early traction do you enjoy?
  2. Results of the initial pilot?
  3. Any big-name customers?
  4. Any strategic partnerships?
  5. Customer feedback and testimonials?
  6. How can this traction be accelerated?
  7. Do you have any unpaid press coverage?
  8. What key metrics do you track internally?

 

Marketing and customer acquisition

Investors want to understand your strategy to market your product/service and acquire customers-

  1. What marketing or customer acquisition strategies are being undertaken?
  2. What different channels are you using to acquire customers?
  3. Which channels are the best performing and why?
  4. Is it a push or a pull strategy?
  5. Depending on the product, is there a repeat sales cycle possible?
  6. Who makes the purchase decision vs Who is the end-user?
  7. What is the cost of customer acquisition?
  8. What is customer lifetime value?
  9. What is the typical sales cycle between initial pitch and closing of sale

 

Scaling and unit economics

Scaling is very important because scale brings sustainability which creates value for investors. 

  1. What is your revenue model? How will it evolve over time?
  2. What is your unit economics? What will look like in a steady-state?
  3. What are margins? Gross, Contribution, EBITDA, cash burn
  4. What are the fixed costs for this business and how will they grow over time?
  5. What are the key underlying assumptions for medium-term growth?

 

Current funding round and any subsequent rounds

Investors want to understand where you are right now, and how much money do you need to go where you want to.

  1. Why are you currently raising capital?
  2. How much capital do you require?
  3. What is your cap table at present?
  4. How much are you looking to dilute to raise capital?
  5. What are your current commitments from investors?
  6. What is your utilization plan?
  7. What are your top 3 goals with the current capital raise?
  8. Can you share your financial projections pre and post fundraise for the coming 12-24 months?
  9. When will you need to raise capital next? How much?

 

Risks

There are risks in every business. Answer questions pertaining to risks in a thoughtful manner to show your awareness-

  1. What are the key risks your business, industry faces?
  2. What are any legal, statutory, liability risks that you face?

 

Additional reads

What is a good pitch deck?

A pitch deck is usually a 10-12 slide presentation created to provide a concise summary of your company, your business model, growth plans, and the vision.

 

There are different types of pitch decks that serve different purposes, from one for an investor meeting, to one for business development. Every pitch deck has a few slides that are the same for all like your company details, your business model, and your vision. But every pitch deck has to be tailored for the end-user - whether it is an investment you are pitching to a fund, or a business development meeting with a prospective client.

 

Presentations should be simple, concise, informative, but not loaded on text.

 

Here are some of the building blocks that we prefer on a pitch deck that provide context to the meeting:

 

Problem statement & the customer

Even before we open the deck, we have these questions in mind - who is the customer, what problem are they looking to be solved? We expect the entrepreneur to tell us a short story that we can relate to, as this is the logical place to begin. If an entrepreneur can not articulate who the customer is, or what precise problem are they solving, and what insight do they have to solve the problem, then it is difficult to continue

 

Market

What is the market size? Is the problem large enough to be solved? Is the market fragmented, ripe for disruption, is it growing, does it have tailwinds, does it have large dominant players? We want to know what makes it interesting enough for the entrepreneur to operate in this space

 

Solution

We want to know how your solution is better. We want you to focus on the pain relief rather than the product. Because that is how we understand how entrenched are you in the minds of the customer. You have to explain what is the solution, not the features of the product.

 

Product

Now you come to the product. But not just say we have made a product with the following features! Given enough money, anyone can replicate it. What makes your product unique that it can not be replicated easily, and is economically viable?

 

Plan

How are you going to take your solution to the customer, and solve their problem? What is your strategy and what can be the challenges?

 

Go to market

Dive a little deeper into your plan. What are your sales channels? How will you specifically reach certain customers? What will it cost to reach the customers?

 

Team

You have elaborate plans, but do you have the team to execute? Share a bio of the team along with what skills do they bring on board

 

Growth

Where are you right now, where do you see yourself in the future? How will you reach there? How long will it take? Is it a realistic plan? Do you have or can get the resources to logically reach your destination?

 

Finances

What does your revenue, expenditure look like right now, how will it evolve over time? What margins do you make? How are you going to grow? How much capital do you need?

 

Exit options

What happens when your company is 100x? Will you buy back the shares? Will someone else buy your company? Who is that, and why are you so attractive for them to do so? Can you share any similar transactions in your industry/

 

CTA

Start the dialogue by providing the details of your capital raise, what terms do you want to raise the capital on, and whom should the investor contact?

 

 

The idea is to provide a brief snapshot, tell a story, and elucidate interest.

 

Here are some examples that will help you better

 

 

Can your startup afford to ignore these marketing strategies?

Can your startup afford to ignore these marketing strategies?

SEO - The biggest driver of traffic to a website, but only if you appear higher in search results

SMM - Helps you practically reach the entirety of your audience for free if you play your cards, and strategy right, with the only investment being time

Content - Think traditional, act modern! Replace cold calling and pitching with how-tos and blogs and informative content that your audience derives value from. Combined with SEO & SMM above, this can driver a lot of meaningful engagement

Email marketing - This is a no brainer, in order to be in touch with your customers on a very regular basis without them having to come to you. Yes a lot of people do ignore emails, but with the right structure, and campaign its manageable

Referrals - Can word of mouth ever replace any other forms of marketing? We think not! Word of mouth and referrals are the most direct forms of validation for a new customer to get rid of the barrier to engage with you. Afterall everyone seeks comfort. We are actually working to evaluate fit with a fantastic startup in this space!

There is no right strategy, but a combination of all these can definitely help you!

Why are most entrepreneurs frustrated during their fundraise

Wonder why most entrepreneurs are frustrated during their fundraise? Top reasons I can think of: The analyst you meet is not the decision maker, so they don't have an answer The investor does not want to say no blatantly, so keeps saying maybe The investor does not have enough knowledge about the business to say no and provide reasons, so keeps saying maybe let's see in 6 months The investor has a FOMO and does not want to lose an opportunity but doesn't have convicton, and hence plays on the sidelines These are valid reasons, but very very frustrating for the entrepreneur! As an entrepreneur, you must understand most Maybe's will turn into No's and its in your best interest to hear it as soon as possible This will save time and disappointment later on!

Why do entrepreneurs approach investors only when they need money?

Why do entrepreneurs approach investors only when they need money?

Does it really make sense?

It is hard for an investor to assess an entrepreneurs character, ability, and thought process in a short period of time.

It is difficult for an investor to analyze your product, traction and market in a couple of meetings

The best relationships in life develop over a period of time, and by mutual trust and respect, not by having FOMO

Start spending small amounts of time from today, so you have a list of primed up investors ready to fund you if/when you need capital in the future

You need to sow to harvest!

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