India is a land of entrepreneurs. And the capital poured till date is a testimony to that . There is sufficient capital in India to support the ideas and disruption in the ecosystem.
This capital, when raised from others, ie OPM (other people’s money) is a fiduciary capital . It’s the trust which has been placed on the ‘ founder promoters’ ( FP ) to use it judiciously.
However, what has been noticed in the majority of the cases is the splurge and lack of deep thought.
Growth at all cost needs constant capital inflow .. and this tap can suddenly go dry (the recent past is an example of this) .
Focused approach and not losing sight of peripheral vision is important. Running after every new idea or throwing money to acquire customers is never the approach ( unless you have deep pockets and this can kill the competition ) . Reliance Jio is a good example , but then it’s more of an exception rather than the norm.
The utter disregard to OPM is an epidemic. Having interacted with bootstrapped founders , building business and also acquiring customers in a very thoughtful manner — with a 7 plus year kind of horizon , has seen more success than otherwise .
OPM seeks data on the business being run … what is generally noticed is a commentary on the growth and high-sounding English words .
When you ask for a detailed Profit & loss account and Balance Sheet or Cash flow or compliance- the surprise which many of the FPs react is like- one has asked for the moon .
You are told — Do we run the business or do we prepare the data for you — what a response . So you need money but with no responsibilities ( there is never a string !) . This may not be true for many of the Series A or Series B funded companies onwards .
When Auxano started its investing in early stage companies in late 2016 , did in a measured manner and also sought data and set the expectation right from the beginning.
For Auxano — we are responsible for our LP capital and we look to invest and double down too , when growth and data sharing goes hand in hand.
Early stage companies FPs need to treat OPM as OM ( own money ) and give respect and treat it frugally. There’s a difference between frugal and miser.
Marketing spends in social media ( SM ) , needs to be tracked on a real time basis with the budget to be regarded . If the price of a key word which earlier was Rs. 5 and during the week it has moved to Rs.12, one cannot go on spending in the earlier manner . But in the name of acquiring customers, this goes under the radar — why ???? If it was OM , what would have been the response?
Newer acronyms like — CM1, CM2 , CM3 are in play . Who talks about Contribution Margin, Ebitda… ( old school ) ?
Things are changing — albeit slowly and it’s important for all the players in the ecosystem to ensure that governance is given its right place .
For the decline in the governance standards and the instances of governance issues is the responsibility of the ecosystem.
We should get more capital from Indian households in the early stage of investing and not drive them away …
Governance is a must have … let all the players in the ecosystem pledge and come together… the India story would be much larger and bigger .
Author:
Brijesh Damodaran
