It was always an ‘intrigue‘ when we looked at investing in early stage companies.
Why?
The noises (right) were all in place – bar one. The exit !!!
The founders have a pedigree (education, experience), disruption in the ecosystem (new product or new category), scalability, market place, and the works.
It was and is also all about raising capital & deploying the same. The more confident ones was also talking about the next round of fundraise required. A few of promoters have/had also identified soft commitments too!
Exit – basically was assumed to be the next round of investors providing the same at a discount to the primary round being the expectation.
Why does an investor not talk about ‘exit’ on Day 1? or why does not the promoter also mention about it to its early investors?
And even today, one only talks about investing & assuming the ‘exit’ will happen!
Then we talk about ‘power law’ – (enough ink on this has been spent on this).
Man is a ‘rationalizing‘ animal, rather than a ‘rationale‘ one. It takes form & shape of water.
How?
Pour ‘water’ into a jug – it takes that form. Pour ‘water’ into a glass – it takes that form .
So, when it comes to investing in this asset class – follow the herd is the approach???
Invest in multiple opportunities (smaller cheque size) – u never know what will take off…And when one of them takes off…the return w.r.t IRR/MOIC is out of stratosphere (?).
But, then one looks at the complete portfolio of investments, nothing much to crow about (more often than not)!
Understand the investments & look to have a significant stake – rather than spray & pray.
Remove ‘FOMO’ & bring in ‘JOMO’ – joy of missing out! (easier said than done).
As capital allocators – do your diligence & if not possible, identify who does it.
Indian entrepreneurs do need your capital…but then YoY also have responsibility of investing in opportunities – which will deliver both alpha & also make a difference in the ecosystem.
Today, many a times – when we look at the investment pitches – it takes me to this line from ‘Hotel California’ – ‘You can enter anytime but never leave’.
Author,
Brijesh Damodaran
