How often has your situation resembled a song?
Can you think of a song that represents the journey for both founders raising venture money and venture capitalists investing?
When I first heard “Are you bored yet” by Wallows (with Clairo), I was astounded by how accurately it captured the situation.
Interestingly, the song wasn’t composed with founders and venture capitalists as the premise.
Let’s break down the song stanza by stanza to better comprehend the lyrics’ significance in the venture investing setting.
Let’s read vibe through:
#Stanza 1
What’s wrong?
You’ve been askin’ but I don’t have an answer
How come?
I’m still thinkin’ let’s pretend to fall asleep now
Inference:
Analysis of an investment opportunity at a VC firm gives birth to a lot of questions. In general, the questions can be divided into the business’s potentials and shortcomings.
Potential is a common endpoint to describe various aspects of the business.
Q1. What about the shortcomings, though?
Understanding what isn’t spoken is an important key performance indicator for VC’s investment performance.
When we at Auxano question you — “What can go wrong with the business?” recognize our point of view.
#Stanza 2
When we get old, will we regret this?
Too young to think about all that s**t
Inference:
Even though we are fully aware of the business’s potentials and shortcomings, it is still far too early to make a choice.
Q2. Will the fund and the investors make returns on the investment?
The only constant is change!
The drone legislation accelerated the expansion of the drone industry, according to VCs who have drone companies in their portfolio. allowing them to generate multi-fold returns. (We possess one)
On the other hand,
The new RBI guidelines have derailed the growth trajectory of the P2P money transfer businesses and venture capitalists who invested in them. (There isn’t one here.)
Unexpected things happen. And ultimately, every investable company has two choices:
- Delaying an investment into this company may reduce its ability to generate returns. Possible deviation from the risk-to-reward ratio.
- The future outlook for this company seems uncertain, so investing now may not be a good idea.
Until we have a time-machine, predicting the future with certainty is difficult. However, the fact that everything is connected, nevertheless, allows us to map out the past and forecast the future.
#Stanza 3
And stallin’ only goes so far when you’ve got a head start
’Cause we could stay at home and watch the sunset
Inference:
Good understanding of the startup’s potential and shortcomings, and an appropriate risk-reward ratio.
All good?
There is yet another aspect.
Growth capital that acts as a headstart for a business is limited in nature. So, the question remains Q3. Who deserves it the most?
There are two broad answers:
- The mature opportunity (Opportunity in orange)
- The maturing opportunity (Opportunity in blue)
The above, plotted on the business growth cycle graph below.
It all comes down to the timelines and reward potential. The reward potential rising with a longer timeline.
Conclusion:
Together, the questions set forth frameworks for an investor’s conviction. And while one might avoid all this hassle to keep the firm growing as it is, those hoping for a headstart must work to find the solutions.
The song is still not over!
The remainder of the song more accurately depicts the scenario of founders seeking funding. In the following part of the series, we’ll vibe through it.
Author:
Kanuj Jadwani
