Know Your Investor

The Indian start-up ecosystem has been booming for nearly a decade.

In just 10 years the ecosystem has added over 190 SEBI registered VC funds, thousands of angel investors and billions of dollars in capital.

With availability and accessibility resolved what comes next is efficiency.

• How can the process be optimised?? Know Your Investor
• When to approach institutional investors?? Once Minimum Viable Product is achieved and is ready to be commercialised
• Which investors to approach?? Know You Investor
• How to approach?? The best way is to be introduced through a VC associate who knows you personally and can vouch for you.

After multiple interactions it was evident that there exists a gap in understanding when it comes to “Know Your Investor”.

It is important to classify the investors and approach the right set with the right value proposition. Investors can be classified based on

• Investor Value Proposition

Lead investor

• Represents the investors
• Invest at least 10-15% of the round
• Work to set the valuation and terms of investment

Co-Investor

• Represented by lead investor
• Varied %
• Follow the terms & valuation as per the lead investor

Typically lead investor should be a strategic investor, who adds maximum value to the overall business besides financial investment. A strong lead investor contributes significantly in business development & follow up fundraising.

• Stage of Investment

Can be broadly categorised in 3 stages

Corresponding to the stage, approach the right investor set for enhanced efficiency.

• Average Ticket Size – Every investor whether an individual or a fund has an average investment size, approaching investors with a corresponding “Ask” increases the investor interest.
• Sector Focus – Investors tend to invest in their circle of competence. Research of the investor will yield the preferred sector, model & business type in which they invest. Approaching corresponding investors, increases interest in understanding the business and investing.
• Objective – Investors’ objective of investing greatly reveals the journey the two will undertake together.
• If investor invests in business, they seek long term horizon, whereas if investor invests to make money, they tend to exit making healthy ROI.
• The former tend to participate in the follow up rounds as well whereas the later seeks exit.
• The behaviour of existing investors greatly influence the approach of incoming investors and influence the business’ ability and efficiency to raise follow up rounds.

Therefore, when it comes to approaching institutional investors “Knowing your Investor” is imperative. Business are going concerns, thus decisions of today will impact outcomes of tomorrow.