Fun Fact: Finance titan J.P. Morgan was the first true technology investor when he backed Edison.
J.P. Morgan not only financially backed Edison but also became the beta user as Edison installed lightbulbs throughout Morgan’s estate.
Ultimately Edison’s direct current won the day, especially for J.P. Morgan, whose company that backed Edison later became General Electric and went on to become one of the original dozen companies to be listed on the Dow Jones. ‘Let There Be Light’
Venture Capital dates back to 1880’s or maybe even earlier but not in a structured manner as today.
Since early on, Venture Capital was always beyond just capital. Entrepreneurs looked at these investors for complementing skills which could help them grow as an individual and their venture as an enterprise.
In today’s scenarios, the industry has shaped very differently compared to its origin.
Today investors look at start-up investing as an asset class while entrepreneurs view venture capitalists as cash cows. The ‘Value Add’ piece seems to be missing or least diminishing in this ecosystem puzzle.
Capital being one of the inputs, today entrepreneurs rely heavily on this one resource over other critical inputs required to scale a business like –
-domain expertise,
– talent acquisition,
– growth hacking,
-distribution & marketing, and
– customer success
Similarly, investors focusing on valuation multipliers and growth at all costs tend to push entrepreneurs to build a ‘House Of Cards’ — cards precariously balanced together.
The idea here is to focus on ‘Balanced’.
While having a balanced approach is good but when it comes to business, it must have a solid foundation and every new addition on top must act as a solid foundation for the next layer and so on, balancing one on top of the other doesn’t last.
The Approach
The approach to raising capital and investing in startups should be like match-making. The goal of this match must not be restricted to reaching a destination but to stride on one of its kind, journeys.
The entrepreneurs must focus on onboarding investors who add value to the business beyond capital. The investors — who can and are willing to act as the sandbox, coach, propagator and user.
While for investors there are 3-pronged approach to consider prior to investing:
1. Entrepreneurs who are willing to learn, seek out for help and are coachable.
2. Businesses where they can create a positive impact with regards to the business and/or product fundamentals
3. Returns can be multiplied.
Auxano Approach
We believe in working closely with our portfolio founders. We regularly track and provide inputs to our portfolio founders based on the qualitative and quantitative progress of the business.
As a practice, we schedule a monthly catch-up with the founders to discuss the qualitative aspects of the business with our 5 block framework which includes:
- Hits of the months
- Misses of the month
- Action Plan for the next month
- Support sought from Auxano
- Top line and Expenses
This enables us as investors to regularly stay updated on the business, make necessary connects for the entrepreneur wherever required and be on a watch-out for emerging trends, opportunities and threats.
For a quantitative perspective, we analyze the portfolio MIS on a monthly basis which include,
- Business KPIs
- P&L
- Balance Sheet.
- Cashflows
- Debtor & Creditor Ageing
- Loans
- Tax Compliance
- Regulatory Compliance
This enables us to monitor the company’s actual performance alongside the budgeted performance and provide inputs & suggestions based on financial data and the business KPIs.
This also enables us to monitor the tax and regulatory compliances by our portfolio company and take appropriate actions if otherwise.
Besides the above, our team regularly interacts with the founders and the leadership team for information exchange and sandbox thinking as and when requested by the founders.
Approach
While founders and investors both want the business to grow, create an impact and generate wealth, as mentioned earlier — the journey is more important than the destination. Thus, Investor-Founder fit must be considered by both the parties in this relationship before getting into it.
Author:
Karan Gupta
