The alternate investment space is growing in India & also globally. Today, the disruption wave is strong. Challenging the ‘status quo ‘is more of a norm rather than an aberration. And this requires capital also from other than the ‘recognised’ ones Individuals, Accelerators, Venture Capital (VC’s), Private Equity funds are all part of the cohort. They invest – many a times in promoters/founders, on their ideas, Proof of concept (PoC – limited), Go To Market (GTM – still in process), limited revenue, on the premise that the founders will drive through the maze, withstand the perils of downside, create a new product, service, which will find light of the day & create wealth for all the investors.
It’s easier said than done. In this journey, there is enough & more of clashes among the players (mainly the promoters & investors – (for ease let’s say VC’s).
Promoters/Founders, raise capital from VCs sharing the opportunity, a business plan for growth & runway to the next level. More often than not, it’s not the course it takes. The targets are not met, founders decide to part ways, goal posts change, pivot happens. In all of this, what is important is communication, (open & transparent), trust in the people & the process….. Where these two are there, the organization most of the times, goes to the next level.
And where both or either of it is missing, then the norm is that the venture bites the dust. The blame game starts.
Lets now delve into the relationships from Auxano’s experience. The expression of interest for investment in the proposed investment is through a ‘Term sheet’. The Term Sheet lays down the mechanism, the probable rights being sought for, the investment commitment amount, basically the works. We have signed a 1-page term sheet as well as a 10 page one. Does a detailed one help? Well, it’s recommended to have it all in ink.
As has been stated, “In God we trust, for the rest we have data’. For the curious ones, what has been the performance? The 1 pager has also delivered a part exit, as also a detailed one. What matters is trust. And today ‘fruit’ is at a premium.
One bad experience and then, ‘ink’ starts to rule over the trust.
An investment in the enterprise is a relationship. If the vibes are not matching (despite the opportunity becoming fruitful), it’s better to refrain from going ahead.
In another case, the promoter did not go ahead with the investment, as an incoming investor, wanted only them to be part of the Cap Table.
As a fund, these types of matters do put us in a conundrum.
So again, the two’ T’s’, Trust & Transparency, play a role. It’s the experiences, which create the approach & thinking. Is it only a one-way street.?
Do the VCs or other investors not mess? Yes – it does happen.
• Not responding to emails & calls
• Committing, & then withdrawing (& many a times not even informing about it).
When a round is constructed & when investors come together, any of them (especially the larger committed ones) pull the plug, it upsets the enterprise’s growth, interference in the running of the company, well, the list can go on.
What is required is having the Two ‘Ts in place. We definitely do see a future; a bright one too, (and the documentation is increasing) ….. cannot help?
Author
Brijesh Damodaran
