Aesop’s Fables – every time one re-reads this, a new perspective is in play. And if not, then the time has been wasted. India has been a land of traders. Now, entrepreneurship is respected.
The need to disrupt & upset the status quo is a given. And that requires ‘capital ‘→ the key resource, along with effective people management and leadership to run the enterprise while striving to disrupt the current way of doing things.
More has changed in the last decade, & the speed of change has been difficult to keep pace with or track. Let’s talk about it in the Indian context.
- The 26th letter of the alphabet – ‘Z’. ‘Z’erodha – disrupted the stock broking space (The company never raised outside capital —making it both highly admired and envied.)
- ‘Z’epto — disrupted the way groceries are delivered to your house (a 10-minute norm?).
- And not to forget ‘Z’oho — a homegrown provider of computer software and web-based business tools. With $1 billion plus in revenue, 30%+ year-on-year growth, and more than 25% PAT, it is again completely bootstrapped.
Several other profitable entities also exist. How do you identify which ones to invest in and which ones to forego?
Data & Diligence – The Two ‘D’s.
In the light of investment opportunities and herd mentality, these two ‘D’s are crucial.
Gather as much data and conduct as much diligence as possible — on the company, the opportunity, and the promoters.
Trust → you must, but only on data & diligence. All of the rest is frivolous.
We talk about the ‘Power Law‘ in the Venture Capital ecosystem. Should there also be the ‘Spray & Pray‘ model?
We don’t want to belong to either camp.
After all the investments made since 2016 (> 30+), one thing stands out — Data & Diligence — nothing can substitute this. Only trust the Two D’s. Everything else is ‘hearsay’ or ‘can be ignored’.
If your aim is to have a higher ‘hit’ ratio or ‘success’ rate, know the Animal Kingdom.
- Of all the big predators, it’s the ‘dragonfly‘ that has a hunting success rate of nearly 90-95%,
- the ‘African wild dog’ too has a success rate of close to 80% and
- the Cheetah’s anywhere between 50-55%.
As Charlie Munger said, “Only swing when sure”. In this case, have data & diligence in place.
Auxano Experience –
Along with success, we also have had failures.
- Misread the promoters,
- Incorrect representations received from promoter,
- Rights agreed at the Term sheet not honored at the SHA (investing) stage & more.
Every new investment is a fresh one — take a fresh guard. Have a playbook and update the playbook: Less is more, and a higher hit rate is key. Not all disruptors (and there are many wannabes) create value.
Trust- Data & Diligence (brothers- in-arms)
Author
Brijesh Damodaran
