Having been an investee for a sizable part of my work life and then on the other side as an incubator/janitor which operates as a bridge between the investors and an investee, I’ve had a sincere opportunity to step in the (equally smelly!) shoes of both parties.
A typical investment cycle (more often than not) starts on a very cautious note, right from receiving the term sheet where every statement is verified by lawyers (if you can afford one), or friends with prior experience (if you have any), who will discuss with you the worst case scenarios – the drag alongs, the ROFRs, the veto rights… Long discussions ensue, iterations happen and then one-fine day, if all goes well, the money hits the bank (which I like to call “sad end to all excuses for not being able to execute/scale” 🙂 )
So far so good. It’s healthy, rather extremely critical, to weight your options, negotiate and get the best deal for yourself and your business (usually “ good for you” and “good for your business” mean the same thing during the initial stages, and if all goes well, during the entire entrepreneurial journey). But once you are in it, the cautious/ guarded dealing with the investor might be more damaging to you than you realise.
The biggest impression / myth an entrepreneur stays under is – More info I give to investor, more doors I will open and investor will come right barging in, meddling with my affairs. So I should be giving only need-based info. The possible reality, especially for early stage companies, might be just the opposite. Look from the perspective of the guy putting money on you. He saw you and your energy, saw your business potential (apparently) and a bunch of documents (which for an early stage business means nothing. Most of the excel/ppt plans at investment stage change drastically by the time you hit the market). He has literally tied his fate to yours (at least a %age of it). Moreover he is answerable to a bunch of people himself. So his only vindication in the whole affair would be to prove he bet on the right guys. In short, your success is extremely crucial to him too. And since your and investor’s success are aligned, he would work and contribute to the best of his understanding. For most early stage companies, Investors have been the biggest sources of business deals and connections. It gets possible only if the investor is completely aware of what you are up to. In addition, he’s seen it all before. He might be able to advice you up front on things which you would
otherwise learn after failing twice.
So my 2 cents is, if you think your investor needs X information, add another delta to it. It could be weekly / monthly reports, small notes about new deals, missed deals, rough month, resource crunches. Just keep him involved and keep him comfortable about the course of the company he has made his bets on. On the upside, who knows what synergies he might be able to figure out for you. And if things don’t work out sometimes for you and your business, he would at least know how you got there. As far as his intervention is concerned, as a smart entrepreneur you should always keep people around you who play the devil’s advocate at the right time. It helps mitigate the risks you might incur due to your over-zealous, sometimes misplaced optimism (that’s an entrepreneur’s curse). There will not be many people in your organization who can constructively challenge your thoughts, the way a good investor can.
Of course all that is written here is personal experience and in perspective of an early stage investment. There will always be exceptions and opinions, but from what I’ve fathomed all this while, you and your investor are like Siamese twins in deep water, the only way to smooth sail /survive is to swim together!
About the Author
Pankaj Vermani is currently heading Incubations and Early Stage investments for Mountain Apollo India, a JV between Mountain Partners AG and Apollo International Limited. Prior to this he cofounded two companies. One of them went through a successful acquisition and the other has won multiple awards including Deloitte Fast 50 India 2010 & 2011 and Red Herring Asia 2011. A product technologist at heart, he has multiple track records of building businesses from scratch and scaling them. He is an active dramatist and performs regularly in Delhi theatre circle. Pankaj is a B. Tech / M.Tech from IIT Delhi.