An Investor's Open Letter To Entrepreneurs In India

13 April, 2012

Hello my friend (yes, we are in this together),

Since you took some time to think about what makes an ideal investor, I thought I would do the same to outline what makes an ideal entrepreneur. I think we both have similar agendas that is to see great companies get built from India.

Here's some background about me:

You may think I was born with a silver spoon in my mouth, but really, a decade ago, I was an entrepreneur much like you. While I can't say I understand your position exactly, I have been in your shoes some time ago. Just as you are aware, in my business, we raise money from other investors (in our business they call themselves Limited Partners) to whom I have to provide returns. Since venture capital is a risky investment, they expect far better returns than real estate or the stock market. Enough about me, let's talk about you.

Here's what I would like in an ideal entrepreneur:

Please spend time to get to know me before you need my money. There's more to me than just money. If all your business needs is just money to make it successful, you can get it from multiple places. VC business is very people-driven and it's hard to write a cheque to people we don't know too well. Ideally, six months to a year before you need the money, you should get introduced to me via a friend or colleague and we should chat about your background, mine and our views on the market. There are many topics that interest me and the more we know each other, the better we appreciate our perspectives.

Please take time to do your homework. Most of us have an area of focus, a size of investment and the stage of company we prefer. If you don't fit into those criteria, it will waste your time and ours to pursue the opportunity. Our website is one source, but speaking to other entrepreneurs whom we have funded is another great option.

Realise that I have investors whom I have to answer to and who have been demanding ROI requirements. Please acknowledge that not all companies are 'fundable' by VC money. Most funds we raise have five, seven or 10-year horizon of investment (time for us to invest the fund raised and possibly return investments). Unless your company can grow dramatically, scale fast and get an exit (preferably) in that time horizon, it will be very difficult for us to invest. In India, we typically look for companies to get to $100 to $150 million in 5-7 years. While these numbers vary dramatically by segment and are not absolute, it's a ballpark for you to consider.

Please understand that saying "no" does not mean I "don't get it" or that "I don't have the risk appetite." There are several factors that go into my decision-making including management team, ability to execute, entry barriers for other companies, unique competitive advantage, valuations, market growth, etc. Some investments that may make sense for another firm, may not make sense for us.

Please take due diligence seriously. VCs will always know less about the market and your space than you. So, it's in your best interest to educate us. After our initial meeting, if I do introduce you to a few people to understand the space, your idea, etc., I am doing it with the intent to help you (and myself) understand the space better. If you don't follow up with them or don't follow up with me, I get the impression that you are not really serious about working with us.

I think there's a great growth opportunity for both of us to do business together. So, let's keep talking.


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An Investor's Open Letter To Entrepreneurs In India

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