“Kya karé kya na karé”…thoughts from two years of investing
I wrote this last year after completing a year in venture investing. The learnings were rich after 7+ years spent building businesses at the Lazada Group and Grofers (now Blinkit). The piece helped spark a lot of interesting conversations for me and I got to speak to people smarter, savvier and more experienced than I am. I hope this one does too, because after Year 2, there’s a lot more to think about and question.
It’s no secret that the venture investing landscape has changed dramatically. The market peaked a couple of months after I started and has since taken a turn for the worse. Everyday there’s a fund that’s cutting its fundraise target, a startup that’s winding down or someone painting a doomsday scenario for the venture investing landscape in India and SEA.
The market is tough for everyone and therefore ripe for introspection. So, here we go:
What does it mean to be a “supportive” investor?
At the start of this year, I was on a panel and someone in the audience asked us what we are focussing on this year, amidst the “funding winter”. I responded with a few things and also added that we are looking quite closely at our portfolio and are being more prudent about where to follow-on and where to take a step back. I noticed that this answer created quite a stir amongst the panelists and each one of them, when it was their turn to answer, said some version of this: “…we will support each one of our portcos to brave this storm, and this environment will bring out which investors are supportive and who are not.”
It got me thinking about what the meaning of being “supportive” is (specifically in the follow-on context) and these are some of the questions I’ve been thinking along the lines of:
- Often times there is a trade-off between supporting a smart and driven founder and being able to judge the business basis the execution so far (the P&L doesn’t look as good as expected, the revenue numbers haven’t played out and a host of similar issues). How do you make this trade-off?
- Not following-on has an ecosystem reputation impact. It is a very small world. Does one factor this into the decision to support?
- Should investors be more open about letting start-ups know that the best course of action is probably to close down? Why don’t investors do more of this?
Is it okay to admit that you’ve changed your mind?
This conversation around being “supportive”, brings me to the next one: changing one’s mind. About sectors, companies and one’s thesis. Nowhere is this more stark than in the web3 space, where funds earmarked for crypto-focussed investment has fallen 95% (2022 to 2023).
This is equally true in the web2 ecosystem. Fundraising for cloud kitchens, the creator economy, amazon aggregators (to name just a few of the sectors) has taken a hit since the highs of 2021. Every other day, there is news of a well-funded startup winding down because the thesis did not play out. Most recently, it was Zume, the robot-pizza company that raised 445M.
This rapid change of sentiment makes sense. VCs are in the business of placing bets, the tech ecosystem moves fast, the feedback loops are quick and investors are constantly getting information and data to refine their thesis and understanding.
What I wonder though is what it would take for investors to publicly discuss changing their minds: what got them excited about something at a certain point in time, what did they bet on and why did that not work out the way they expected it to.
Today, most of us publish our investment thesis and share our excitement over funding a new venture — what does it take to share our changed views in the same way? I do hope that in the years to come my yearly summary of learnings and questions includes some of this assessment.
Is there a formula?
The simple answer is no (of course!). But let me take a stab at articulating the dilemma. Marc Andreessen famously said: “When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.”
So team and market. Market assessment is the easier part. Market includes the macro - political and sectoral headwinds or tailwinds. This has played out in my experience as well. We’ve backed great teams where the market headwinds have been too strong to overcome — lesson learnt.
What I am learning to assess better is the team. Founder/market fit and so called, pedigree are easy to gauge. The softer aspects though are a different ballgame:
- Recently in a internal team debrief someone described a founder as “too headstrong” “they won’t listen to feedback”. Where is the line between taking feedback and having your own conviction?
- Would this person (who has spent decades in large companies and has great market experience) balk at the first sign of difficulty?
- Erlich Bachman, the fictional character in Silicon Valley says: “Yeah, that’s why he’s a billionaire. Because he knows how and when to be an asshole. That’s what you need to be like.” This is true. But where is the line? Or rather, is there one?
There are many more questions to think about, but I’ll keep it to my top 3. As Aamir Khan’s Munna sings in the era-defining movie, Rangeela:
“Kya karein kya na karein
Ye kaisi mushkil hay
Koi to bata de iska
Hal o mere bhai!”
English Translation:
“What to do?
What not to do?
Can someone please tell me,
if there’s a solution or two!”
On that note, would love to speak to others in the ecosystem to continue to refine my thoughts around some of these topics as I enter my 3rd year in investing. I’m at visa@saisoncapital.com.
