“We are founder-friendly and are with you till the end of the journey.” Has many hidden truths. Can you tell me what are those? The truth is that VCs have to be founder-friendly to ensure they get exits as they have to wait till the end of the journey to secure an exit. An ideal case for an investor is where they invest money in a company, wait for it to grow and reap 100x+ returns in 7-8 years. So what are the hidden truths? 1. All investors invest money to take exits, which has to happen in a fixed time frame. As a founder do you know what this is for your investor? 2. Investors like to cover most of the downsides, which is why SHAs have many protection clauses. All of this is to ensure that the money is safe. 3. ‘Exits’ are not discussed very often in the startup ecosystem, but it is the crux of this ecosystem as no money can stay invested forever. 4. While exits can happen in multiple ways and across multiple stages, typically all investors would like to wait for the end to maximise returns. Do you have an alignment with your investor and understand their exit expectations? I am sure by now you all know of an IPO as the defined exit route for all investors and typically even founders. But, this is a far-off case with multiple variables affecting the outcome. Let’s get to know the other ways of delivering exits – 1. Acquisition (not acquihire) – Here a company acquires the business of your company while typically giving cash to all shareholders or a mix of cash + shares of the acquiring entity. This is one of the foremost ways to make returns e.g. – CRED acquiring Happay 2. Secondary Sale – Herein an early investor can sell to a later stage investor (seed investor selling shares to Series E investors). This typically happens at a discount and is the best route of exit for investors who hold <3% of the company. For larger investors, this will not make sense. Would you happen to know why (comment below)? 3. A 3rd party buyer – Here the investor is selling their shares to some other investor at a pre-determined price. No money is received by the company and this transaction happens between the investors. This is fairly rare scenario. But is a possible partial exit scenario. 4. Promoter buyback – This is rare and is typically when the promoter (founder) of the company can buy the investor shares back. Happens mainly from the profits that the firm is generating. End quote “If you are raising money from someone, understand their exit expectations, timelines and discuss the possible modes of delivering that exit. Investors always want an exit” #BaniyaBuddhi #MadadkaroDuanahi #BuildingRight
Understanding the investor's perspective, especially around exits, is so important.
I sir Prateek Agarwal (Pre-seed investor) l'm looking for funding l have idea please give your valuable time i can explain idea. Sir
Hi there! We are a startup revolutionizing recruitment. We're seeking pre-seed investment to scale our innovative platform. Let's connect to discuss how this opportunity can benefit us both.
Founder @ Palzone | NSRCEL IIM B, Consultant Customer Insights, Research Scientist Genomics, Illumina
3moHi Prateek Agarwal (Pre-seed investor) , You're absolutely right. When venture capitalists prioritize quick exits, it often puts undue pressure on startups to deliver rapid returns, which can be detrimental to long-term growth and sustainability. This short-term focus can lead to decisions that may not be in the best interest of the company's vision, culture, or customer base. A shift towards more patient capital, where VCs invest with a longer-term perspective and support the holistic growth of the company, could foster healthier startup ecosystems and more resilient businesses.