VC Conf 2020 – Part 1

A VC Conference was held online on 26 Sep 2020 organized by C-Marketplace with the support of Hackstrap Technologies. This conference was moderated by Sameer A H (Founder of Vidura Capital) and featured very frank and from the trenches views along with bird’s eye view of the Fundraising situation in India as experienced by both the fundraisers as well as from the VC’s.

The VC CONF 2020 was conducted in two parts. The first part had a talk by Ganesh Rengaswamy (Co-Founder of Quona Capital) on “VC-Entrepreneur-Startup Relationship Demystified”.

The second part of the Conference featured a Panel Discussion among VC/PE founders and Startup founders with fundraising experience. The topic discussed was “Issues in Fundraising”.  

Welcome Address and Introduction of Speaker

By Sameer A H, Founder – Vidura Capital:

Hello everyone, as your host for this conference I would like to welcome you all to the first ever event of C-Marketplace.

To give all the participants a context of the genesis of this conference, a WhatsApp conversation between Aso Shanglai who is the founder of C-Marketplace and Ganesh Rengaswamy, founder Quona Capital led to a discussion about how IIMCal entrepreneurs could potentially benefit from a structured discourse around what it takes to get superior outcomes for startups. Given that equity funding is an important growth driver for startups, today’s conference revolves primarily around this aspect. Initially this conference was envisaged as a closed door discussion involving only IIM Calcutta alumni but eventually it was decided to open it to everyone to spread the benefits.

I welcome non-IIMC alumni and IIMC alumni to this conference and I want to thank you all for taking your time to attend this. Aso Shanglai, founder of C-Marketplace and Sandeep Devarapalli, founder – Hackstrap are the organizers of this conference. I would like to thank both of them as well as the team which has supported them for their hard work in putting together this conference.

There are two events as part of this conference. The first event is a talk by Ganesh Rengaswamy on the topic “VC-Entrepreneur-Startup relationship demystified”. I would briefly introduce Ganesh before he takes over.

Ganesh is the co-founder of Quona Capital. Quona is the first Fintech VC firm focused on emerging markets only. Quona Capital backs innovators who enhance the quality and availability of financial products and services for underserved consumers and enterprises. Ganesh is also recognized among Top 100 people in Fintech for Asia. He sits on the board of multiple companies mostly Fintech companies like Zest Money, NEOGROWTH, SME Corner, Credit Mantri and indiamart among others.

After graduating from IIMC, Ganesh worked with Infosys for a few years before joining Harvard for his higher studies. He then founded travelguru, a travel tech company that got acquired by Travelocity. After exiting from travelguru he worked with several VC funds including Greylock Partners, Unitus, Lok Capital, Accion and now Quona which is also backed by Accion.

So over to you Ganesh.

Part I – VC-Entrepreneur-Startup Relationship Demystified

By Ganesh Rengaswamy, Co-Founder – Quona Capital

Thank you so much for the kind introduction. I have done various online sessions within investor and entrepreneur forums and with corona, virtual conferences and webinars have become the way of life. But I’m probably more nervous today than usual because of this particular discussion topic. As Aso, and I discussed, it’s a nuanced topic when we talk about the relationship between investors and founders in the context of a startup and something very hard to do complete justice to in a virtual format like this. Moreover, I’ve been told there is no Q&A in this session. Hence, this is going to be a one-way monologue unfortunately, and that also adds to my nervousness because there is no way to know whether anything I’m saying is actually making an impact. But let’s go with this hopefully. I’ll probably use a couple of slides as reference points.

I’ll start off with a bit about Quona so that there is more context about some of the topics we want to power through. We are one of the most active Fintech investors globally and are now the largest VC in the emerging markets. We’ve been around as a firm for six years. We, the cofounders were driven by common ideologies around financial services, digitization of financial services and particularly the difference that can make to emerging markets and underserved markets. This was the theme around which the three of us [founders] came together. We were from different parts of the world but the common link between us was past entrepreneurship experience, having been on venture and entrepreneurial careers in Silicon Valley and then done extensive work in respective markets between Asia, Africa and Latin America.

Sameer has talked about my past so we will move quickly through it. The only thing I would focus on is the fact that Quona is very much an entrepreneurial journey for us. Frankly when I started travelguru in 2005, the venture funding ecosystem was not that mature. We did not have a very good experience with some of the best funds [of today] and investors who were exploring India at that point in time and with some of these investors who today are arguably amongst the best known angel investors in the country. We had some very ridiculous discussions in terms of how to think of equity and valuation with someone telling us at the end of a 30-minute meeting, “okay you know what – you guys need a CEO, go find somebody and then come and talk to me.”

So back then, we heard all kinds of stuff. Obviously, I was 15 years younger but some things stick with you, and some of them were borderline insulating or humiliating. However, as you evolve and mature, I think it’s more important to look at those and take lessons from your experience. One of the biggest reasons I became an investor was that I realized there was very little understanding of entrepreneurs on the investor side. A major reason for that was that back in those days, the investors came from a very professional background – either Banking or IB – and so a big part of my evolution was to be an investor by being able to relate with entrepreneurs and have that meaningful empathy.

Quona, of course started from scratch. We were initially supported by Accion in the first six to nine months of our journey. Post that it really evolved into a fund of its own and we have a large group of stakeholders across wealth funds across the world and several fortune 100 financial services, and we continue to have the relationship with  Accion.

So, fundamentally, Quona is as much an entrepreneurial journey for us as for any other entrepreneur in this group. It just happens to be a venture of different nature and as I tell people sometimes jokingly, we were actually “fundraising for a fund”. I do hope no one in this group has to go through that because fundraising for a fund can be a lot more brutal. We just go to folks and say, “we’ll find fantastic entrepreneurs like some of the folks in this group. Just trust us please and give us the money and we will bring you good returns,” it might be hard to imagine but we have got some weird looks more than a couple of times from potential investors. So, in some sense fundraising for a blind-pool or a fund is a lot more challenging than an operating startup because when I raised capital for travelguru, at least I knew, what I was doing and, was betting on myself. People who invested believed in that vision and knew exactly, who and what they were betting on and the business model. For Quona, however, the fundraising was based on trust.

So, going through the first column, a lot of you are probably experiencing this as a founder, you are the primary cheerleader of your startup, for you know the buck stops with you and you have the bottom line responsibility. If you look at the first column, the reason why I put ownership in there is two-fold: one is the more direct case of being the owner and having a sense of ownership. But the second reason is that ownership evolves as you bring in other stakeholders into the organization. When an entrepreneur starts a journey they could have a 100% ownership, but you have to keep the sense of ownership in the organization. The couple of the other green things are very obvious, as well as the yellow ones: being an evangelist and one of the key stakeholders. 

The last two elements in this column is what I’ll highlight: First being an insecure leader. We have seen situations – this could happen with either organisations with single founder or with 2,3,4, or 5 co-founders – where a founder or co-founder has started with the passion to be an entrepreneur but is unclear about his role especially in a multi-founder company. Sometimes as companies evolve the founders don’t scale and some founders are unsure or uncomfortable with the respect and authority they have in the organization. When I say authority, I mean moral authority for in a startup, nobody has authority over anybody else. This insecurity from a founder could create challenging dynamics. There have been companies where we have had a very tough time hiring head of product or CFOs etc., because a certain founder was doing that role but as the organization scales, they do realize that they are not scaling up. But they don’t want to give up their authority. 

Founder misalignment is something that could happen between founders. In fact in a company, we have seen a basic misalignment as two great friends, both co-founders, wanting to be CEOs. We couldn’t make them co-CEO’s because the company really needed direction to know who is in which position in the company. Moreover, the external stakeholders and partners as well needed that clarity, and in this case, it became a sort of a passive-aggressive situation between the founders which at the end led to an exit. 

If we look at the column in the middle – the relationship between VC and this startup – a lot of the investors, especially the early stage investors, are able to set the tone of governance in the company and help and enable the founders with it. The second and third bullet in the VC-startup column is the obligation an investor has towards the company. When as a VC, you are sitting on the board you know typically you are supposed to be always doing what’s in the best interest of the company and then the founder and then your own fund, in reality it’s a lot more complex in terms of how that order actually happens: One thing to remember for entrepreneurs is a lot of the professional investors have their own investor obligations as well.  

Hence, there is potential of a tension between the obligation of an investor to the company and to the investor’s right and those situations sometimes become challenging and usually the obligation aspect of the VC is not exposed to the entrepreneurs. Which is why sometimes it leads to tense situations where the entrepreneurs might wonder, why the investor is behaving in a certain way. If this feeling keeps accumulating over time, it can lead to complexities of its own.

The bullets in yellow are probably self-explanatory, especially on the fundraising side. From a VC perspective, if you invest in a company, the credibility you come with must help the company to really open some of the best possible new doors to the next stage if you’re going for fundraising. The right kind of investors can be a phenomenal support on recruiting and business development side as well. 

But I’ll move on in the interest of time and focus more on the red part. So, one of the things I say quite often and which people always ask, “what is the most damaging type of investors I’ve seen in a board.” There are investors, who half the time do board meetings virtually even in normal times For example, someone sitting in SF, who’s invested in Indonesia or Singapore, and is just a “fly in and out” investor. It could be someone local as well who doesn’t show up in board meetings. There are investors who are always checking their phones when they’ll suddenly wake up and say something like, “You know you should talk to that founder whose board I was on”, without any context – based on some investments several years ago in the same space. As an entrepreneur, you feel obligated to follow their advice. They might give you a right idea without enough context, and you rarely hear from them between board meetings unless there are some financial challenges in the company. 

There are also those investors who are not in sync with the business and can probably be the most challenging folks to deal with, especially if they have a strong voice and can influence the decisions. This is again a topic we can talk more about but one of the classic points we tell entrepreneurs is to be careful about who they bring on board, because for an entrepreneur fundraising is very important. However, bringing the wrong folks in would be a lot more detrimental than not having capital, and trust me, that is true 10 out of 10 times even though it never seems like that while you are fundraising. 

The last two red items here are self-explanatory. I’ve said this in multiple forums that it’s become quite common for a number of well-known pedigreed investors nowadays to pick a theme and bet on multiple companies in that  particular theme. However, we at Quona look at this very much from an entrepreneurial mindset and maybe that’s why we only bet on a certain company in a space in a country and proceed with it. Having said that, there are several sectors such as B2B, commerce or neo-banking in India where investors have invested in multiple companies. I think that could cause challenging situations for entrepreneurs and they should really question both themselves and the investors. Ideally, this investing into competing companies should not be entertained, but if it happens then you need to have the hard conversation on what does that mean for you as an entrepreneur, because this is probably the only company you’re running.Taking a counterview, I’m sure the investors wouldn’t feel excited or happy, if you have three different companies and you tell them, “ I will rotate my time between the three, don’t worry about your money.” So no, it should not be a one-way street and competing investments should be discouraged completely. 

The last point in red is co-investor misalignment which happens sometimes. It can be caused due to multiple investments sometimes or because different investors have very different views on where the company should go. Another reason might be because of the times when the investors came in. For example, one investor came in at a valuation of x while the next one invested at a valuation of 4x. As an entrepreneur, initially you might feel great about it, but trust me, unless everything is fantastic from there onwards it can make your life miserable. I’ve been on the receiving end of this because the investor who came in later is always feeling nervous about the fact that they really paid up. Whereas the one who came in earlier is already in the money and not feeling the pressure as much and the way they operate in that context could be very different actually. 

The third column is the founder and VC relationship one and honestly everything is defined by this because at the end of the day, if you look at all the bullet points on this slide, 80 to 90% is basically human dynamics and relationships.  

They’re much nuanced, relationship related stuff and only a few of them are really objective things. The Founders-VC relationship is very subtle and that’s why it’s important to spend a lot of time before you agree to welcome somebody into your home. In the race to get funding, a lot of time the entrepreneurs take the shortcut or get aggressive to get the money. But I think it’s really paramount to figure out who you are leading into your home or into your company. Here, again, the first couple of points are quite self-explanatory. Let me explain the third and fourth points: Devil’s Advocate and Cheerleader. 

What I tell my team and other investors is when entrepreneurs are over exuberant then it becomes your role as a well-wisher investor and shareholder and collaborator to play the devil’s advocate. Conversely, when the entrepreneurs are feeling down, it’s actually a job to figure that out, and then figure out how can you be a cheerleader to them? There is quite a fine balance in that, but you have to be the kind of support as the situation demands. It shouldn’t always be a unidimensional relationship between the founder and VC. There are situations where if enough trust and relationship develops, the investors can be a very good coach to founders. Founders obviously are very heads down focused on what they do, and while some founders have the ability to probably run parallel tracks on long term vision and short medium term execution, several founders don’t and a good investor can be of much help in such situations. 

Some founders, once they reach a comfortable relationship with their investors also use them, as a venting ground or sounding board for new ideas. This only happens once you reach a point where you feel you won’t get judged for every single challenge you face. As you get more comfortable in the relationship, you develop a relationship of trust and mature into a more equitable relationship. 

The one element in yellow is self-explanatory.  

The last two points in red again are self-explanatory. There are some investors who have not been entrepreneurs or not been a day away from not being able to pay salary or not being able to pay your vendors or losing a big contract or such business challenges and it’s very hard to simulate those real time situations. Hence, it becomes challenging for those investors to appreciate these kind of situations and they come up with simplistic solutions. This is just an example, but could happen in several contexts. If the investors don’t have the complete context and they think the solutions are easy and have a number of ideas which might not be implementable. And then the investors wonder,”Why are the entrepreneurs not making it happen?” So, that kind of backseat driving is dangerous. On the other hand, for an entrepreneur, it is important that people challenge you, and if you are not open to being challenged then, I think that’s a dangerous sign. You want someone who thinks they have the answers to stuff that you have been struggling with for maybe weeks or months. 

The last point is around alignment issues – either strategic lack of alignment or team’s lack of alignment. I’ve seen a number of cases where there was a lack of alignment. For example, in a company with three co-founders, who have a very good relation among themselves and they were all a very tight unit, but the investor feels that one of the three is a weak link.This is a fundamental lack of alignment where the investor might feel that the role of that particular person has to change, whereas the primary founders would defend the current structure. 

It’s hard to judge right or wrong in this particular scenario without understanding the situation better. But incidents like this usually leads to significant tension and hence It’s important to watch out for these behaviours and watch out for early signs. 

Now I have some good news and bad news. The bad news is that I don’t have an answer to how to solve all these potential issues. The good news is I can tell you  what I have learned from my experience and the fundamental orientation and the way I have approached things that have helped me in the past. As we look down this list, a lot of it is conceptual or could even be looked at as being quite academic but I do hope that based on your experiences, each of you will relate to some of them. I have them here because I relate to all of them and these have been my learnings at different points of time. 

The first one is Positive Intent; I am not sure if you noticed in the previous slide that I had written Quona is my entrepreneur journey 3.0, and which means I have started two other ventures before. One was very brief and the other was a startup I was helping start for almost a year but which didn’t work for a number of reasons. However, those failures also actually taught me probably more than the learning I have got from Quona. Positive intent is a very important thing for it’s so easy to start complaining. We can look around and complain about everything especially in today’s world but that’s not the road to being an entrepreneur. 

The second one which took me a while to learn is only if you overcome the complaining and really inculcate a positive intent is when you get into a frame of mind for problem solving. It’s only then you ask, ”what is the problem and how can we hack it?”, instead of rationalizing and intellectualizing on the constraints you are working under. Sure, investors/employees/external stakeholders could be more supportive for example, but you have to simply accept some of those things as Reality and then come up with a possible solution after researching through best examples to hack. 

The third element which is a very fundamental pillar is what we call Intellectual Honesty in accepting different challenges and mistakes. A lot of times as entrepreneurs, we don’t want to accept it and sometimes we do when it is too late. For example, you might be running a company targeting a small or niche market and might not need investor backing. You might be able to do very well without the pressure of external funding because you’re not looking to build the kind of companies or the outcomes that classical institutional investors will look for. However, these entrepreneurs might also come under pressure and seek external funding because everyone else is doing it without figuring out what to do with it. 

The next one is around being open to possibility of Competition. This is especially true of India. Any new idea that works well or is good definitely attracts enormous amount of competition. Most entrepreneurs that have a concept say they have the best team, and a tech company might say that they have the best product and no one could touch them. Some entrepreneurs are a little bit more honest and might give themselves an 18-month lead in their projections to investors, for example. However, my general realization is given the number of tools available in the world today, there is no lead time available to companies and they need to constantly keep evolving because complete competition comes in almost immediately. Plus, there are several big companies who also enter new areas because they have the pressure to show performance. This is also true of startups who don’t really know what they are doing but who have managed to raise 100, 200, 300 crores. And if something works in their zone of expertise and operations, these funded startups and big companies will go after it. Hence, this happens a lot and the entrepreneurs need to be open to this challenge and notice competition early.  

The fifth point is the tough part of the founders’ job where you always have to be the evangelist and the cheerleader. But on the other hand, where something unforeseen happens – a partnership falls through, or an investment you were hopeful of getting fails or a senior hire you were hoping to recruit fails to join – any news which had the team enthused but has then failed to materialize, you as a founder should be able to share bad news with the team and the team should be able to Handle the Bad News.

I didn’t learn this till very late in my life that it’s probably sometimes important to share bad news with your team in a mature way and if done the right way, it could also motivate people to perform extraordinarily. 

The second last point is around the fact that today’s business space is becoming more complex because there are more entrepreneurs with more access to information and there are more investors and more companies are starting up in new spaces. Hence it becomes important to understand and learn fast but also at the same time Challenge Things which have not succeeded. Usually, the way it works is once we have narrative in our head, we only look for proof to validate that. We don’t look for proof to negate it and in early stages of company building, that learning ability is very important to also push ourselves to figure out the reasons why something may not work and look for examples of the same. 

The other aspect of this point is that we have to obviously be intelligent around the messaging of our company as well as know about what the competitor companies are doing. This is especially important for competition which is getting a lot of market interest or investor interest. However, we should not blindly follow the competition model and hence this is a fine balance between learnability and not giving in to FOMO, which is a hard path to tread and is a continuous learning process for the founders. 

The last point is something which can really aid the younger entrepreneurs. I missed this trick while starting up but if you can find an independent Mentor or Coach or even in some cases a therapist because that’s needed in some situations to engage with. As this mentor/coach/therapists gets to know you over time, he/she can be more helpful as time goes by and can have a massive exponential positive impact. 

I’ve seen people for whom this has really worked. I have not been successful at this, and don’t have any sort of a cornerstone on any of these three dimensions, except for a small help in coaching. However, I highly recommend it because it can make a huge difference in a stressful entrepreneurial journey. 

So, let me stop there. Once again, like I said in the beginning, it was a monologue and hard to know if the message has really come across. But let me just stop there. Happy to answer any questions you might have.

Sameer A H: Thank you so much! Ganesh that was very helpful. So, the way we have structured this, Ganesh, is that the Q&A is not part of the session. However, if Aso or Sandeep as organizers, have received any questions in private, they can probably ask you some questions.  I think you explained it quite well and it was very helpful..Thank you Ganesh. Aso, Sandeep, we can move on to the next event or are there any questions that people in the audience have for Ganesh. 

Aso Shanglai, Founder – C-Marketplace: There was just one question someone asked. What is an LCM?  

Ganesh Rengaswamy: It’s the Least Common Multiple – something we learned obviously back in math. But in the context of the entrepreneur-VC relationship, it’s a board member, who is a drag on the company and understands the least about the company. 

Aso Shanglai:  Thank you!  

Sameer A H: Great! So, should we take a quick two-minute break,as some of the panelists want to check their audio. Aso and Sandeep, if you can enable that, we’ll just take a two-minute break post which, we’ll start the next event which is the panel discussion