Why we invest, and why we don’t- Bharti Jacob- Co-founder Seedfund in Economic Times-13th August 2010

As Co-founder of Seedfund, one of India's most active early-stage venturefund, Bharati Jacob occupies a vantage point in the country'sentrepreneurial ecosystem. An alumnus of the Wharton School, she was earlier onthe team of Infinity Ventures and has since led investments in a clutch of hotstart-ups such as ticketing company Redbus.in and budget healthcare chainVaatsalya.

In this column written exclusively for The Economic Times, Ms Jacobexplains why entrepreneurs need to understand the investor's point ofview.

On return on investment

As early-stageinvestors, we are looking for the Holy Grail — a deal that will multiplyour money such that we get '50 or '100 back for every rupee we invest. For acompany to provide such returns to its investors – it should eitheraddress a large volume and low margin market or a highly profitable nichemarket. Since we invest to exit, the company must have the potential to list onthe stock market or be acquired profitably!

On value proposition

An early-stage company rarely has a well-defined business model– often it is just an idea in the mind of the entrepreneur or her team. Inthe absence of Paul the octopus, the biggest challenge for an investor is topredict the future of the venture –

a. Will it find enoughconsumers?

b. Will the consumer pay what the entrepreneur thinksthey should?

c. Will the company be large enough?

d.Will the team execute the idea well?

e. Can they build technologythat will not crash?

On Quality of the Team

When I sayquality, it doesn't necessarily imply the IIT/IIM/Wharton graduates butrather soft skills such as a team's passion, belief in their product,agility, willingness to learn, ability to make decisions in uncertainenvironment, an eye for detail, perseverance, and endurance. In one of myearlier funds, we invested in a company where the team had great collegedegrees.

We were blinded by the fancy degrees, taken in by the highlevel of articulation in English language and ignored the "softer"skills so essential to survive the start up game. The company folded up withinnine months of funding, as the team could not adapt to the market, some membersof the team left half way as they could not deal with the uncertain fundingenvironment.

On entrepreneurial attitude

An entrepreneurmust run a marathon that is made up of several 100-meter sprints in unknownterrain. Our challenge is to find the right balance of professional skill setand entrepreneurial attitude. Take the case of Indiagames – a youngentrepreneur but passionate about games and gaming technology; RedBus – ayoung, raw team, literally fresh off the boat; Vaatsalya healthcare –doctors without managerial experience. What do all these successful companieshave in common? The right entrepreneurial attitude.

On de-riskingthe business

There are several ways of de-risking. Some teams thinkhiring senior-level talent is the answer, of which I am not so sure. It is hardto hire belief and passion. Some entrepreneurs look for angel investors ormentors. We have seen this in some of our companies – Vaatsalya, RedBus,Edusports. Great mentors do not spend time "doing" things for theteam – rather they "direct" the team and help build internalcompetencies.

The other option is to take capital from early-stageinvestors who are willing to spend time with the team — VC teams thatunderstand the challenge of building companies in India and have the patience tospend time with the team, and who don't mind receiving calls for inputs towrite an article such as this!


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