Venture Investing : An Obsession With Co-Creation
It’s a fairly universal view that Venture Investing is a number based world, swirling with IRRs, valuations, stakes, liquidity ratios, what have you. It makes one believe the VC — PE world is all about managing a tight process with some of the brightest minds at work. From sourcing & selecting the best companies, striking the most favourable terms, dispassionate management of a portfolio, and then, ultimately, to perfectly time the market, exit the company and the outcome is a multi-bagger! These ‘tools of the trade’, are absolutely an important hygiene factor, but they create an illusion of causality — that dispassionate-rigour and incredible-smarts creates returns. I believe the biggest fundamental is missed — that the journey of investing in businesses, is no different than the journey of businesses. Its fuelled as much by the passion of Co-Creation as it is by the obsession with returns.
Ignorance is bliss, as they say, but I don’t think any founder started her book assuming that to be the mantra! They walk ‘in’ knowing well that the larger part of being an entrepreneur will be struggles. Economic cycles affect all businesses, and they impact early stage businesses even more. Add to this, complexities brought together with tech-innovation and disruption. In this backdrop, founders and management of companies, are bracing themselves for all possibilities — from delayed product launches, to market validation issues, to investment & cash-flow challenges, to attracting & retaining talent, and most importantly, inspiring the team to keep hope through darkness! What keeps hope floating is a belief that your pursuit — product or service — is truly going to change the world in its own little or big way. The most fundamental human genome takes centre stage — to Create! How can an equity investor not echo this?
Passion for Co-Creation therefore has to be as much in the DNA of a Venture Investor. They are joining a founder for the excitement of the pursuit, as much as for the returns. To the founder, the wings of capital that the investor brings, are the lifeblood for success, but more than that, it’s getting someone with skin in the game who will bring a strong outside-in perspective. To the investor its underwriting the belief of the founder in lieu of the stake, but more than that, its ‘a co-founder coming in late’ to an entrepreneurial journey — they might never acknowledge this, but they are in it as much as for the thrill of the journey as for the obsession with the goal!
There is a perpetual balancing act at play, for things will go wrong many times, before they seem to go right that one time. An investor, in a business at this stage, wants to optimize returns by timing an exit, but has to be ready to hold and operate the business long term. You want to be nimble, but your belief in the strategy has to be steady, for the business might go through many twists & turns before a full-blown take-off. Bottom-line is — since the day you partook an equity stake in a small enterprise, you signed up for operational accountability! You signed up for standing by the tribulations of the business — if you have to err, you err on the side of an operator bias, not an investor bias.
From a founder & managements’ perspective, the most devastating dimension in this journey would be to get an investment partner who is dispassionately pursuing the process, the clock and the returns. More than facing the market and the competition, the investor and the founder would be spending time facing each other — on opposite sides!
I believe Venture Investing is about being in the business of building businesses. That is the Value-compass of the Lumis we have been building — it’s our North Star! It’s about the passion of Co-Creating with the founders and the management, and of hopefully leaving an impact much beyond our exit. Its having the heart of a founder, and the mind of an investor!
By Rohit Bhayana, Co-founder & Managing Partner - Lumis Partners