Angel Experiences from the trenches- Part II


From my personal archives @circa 2007-2011

I recently had the opportunity to attend a seminar organized by the Delhi chapter of TIE. One of the sessions involved a free wheeling discussion between a host of angel and early seed investors. One of the most charming statements came from one of the panelist who candidly confessed that most of the investment decisions he had ever made was solely based on the entrepreneur rather than on the business idea.

Hearing that statement gives me heart to know that I am not a loner when it comes to making investment decisions! Five of the seven investments that my management team & I made in business was completely based on our belief in the entrepreneur rather than in the business idea. In hindsight perhaps we were wrong to base our decision solely on the person.  As in racing, we should have possibly looked at both- the rider as well as the horse.

But the fact of the matter is that we did not. We backed the entrepreneur. Which brings me to sharing two unique experiences which were so similar and yet so different.

Investment No 2: The Salesman

In the summer of 2010 we were approached through one of the management team by one of our professional colleague in another company. He had quit his job, formed a company and was now looking to associate himself possibly with some investment.  I met the entrepreneur and his partner over coffee and found myself instantly liking the clean passion, energy, vision and knowledge both displayed. I came out of the meeting a happy man.

A few months later we structured the deal. We would incubate the 2-man business in our office and he could use all our infrastructure resources across the country in his business. In return for the incubation he would give us a stake in his company. We also agreed to provide debt for the start up on the understanding that it would be returned within 1 year.

The business idea? To get into the highly lucrative Intellectual Property business by creating and managing large format event properties either solely or in conjunctions with others. Being in a complementary industry, we knew that this was an interesting space to operate in, one which had a fairly large growth potential.

The start up immediately signed on a large client to create a large event property. Advances rolled in and the new team ( which had unfortunately whittled down to 1 entrepreneur only ) got rolling. That single project was expected to generate enough cash flows and profits for the start up to make our investment good. Unfortunately 6 months down the line, the entrepreneur found little traction among sponsors. Things came to head and we could sense the increasing disquiet in the entrepreneur who was by now facing the heat both from clients, staff , us and his family. We had a calm meeting and gently told the entrepreneur that ” it is okay to not succeed” & ” you don’t have to feel so guilty.”

We closed down the deal and wrote off our investment. But we remained friends with the entrepreneur.

Moral of the story: Business’s can succeed or they can fail. As business leaders and entrepreneurs you need to be ethical and honest with your stakeholders be it your investor, your staff or your clients. You want to build a market reputation that people you have interacted with will speak positively off. And it really is okay not to succeed.

Investment No 3: The Strategist.

It was around late 2006 when we had just about getting our last lap of our first financial year when a chance encounter with another old colleague of mine threw up another opportunity. We are looking to expand our operations nationally and was looking at a suitable team member who could drive our business foray into the south.

I met my colleague ( yes…i do seem to have a soft corner for old ex colleagues !) in Mumbai and once again over some lovely tea I proposed an investment option to him whereby he could give wings to his own entrepreneur ambitions and dove tail them to my own entrepreneurial vision. We structured quick deal sitting right there in the hotel room.

We would form a new company where he would get a 20% stake sweat equity stake. The company would be funded by my company and over time, he would exchange his 20% stake in the new company for stakes in my company and thereby join the management team. My only caveat was that we would invest only for 6 months of working capital and post that he would neccessarily  need to break even on his operating cost. We shook hands over the deal like good friends.

The six months investment cap turned out to be a nearly 3 years continuous on and off debt that kept rising. Business was hard to come by and nothing seemed to be working much and the new company kept making losses for the first 3 years. But through all that we kept working with the entrepreneur partly because we believed in his ability and partly because we knew that non success was not due to lack of effort.  But above all we implicitly trusted him and knew that everything he kept trying to make things happen was being done with the sole objective of making the company profitable.

It is now 6 years since the new company was formed. For the last 3 years, the company has turned around and has been generating profits year on year with the profit levels increasing every year. What made this possible? Three reasons- a) the entrepreneur kept his costs under control b) he changed his business plan to suit the market conditions he was operating in and c) he kept experimenting

Today the entrepreneur is part of the holding company and an integral part of the management team while he continues to run his company. Some investments do turn out well in the end!!

Moral of the story: Always , always invest in people. People make things happen. And if you believe in someone strongly continue supporting despite all. There is no sure fire way of succeeding in an enterprise. You have to experiment, you have to question your own beliefs and you have to want to succeed badly. And if as an investor you have had the opportunity to invest behind such a person..back him to the hilt as far as your finances go.

The above two cases were unique in the sense that both investments were made on people we believed. While one could not take the heat and quit as the pressure grew, the other continued to face the heat and ultimately grew successful.

In the next blog, we will take a look at some complete investment blooper that we did! But that would be after a longish break post my annual vacation.

Until then. Ciao. Keep doing something fresh. It makes for an interesting life!




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