Limiting angel investors’ upside

I am speaking from personal experience here, so please read this note with that caveat.

Over the past 3–4 months, I’ve encountered a disappointing trend among a few tech entrepreneurs (in India) towards their early stage angel investors.

The argument goes,

hey, i need to clean up my cap table as I want to raise a lot of money, and I need to reduce founder dilution …it’s something my current big VC investors are pushing me to do. Please can you take an exit at a multiple of your invested capital?”

In most cases, this should be cause for celebration. How often do angels get exits in early stage tech deals in India after all.

But recently, I’ve found myself with the short end of the stick. Founders approach us saying, “please take an exit since you’ve already made X-times the invested capital and that should give you a healthy return”. Another version is, “you’ve invested in that other company that vaguely competes with us, and so we are worried about information rights you have and you may leak our secrets to them.”

In each case, the offer on the table is a “market rate discount to last round” … without an upfront disclosure about an impending big-up-round on the horizon. Because there is no way for the angel to truly know that a new round may happen, and even when it does, the disclosure will happen much later anyway, why not “clean up the cap-table”.

I see it as nothing short of theft.

When an angel investor invests in your company, it is often at a stage when your company is at the formative stages, and has little to no evidence of achievement. The risk factor of the angel investors investment going to ZERO is pretty high. In other words, unlimited downside risk on the capital invested.

So, on the other side, when you start achieving great success, just as Founders have unlimited upside potential; early investors should have the same opportunity (to the extent of their investment) … unlimited upside potential.

Thought I’d share this for the benefit of fellow angel and early stage investors in the India startup ecosystem. Don’t fall for this trap.

PS: if you want solutions for how to protect against such practices (i.e. safe guard yourself against such malpractice), feel free to email me.

How to think about Corporate VC investors

Couple of friends asked me this question recently, so I thought it may be useful for a wider audience.

Often during a fundraise process at startups, you come across the investment arm of an Operating Company (unlike VC’s who only invest and don’t run companies).

Let’s call them OpCo’s.

OpCo’s typically invest from their balance sheet, and do investments for one of two reasons:

  1. Strategic Investments (learn a new market, buy-in early into future potential new lines of business, build an ecosystem of partners around their core business, create more stuff to sell to their existing customer base, etc)
  2. Separate Investment arms [for capital appreciation, not only for (1) above]. In these cases there is often a strategic angle involved, but not explicitly a must-have. In these cases, capital is typically set aside in a fund vehicle.

Critical to know which type of Corp VC arm you are engaging. You can simply ask questions along the lines of (1) and (2) to figure this out.

Strategic investments should typically come with “more than moneybenefits. For example: supply chain, distribution channels (sales, user acquisition), unique/early access to tools, and some inside track on enabling you to build an unfair advantage in the marketplace.

To ensure you really (and tangibly) get these benefits, it is important to ensure that you secure buy-in from OpCo Executives who control those assets. In other words, don’t just trust the investment team to be able to deliver on these unless the operating team has bought in. In most cases it helps to make the OpCo Exec your champion within the company in the long run.

Another important question for Strategic investments is to ask about the time horizon for the investor. Typically OpCo’s will have a longer horizon (read: patience), and be willing to back you in future rounds as well as long as their goals are being met. That being said, if their goals aren’t being met, then they can be tricky to deal with.

For Corp VC’s that are setup as separate Investment Arms [(2) above], the best way to evaluate is to look at them just as you would another VC. Ask all the same questions you would a regular VC firm.

The Upsides of Corp VC can often be game changing.

  1. Getting access to (and locking others out) of proprietary “more than money” benefits can set you apart from competitors fast. It can help you achieve things at lower cost.
  2. Corp VC’s aren’t as active on your board as a regular VC. So as long as you are hitting broad goals, they won’t get in the way for most operating decisions. This is sometimes a negative too; all good boards help entrepreneurs avoid pitfalls
  3. Corp VC’s understand their markets & adjacencies fairly well. So, they are what I call more-committed capital, and will invest in adjacencies with deeper conviction than some VC investors (the few who are easily swayed by market sentiment).

Of course, there are potential downsides! … primarily two: Speed and Priorities.

  1. Speed of getting through internal decision making can sometimes be a challenge. It often also takes longer to turn around documents. Keep in mind, the OpCo isn’t setup like a VC (Monday meetings, standard contract templates etc) so some decisions aren’t as high frequency. Therefore, it also can take longer to get documents reviewed/signed etc. But this a minor thing in the grand scheme.
  2. Priorities of the OpCo often change from time to time, as they themselves see market transitions and competition in their core business. If you and your company are no longer a priority for the OpCo then you can find yourself in some level of stress. This can mean that the “more than money” benefits may not continue to be available or deliver as much value to you as intended, or the interest in doing follow on investments may not be the same anymore. This is the thing to watch for, and honestly the better way to handle this is to partner only with very strong companies who have durability on their own.

In conclusion, Corp VC’s can be very productive partners in enabling you to build and grow your startup; you just need to be smart about the process of getting to know how to extract the best value for both sides.

Bonus point: in some cases, Corp VC’s also make potential acquirers.

talk to your skeptics

their feedback helps you hone you message & your work

startups and innovators encounter skeptics on a daily basis. most of them like to point at the umpteen shortcomings of your concept (or solution) and how the status-quo or the 800-pound gorilla in your field is better.

i am certain you are thinking “trying to create something new and change the world is hard enough ! … now you are telling me to listen to my skeptics ?!? …are you crazy?”

however, I have found that these skeptics often give invaluable feedback that you rather get from them, than your customers. Use them as a litmus test to help calibrate your solution !

It is because the skeptics are right about some things that they are so wrong about the whole thing. Simon Cox, The Economist

the genesis of my short post was this quote from Simon Cox in the book “Economics, Making Sense of the Modern Economy”, 2nd Edition, The Economist Newspaper Ltd.

Simon gives me hope !

Fight on my friends.

Making big decisions


its not about choosing the defaults

Each of us typically make one or two big decisions about our lives every so often. For example, which career to choose? whether to buy a house or not? finding a life partner, or deciding where to take a big vacation. The implications of each of these choices is varied, but one thing is common — the defaults are well laid out for you.

Defaults are what you are supposed to choose. Thats what normal or good people do. It is what society expects you to do, and will shower you with positive energy when you ‘stick to what is right’.

Fred Wilson wrote a thoughtful article about Foursquare and their deliberations to decide the future of their business.

don’t let conventional wisdom force you into making decisions you don’t need to make and you aren’t ready to make, particularly about very big decisions that you will be living with the rest of your life

I find these words extremely valuable in times of ambiguity and lack of a clear way forward.

You are told that the default choice works, despite being either unprepared or in gross disagreement with it. Some times we do it for loved ones, and at other times we refrain from rocking the cradle.

Its not about spending more time with big decisions, but about spending enough to iterate and not be afraid of making an unconventional choice.

Recently, I made the choice of moving back to India after having stayed in America for a little over a decade. Many friends, colleagues, relatives, and general observers were quite baffled by my decision. I made the choice within the context of what is important to me, and that is what matters most.

Do what you think is right for you.


photo credit: http://www.keepcalm-o-matic.co.uk/

Annual Reviews

so what did you do all last year?

Every year in January, many of us sit down with our bosses, supervisors, and mentors to review the year past. Often these reviews are institutionalized (read:required) by our organizations, and closely tied to financial incentives (bonuses). Through the years, I have found these reviews to be a great look-back mechanism for what I achieved (or didn’t) in the past year. In conversations with friends and colleagues though, I have found that many of us don’t like these reviews as much as I seem to. So, I thought I’d write a short post to share my point of view.

Realizing that every organization does reviews differently, encapsulating thoughts on the subject instantly starts to look like multivariate calculus to some. I distill reviews into the following measures for the individual:

  • Have you defined the right measures?
  • Are you making progress toward your long term goals?
  • Do you like your organization and your team?
  • Does your manager really care about your career?
  • Was it a good year or a bad year?
  • How did you perform compared to your peers?

These are the questions I’ve asked myself, my team, and my organization every year. Some of these are obvious questions, and others are not. For example, the measures change through different stages of our career, life-stage, and external circumstances.

For organizations on the other hand, annual reviews are a good way to recognize, reward, and retain their top-performers; and at the same time introspect whether they have the right mix of people to meet the goals of the business.

How do you think about reviews? … like em? … hate em? I’d love to hear your thoughts.

Note: this is a repost from my blog, and was originally posted in Jan 2013

Mentors – your aides in career navigation


I often find myself deeply confused and unclear about navigating life and career decisions. These may range from simple things such as whether to take on a project at work?, or broader questions such as what geography do I want to be in 10 years from now?


No matter what the question, it is quite challenging to step outside of one’s own bubble and see the forest from the trees. What makes navigating these crossroads even harder is that the consequences of most such decisions may only be evaluated over long periods of time. All of us face these questions regularly, and am sure each of us has devised unique ways to find answers.


I constantly turn to my Mentors for guidance and direction when faced with multifaceted decisions. They (my Mentors) are the only way I am able to understand what is going on beyond my own life stage, industry, financial circumstances, geography, career track, and ideologies.

Surround yourself with mentors who not only share their life experiences but also challenge you to think about dimensions you may not have contemplated. Having an insight into what lies ahead, or how people in a different industry think about the same decision is invaluable.

As you think about Mentors, here are my thoughts on who to surround yourself with:

  • a peer in your industry
  • someone whose life/achievements you admire
  • a family member
  • someone in a different geography than your own
  • someone much younger than yourself
    (you are the
    present, they are the future)

Keep in mind that cultivating a Mentor/Mentee relationship takes time and diligence. You want to be selective in finding Mentors who are genuinely interested in you as an individual, and this takes time. An ideal mentor is someone you have known for atleast a couple of years, and is someone you would love to have a beer with.

Your relationship with your Mentors is a two-way street. You have to pay it forward and share as much as (and perhaps more) you wish to learn.

Think of a person without mentors as a sailor relying on astrology to cross the seas, and a person with mentors as an Admiral with the support of sophisticated GPS satellite navigation and mapping to assist him. The Admiral has a much better lay of the land and the many pitfalls and traps on the path to his goal.

Be the Admiral.

I hope you find Mentors that help make your life more interesting, and at the same time be sure to share your own perspectives with others who could benefit from your experiences.

(Special thanks to Aakrit Vaish, Dev Khare, and Tomas Tunguz for their feedback)

the curse of 10%

a 10 percent improvement means that you’re basically doing the same thing as everybody else. You probably won’t fail spectacularly, but you are guaranteed not to succeed wildly.

the curse of 10%

Larry Page succinctly described, in the above quote, the 10% growth syndrome that companies get into and miss out on doing great things.

Don’t get me wrong, it is extremely challenging to run a large company and motivate the team to work towards a common goal of 10% growth, but at the same time our business leaders owe a debt to society to attempt great things with the resources at their disposal

I hope more business leaders and politicians would see the roles the way Larry Page does.

You can see the entire interview with Larry Page in Wired mag here.