Startups have a significant impact on driving innovation and generating employment in India and their expansion is closely linked to the growth of the economy. The thriving startup sector has experienced remarkable progress within a brief period, to the extent that India has emerged as the third-largest global startup ecosystem, thanks to exceptional leaders, skilled individuals, and the government's favourable policies.
However, from the impact of Covid-19 to the surge in inflation and the escalating energy expenses due to the conflict in Ukraine, startups are facing an unparalleled and demanding situation. Investors have adopted a more vigilant approach towards allocating funds and are scrutinising the worth of numerous hypergrowth business models.
During the initial six months of 2022, the count of successful IPOs decreased by approximately 50 per cent in comparison to the preceding year, indicated a McKinsey report. This has left startups in a state of uncertainty regarding if they should prioritise Impact or returns.
People Matters’ Chief Business Officer Pushkaraj Bidwai sat down with some of India’s most promising leaders - Sajith Pai, Venture Capitalist, Blume Ventures, Nakul Saxena, President - Early Stage, Lets Venture and Amit Malik, President - Japan, APAC & Australia, Wadzpay, to get their outlook on how impact and returns can coexist harmoniously to shape the future of business, during People Matters’ Big Questions session at TechHR India 2023.
The role of updates in optimising partnerships
Investors should be regarded not merely as backers, but as integral business partners. Consistent updates and occasional appeals for advice can deliver substantial advantages. Elon Musk's 2018 tweet about privatising Tesla serves as an example. A tweet fitting within 280 characters led to substantial fines of $20 million each for Musk and Tesla, accompanied by a shareholder lawsuit that might potentially result in billions of dollars in damages.
In contrast, several startup founders often adopt an opposite stance, opting to share less information than required. However, this approach can become a costly misstep, believes Sajith Pai, Venture Capitalist, Blume Ventures. Neglecting consistent and meaningful interaction with investors may cause founders to miss out on the valuable expertise and insights that backers can offer, he stated.
“The foundation of a robust relationship lies in honesty, transparency, and timely conversations – and the investor-founder dynamic is no exception. Investors generally value regular updates and sporadic discussions about future strategies. Importantly, founders need not possess advanced communication skills to effectively achieve this. After all, collaborations go beyond shared interests; it's about understanding their goals. This understanding plays a vital role in determining our collaboration's scope. We gauge if there's harmony, especially when our aim is long-term business success rather than quick profits. Open discussion is vital, not just for immediate assessment but also for gaining insightful perspectives,” said Pai.
Connecting purpose and pragmatism
Identifying, impressing, and forging a partnership with the right investor can substantially contribute to your journey as an entrepreneur, offering benefits that extend beyond financial gains to personal growth. An adept investor possesses the potential to extend support, furnish guidance, establish industry networks, and enhance your credibility as an aspiring business leader. Hence, their interest goes beyond solely your business proposition; it's also an investment in you as an individual. Regardless of whether your enterprise is in its infancy or an established entity, engaging with investors demands a considerable investment of time.
The content and manner in which you convey your message hold a profound sway over how investors perceive your company's trajectory. This, in turn, influences their allocation of capital to fuel your venture's progression. In essence, investors emerge as a pivotal audience, wielding substantial authority in shaping the financial course of your enterprise. Notably, their judgments are often anchored in the quality of communication emanating from your organisation, emphasised Nakul Saxena, President - Early Stage, Lets Venture.
"Discussing the importance of addressing both sides of a business deal, whether from the founder or buyer's perspective, is crucial. It's necessary to invest time and effort from both parties. Evaluating startups varies among investment firms, and there's no definitive right or wrong approach. The purpose behind a product is essential; it should be more than just a company motto. Purpose guides decisions and impacts success. Adapting to change is necessary for startups, and purpose can evolve over time. Supporting founders who align with their purpose is key, even if circumstances shift. Balancing business growth and maintaining a clear purpose can be challenging. Adapting to changes in the market and entrepreneurs' journeys is essential,” advised Saxena.
Unravelling founders' vision: A complex endeavour
As an investment fund, the pursuit is directed toward generating exceptional returns. To accomplish these substantial gains, the focus centres on addressing expansive markets and tackling substantial challenges. In the quest for investments that nurture prosperous ventures, the fund seeks out founders who possess the resilience required to navigate inevitable obstacles. Equally crucial is the assurance of alignment with the founder's ambitions, ensuring a commitment that surpasses the appeal of swift exit offers.
In the context of startups, the point of emphasis or guiding principle has the potential to shift in response to market dynamics and the evolving demand for solutions. While evaluating the prospective scope of an opportunity holds relevance, it does not singularly dictate outcomes. Early-stage investors must lean on the entrepreneur's mindset to propel success; mere figures on a spreadsheet fall short in this regard. Embedded within a founder's educational and professional background, an entrepreneurial perspective emerges as pivotal. The willingness to embrace risk, tread uncharted paths, and derive insights from those encounters emerges as of paramount importance.
“Persistence and an unwavering commitment hold equal stature as indispensable traits,” suggested Amit Malik, President - Japan, APAC & Australia, Wadzpay, and added, “Distinguishing between founders is tough, and understanding them better is difficult. One needs to interact with them multiple times to comprehend their vision and purpose, both individually and collectively. This reveals their true intentions. Sometimes, you need to be persistent and thorough, investigating if there are any hidden flaws. It's important to be cautious when something seems too perfect at first. My caution flags go up when things seem too good to be true initially.”
Uniting purpose and team dynamics for impact
In the present landscape, crafting a robust workplace culture holds unprecedented significance, particularly if you intend to attract the right investors. Many startup and scaleup founders often believe that investors prioritise the financial aspects of a business above all else, this perspective might hold some truth, but the vitality of your workplace culture cannot be understated, potentially serving as the deciding factor that sets you apart from other startups.
Investors are driven by the desire to assess and mitigate risks. Within any business, one pivotal risk factor lies within its personnel. Investors seek to unravel the reasoning behind your venture. A clearly articulated purpose stands as paramount in this context. Why was the business established? What drives your belief in your products? Why do you cater to your customers? And why does your leadership team, alongside you, have the potential to become the next unicorn?
Furthermore, investors wish to ascertain the commitment of the individuals they are investing in, ensuring their dedication to making a noteworthy impact and creating substantial value within their industry. Equally important, they aim to evaluate whether you possess the qualities of a business leader with whom they can collaborate effectively and who meshes well with others. All these dimensions emanate from the workplace culture you cultivate, a continuous presence that shapes your business day after day, emphasied Sajith Pai.
“When discussing purpose and product creation with founders, it's important to consider how product management and team dynamics play a role. It's not just about answering to investors or the board; it's about the coherence and collaboration within the team. This aspect significantly influences purpose, product development, and the financial impact. This, in turn, reflects how deeply the company embodies its purpose and operates cohesively. It all comes together in a logical and meaningful manner,” added Nakul Saxena.
To learn more from leaders about some of the burning questions in today’s world of work, stay tuned to People Matters' Big Question series on LinkedIn. This special session was conducted at the 10th edition of People Matters TechHR India, Asia’s Largest HR & WorkTech Conference, on the 4th of August 2023 at The Leela, Ambience Mall, Gurgaon.