Investor Speak #1 : Dr. Anirudha Malpani

Investor Speak #1 : Dr. Anirudha Malpani

Dr. Aniruddha Malpani is a renowned personality in the Startup Ecosystem. He’s a board member and Angel Investor at several Startups, Charter member – Tie Mumbai, Director at Solidarity Investment Advisors, and, Founder and Director at Malpani Ventures.

He’s a thought leader, very active on Linkedin and regularly publishes great posts that are well articulated, clear in thoughts and to the point. His posts are open ended, he’s open to ideas and engages in healthy discussion with the community.

We feel that Entrepreneurs would benefit from his words of wisdom and with his permission decided to compile a list of some of our favourite posts from his timeline. Bringing Investor Speak #1

Here’s Dr. Aniruddha Malpani:

 

ON RAISING FUNDS

 

How to attract angel investors

The secret is – Don’t try to! They will run away if you chase them, so let them find you on their own! Angels love digging for gold, and if you can help them to find you through cleverly engineered serendipity, they will take pride in the fact that they “discovered” you!

Sometimes you need to zig in order to zag. Stick to delighting customers, and I can promise you the funds will follow!

 

Why do entrepreneurs expect angel investors to give them millions when they refuse to spend any of their own money on trying to bring their idea to fruition?

I think if they showed that they had struggled to create and sell their product with their personal funds, however, limited these were, investors would be more likely to fund them. We would like them to demonstrate at least some progress, rather than just a plan on paper.

Investors have a soft corner for tangible results! Another advantage would be that they would a little more appreciative of the value of the money which an investor provides!

 

ROI for Angel Investing

The ROI is never going to be in your control, but the LOI ( learning on investment) always is. This is always positive 😊 If you are lucky, the L rockets, and you get EOI, which is Earning on Investment! I treat this as a bonus!

 

When #entrepreneurs reach out for #funding, I request them to send me their #pitch deck. Some refuse to do so.

One group is worried that they are sharing “confidential information” and don’t want to do so without signing a NDA. They are scared that I will copy the cool ” first of its kind in the world ” idea they are working on. Others are worried that I will not be able to understand their magic sauce based only on reading their deck, and they want come and present to me, face to face.

While the depth of information which can be exchanged in a personal meeting is more than can be shared in a deck, they need to realise that investors need to triage their investment opportunities. Thus, there’s no point my meeting a founder if there is a potential conflict of interest with one of my portfolio companies. Also, travelling to meet me eats up their time, and I want them to conserve this and use it intelligently. Finally, even if I am interested, sharing a deck in advance helps me to prepare for the meeting, so that it’s more productive than it would be otherwise!

Guys, there’s a good reason why investors ask for a deck, so please humour us! Trust me, following due process, will improve your odds of raising funds.

 

The biggest mistake entrepreneurs make when pitching I know it’s a long list, but one of the commonest ones is that they talk too much, and listen too little.

We know you have a lot to share and are bursting to show off how much you know, but please pause and allow the investor to ask you questions. If he asks you good questions, then you know he is a good investor for you! And after you answer, ask a counter-question, so you can understand where he is coming from, and whether there is a good fit!

 

A common problem with some angel investors — We are happy to provide answers to all the problems we think the entrepreneur has missed. We think we are very smart, because we have vetted so many deals and listened to so many pitches, that we sometimes forget that the founder has spent years on his business, and is likely to understand its depths far better than we ever will!

I am sure I suffer from this as well and will request entrepreneurs to forgive me in advance!

 

Raising money from investors can be an expensive proposition.

Most entrepreneurs naively think of investor money as “free” money. They perceive VCs as being rich fat cats, who are happy to sign million dollar cheques. They feel it will be easy to get them to fund their idea – after all, how can anyone not be impressed be their superb pedigree and their great academic track record ? And isn’t their passion palpable? After all, if Ola can raise hundreds of crores, so why can’t they get a small slice of the huge pie? ” Hum kisise kam nahin ! This is why they spend so much time pitching to investors – and are happy to pay investment bankers their fat fees, to arrange the introductions. Because the media reports only the successful fund raises, they don’t appreciate what an arduous and long drawn out process this is for most founders. Even worse, they fail to realise is that getting the funds is just the first step in a long journey.

The reason VCs are rich is because they are fiercely possessive about their money, and will want to make sure they get a ROI on their investment. Think of it like inviting your mother-in-law to stay at home – for ever!

 

Raising money from investors is like riding a tiger! You can’t get off, because you need to raise more money every few years to grow exponentially, so that they can justify their investment in you. And don’t get carried away by all the success stories. These are coloured to present a rosy picture, and you never get to hear of the companies which failed because they were forced to grow too fast, and then died because the investors pulled the plug. If you want to remain, master of your own fate, then think twice before raising money – investors can be hard task masters!

 

The one sentence entrepreneurs need to use more frequently when talking to investors “I am stuck! Can you help please?”

Entrepreneurs are not supermen. and we don’t expect them to be masters of everything. We want them to succeed and are happy to help. The problem is that entrepreneurs are reluctant to ask for help because they think this will be seen as a sign of weakness. It requires courage to ask for help, and it’s best to do so early, so problems can be nipped in the bud! You also need to learn how to ask – the better the quality of your question, the better will be the quality of the investor’s answer! And asking for help is a clever way of making the investor feel important 😊 He will be more invested in your success if he feels he has contributed to it!

 

A smart entrepreneur thinks about what he can do to do de-risk the funder’s investment.

Being open and transparent helps. Send regular updates and treat them as business partners even before they sign a cheque!

 

Why I am critical of entrepreneurs

Lots of founders believe that I criticise entrepreneurs too freely and that I am therefore founder-unfriendly. The truth is that I criticise them because I care about them, and want to improve their chances of success. If I didn’t care, I would be indifferent, and would not take the time and trouble to post so frequently. It breaks my heart when I see founders make silly mistakes, and I am trying to protect them from making these errors which can reduce their chances of being successful. Yes, my posts are opinionated, but they are my personal opinion as an individual angel investor – they are not meant to represent the investor community as a whole.

I feel that if the entrepreneur’s understood the lens through which one particular angel ( in this case, me) looks at the world, their chances of winning will increase. Do you agree?

 

Why investors and entrepreneurs are not on the same page

When investors don’t hear from the entrepreneur, we assume that all is well, and that he has everything under control. However, no news is not always good news, and sometimes entrepreneurs clam up when things aren’t going well, because they are scared that investors will get upset if they realise they are not in control. Actually, this is the time to over communicate.

Yes, we may get upset, but we are on your side, and will help you to pivot – if for no other reason than just the fact that we want to recover their investment! Yes, giving bad news is no fun, but covering up is a big mistake! Please make use of us – you may be pleasantly surprised by how helpful we can be ☺️ 

 

Why entrepreneurs find it so hard to raise funds Most founders are so much in love with their cool idea that they are sure that when they pitch to investors, they will line up to fund them, because they are passionate and out to change the world. However, they forget that investors listen to pitches about equally clever

Most founders are so much in love with their cool idea that they are sure that when they pitch to investors, they will line up to fund them because they are passionate and out to change the world. However, they forget that investors listen to pitches about equally clever ideas from equally passionate founders all the time. It’s extremely competitive out there, and you need to learn to look at the world through the investor’s lens if you want him to fund you. This requires being empathetic, so you need to start thinking about how you can add value to his life ( which usually means help him to make lots of money !) This is why investors judge you by how well you pitch to them. Every pitch is a test of your ability to sell, and if you can’t sell well to the investor, he is very worried that you won’t be able to sell to your customers either! He uses your ability to pitch well as a proxy for your ability to sell – the one skill which can make or mar you, and which you cannot afford to delegate or outsource!

 

ON FINDING MENTORS AND ADVISORS

 

A good mentor is not one who provides the best answers. He/She is the one who asks the best questions!

 

OPM can help you get rich! OPM is not other people’s money, but Other People’s Mistakes!

It’s much easier to recognise other’s mistakes as compared to your own because you are more objective when observing someone else.
You get too emotionally involved to judge your actions correctly, which is why a trusted advisor can add so much value to your life

 

Why you shouldn’t always trust the expert advice you read

Because the expert doesn’t know your particular circumstances, this means the advice is not tailored for you, and may not be right for you.
Create your own personal plan first, and use this as a framework for judging whether the advice you read applies to you

 

 

ON BUILDING GREAT BUSINESSES

 

Rules and Start-ups

Most entrepreneurs are so keen on disrupting the world that they take pleasure in breaking all the rules.
While being iconoclastic is valuable, you should remember that some rules are helpful, and have evolved over time to serve a protective function.
Smart entrepreneurs know which rules to break; which to follow; and which to bend.

The sequence and timing also needs to be just right, which is where luck comes in

 

The role of the middleman

We usually think of the middleman as someone who ends up adding unnecessary costs to products. This is why lots of startups aim to disintermediate the middleman.
By creating a platform and aggregating buyers and sellers on a common marketplace, they hope to reduce costs by promoting efficiency. While this is a great idea, do remember that the reason middlemen evolved to occupy a niche in the supply chain in some industries is because they help to reduce friction.
They serve as trusted go-betweens; and provide a financial buffer and safety net during rough patches. Their most valuable asset is their insider knowledge and human connections, an asset they have built over many years.

They are often the hidden threat startups need to learn to deal with, especially when dealing with the bureaucracy and the government

 

How to get your lawyer to draft a better contract

Ask another lawyer to poke holes in it! Lawyers are competitive and will be happy to do so.
This is the best way to stress test how waterproof your agreement is before the shit hits the fan!

 

What entrepreneurs can learn from Warren Buffett

Stay away from the noise of Wall Street and play to your strengths Smart founders need to focus on building their business by getting their hands dirty. They should be chasing customers rather than investors! Not only will this help them to dig a competitive moat because of their expertise, they won’t get carried away by whatever trend happens to be fashionable in the VC community at the time. Following the trend means you are guaranteed to be part of a crowd, and it’s harder to stand out There is a reason why the tortoise won

 

The 3 qualities I look for in a founder Curiosity – willing to learn, adapt and evolve Humility – willing to listen to feedback, and accept his limitations Integrity – this is non-negotiable, because, without this, nothing else matters Hard work, intelligence, passion, domain expertise are table stakes and don’t really provide a USP because all founders have these.

I hope I bring these to the table as well !

 

The one business skill every entrepreneur needs to master!

Most entrepreneurs believe that coming up with a cool idea is enough for becoming successful. Their role model is Steve Jobs, and they want to be just like him. They focus so much on his unique creativity and innovation, that they forget that he was great at execution as well – and it was this combination of skills which allowed him to win. The most important business skill you need to learn is how to sell! The trouble is that lots of entrepreneurs believe that selling is below their dignity – that it’s something someone else should do because they see themselves as being passionate dreamers, whose job is to come up with funky ideas which no one else has thought of. Some believe that it’s the investor’s job to give them the money which allows them to sell, so why should they bother? The truth is that you need to sell all the time.

To co-founders, to convince them to join you in your madcap venture; to employees, to chuck up their safe jobs and become a part of your startup, where the future is uncertain; to investors, to fund your dreams; and to customers, to pay for your products. And if you can sell, this will help to cover lots of sins and assist you in recovering from many mistakes!

 

ON STRENGTHENING THE STARTUP ECOSYSTEM

 

Why incubators and accelerators for entrepreneurs should use the flipped classroom model

I find many of these workshops for entrepreneurs use the lecture format to teach entrepreneurs the basics of how to run a startup.
Yes, there is a lot they need to master, such as how to craft a term sheet and how to create a business plan.
However, they can easily learn these from the many excellent books published for entrepreneurs, such as Hot Seat CEO and Financial Intelligence for Entrepreneurs.
These workshops should get their participants to read the books at home, and then discuss how they can apply them to their own startup during the workshop. They will learn from each other, and the expert can help them when they are stuck.
This would make the lessons stickier and more practically relevant and useful in real life

 

AUTHOR:

Dr. Anirudha Malpani is a well known and respected part of the Startup Ecosystem. He regularly posts on Linkedin. You can follow him on Linkedin here.

Dr. Aniruddha Malpani

Dr. Aniruddha Malpani

Angel Investor. Malpani Ventures

Funding frugal innovation in India. Curiosity - Humility - Integrity - Patience