For investors, when to get in is important and so is when to get out
13 Dec, 2017ECONOMICTIMES.INDIATIMES.COM
Return on an investment is a thing to be celebrated. Far too much has been written about money raised and paper valuations that may or may not get returns on investments.
In this unicorn-obsessed startup era, there is nothing wrong with billion-dollar dreams and moonshot ambitions, but the lack of appreciation for $100-million success stories is hype-driven cynicism. But as someone who has lived an entrepreneurial life, I understand why entrepreneurs can’t build with a rearview mirror in their mirror in their minds.
An entrepreneur needs to focus on building, not selling, and solving a real pain point and out-executing others. The employees at your startup are working with you because they believe in what you are building together, not because they want to help the CEO get over the exit line.
To be successful, entrepreneurs should inspire employees to build better products and experiences. If you have set an exit as the end goal, it will be hard to nurture a product, innovate and be the best inyour business.
Most visionary entrepreneurs don’t dream of making billions of dollars, they think of a world where their products bring change and make a profound impact. The money they make is usually a byproduct.
This doesn’t mean entrepreneurs need to be inert to the word exit, just not over-fixate.
For investors, when to get in is important and so is when to get out. Successful exits by investors make for a good lens with which to evaluate the robustness of our entrepreneurial ecosystem. It is also perhaps the right way to validate funding decisions by investors. In a perfect world, an IPO would be the logical step in a journey that delivers liquidity to investors and employees while providing cash for investment into the business
But a successful IPO requires not just a rock-solid balance sheet and strong growth but profits, or at least a believable path to profitability. This is a tall order for many startups given the local market dynamics. It is why the IPO route isn’t buzzing in India, especially for tech startups.
Entrepreneurs who see an IPO as the end goal need to search themselves well before they toil for it because an IPO is hardly an exit for an entrepreneur. I see it as a base camp from where an entrepreneur gets to launch his company into a higher orbit.
Fundraising from investors is more than raising the capital necessary to move your venture forward — the relationship extends beyond the checkbook. While scouring the horizon, an investor sees opportunities rise and disappear in an instant, which makes it hard to be patient. But patience is one virtue that can help engineer blockbuster exits.
In India, there have been more exits through M&As than through IPOs. Several Indian startups that have grown extremely fast are looking at inorganic growth opportunities. India is at the cusp of seeing many more M&A deals.
Consolidation of startups is a sign of market maturity. So don’t look to flip or undervalue your potential. Be pragmatic and patient. Exits can just be the start of the next big thing.
This article was first published by Deep Karla on Economic Times