On a scale of 1-10, how much would you like to be in the news for having raised $XX Million for your company? If you’re anything like me, who likes the idea of entrepreneurship and business, you would’ve said 11.
But there’s always a flip side to the story. Behind all the glamorous photos and astronomical funding figures, is the burden and responsibility on the head of the Founders to deliver fabulous returns to the investors. Sure, we get all the news about the huge funding rounds that nascent start ups get. However, what is not reported, is the death and failure of a lot of such companies (90% of new start-ups fail, according to a report by IBM Institute for Business Value and Oxford Economics).
With that high a failure rate, the very few people who do succeed are no less than mighty warriors – who have fought through societal pressures, second wives (known as investors), customers and everything in between. It is nothing short of a feat.
This would make one wonder that if one is able to achieve so much, why would he/she label himself/herself as a failure ? Unfortunately, that is what VG Siddhartha, the owner of Café Coffee Day outlets, said in a departing note. He committed suicide on 29th July, 2019 and his body was recovered 2 days later near Hoige Bazaar beach. This event sent waves throughout the entrepreneurial community.
For someone who has achieved so much – built a multi-billion dollar company, has a net worth of over Rs. 25,000 crore – suicide and a letter mentioning that he was a failure, is a surprising, to say the least. He mentions that he had failed to create the right profitable business. What is also mentioned, is the pressure being exerted by one of the investors to buy back shares, and also harassment from the previous DG Income tax in the form of share attachments.
So, it would appear, that the ultra wealthy funds and investors, who cut mouth drooling cheques for young companies, are not so much so “angels” as they’re referred to as. This seems to be the notion, atleast on social media (specifically Linkedin). People did not hesitate to blame return hungry investors for the occurrence of the aforementioned catastrophe.
The other side
There is no doubt that investors demand returns. Because at the end of the day, they are assuming a lot of risk – your company could fail and their investment would go to the ground. Thus, it is only fair that they wish to see their wealth increase by a good amount when they choose to bypass other investment options like stocks, bonds, gold or real estate.
If you would read around the internet, you will find that one of the questions investors always ask before investing is that how would they get an exit. That is the biggest fear in the mind of the investors. They do not wish to be stuck with a dead investment. Either it grows, or they would prefer to get their money back, obviously with some returns on that money.
Now, with all this talk about the PE/Angel investors being greedy about returns, let me take you the other side. The brighter side. It is these very investors who pour in their own wealth, time and efforts to build the new companies. Without the backing of such investors, we probably wouldn’t have a flipkart (or a way to order stuff online – that too, with a hefty discount), a zomato or swiggy (we did have home delivery before, remember?) or even a Byju’s (school learning what?). They are the ones that help these new companies sustain themselves during the initial stages when they are not profitable and in a growing stage.
That’s one point I don’t find being raised enough. There are good investors too – who help new ventures not only with funding, but also with experience. Now, I’m not going to deny that there are some people who are there just for the returns. Who don’t care where the venture is going, what is the vision of the founders. Who just want to see a certain times return on the money they put in. And that is why they would force the founders to raise more money or buy back shares from them (as we see happening in the case with VG Siddhartha).
To take the example of a few, and extrapolate the same conclusion on the vast majority is not fair. The few investors who indulge in non-ethical behaviour should not be the ones to represent the image of VC/PE investors in general.
As a matter of fact, VG Siddhartha was himself a VC investor, who poured money in multiple ventures and groomed them to the big leagues (one of them being Mindtree).
The right fit of investors and founders who share a similar vision is probably the best case scenario. A venture in which the investor and founder work together has a higher probability of growth and success than one in which both are always having a dissimilar opinion. The people who find this combination are indeed lucky.