How early is early stage investing? – An investor’s view
Several funds and angels, including mine, proclaim themselves to be early stage investors. However, I continuously see entrepreneurs flustered when they talk to investors – they are not able to understand why they are being singled out as being too early! Let me attempt to explain a bit.
Firstly, an acknowledgement of a truth, before getting into the specifics of early-hood. The truth is that early stage investments have a component of artistry to them, it’s hard to make a pure formula. Hence, beauty does lie in the eyes of the beholder. You will find certain opportunities too early for some investors and just right for others. Comfort / familiarity with the space, founding team, past experiences, current investment portfolio, current availability of capital vs. current opportunity pipeline – they all play a role in the investors’ response to an opportunity. Hence, any investment decision should not be taken personally or to heart, or as a judgment on your business. It’s simply a view at that point of that investor, purely from their investment priorities perspective. If you are selling Chinese food when the other person is craving Italian, it’s hard to sell at that point.
Getting into specific of early-ness, I can give examples from my own experience, both as an angel and as a VC. In some cases, I have entered at a concept level (for example – Comet, Shuttl), and in some cases I have entered when some early traction was there. (Lifcare – very early traction, Tripeur – very early traction).
If I were to put it in a table – defining Macro as – comfort / belief in Space that includes Size, Timing, Competition, Environment and Team, and Traction as early execution success, this is how I would end up:
Entrepreneurship is a deep dive into finding a specific formula that works – product / market fit. Some people stumble upon it early and some never hit upon it.
I would love to hear what entrepreneurs and other investors think of it. Please comment below?
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7yFounding a business has two most significant elements to it - the Concept, which keeps evolving; and the Customer Segments. While bootstrapping, we founders focus most on these two elements. Is the product relevant to the customer? Is the timing of introduction right?. I think "Execution team" is over emphasized for early startups. If the founding team has the right idea, IP, and revenue model, Angels should go ahead and invest. Execution team is nothing but a superset of "Skills and Experience" - not at all hard to find in a market like India. It's the strategic thinking of the founders, which can separate the winners from the 'also-rans'. We founders take a great amount of risk, leaving our full time, high paying jobs in pursuit of a greater ideal; in the hope, that our "journey" strikes a chord, with like minded people. We hope, true blue Angel investors, have a high risk appetite. There is no "perfect" business plan, as almost all of them are based on assumptions and risk mitigation plans, which are not prepared for the "Macros" that may change - as pointed out in this article very well. These macros remind me of the famous PEST analysis(https://en.wikipedia.org/wiki/PEST_analysis ), coined by Harvard Prof., Francis Aguilar
Chartered Accountant
7yWith new funds flowing for investment from local markets after fall of debt market, biggest challenge is how to communicate a startup idea along with making aware investor of the risk involved. Further more how to educate this new folks about investment market.
Aditya singh
7yOnly a jeweller (vc)knows the true assay of a Diamond.
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7yWell written. In India it is also about market depth for any product or services - Evolving or Emerging - This is like Education v Experience. So one need to see how market segment unfold in terms of scale. Further India is still India and can not be compared with any other market due to sheer diversity in terms of Business practices. Hence it takes long time for market to reach maturity scale at pan India level. Perhaps 10 years for business to reach optimum ratio of gross or net margin on revenue if business is dependent on Indian market OR 5-7 years if it is dependent on Export market.
Founder and Managing Partner at Leo Capital
7yI agree Pradyumn Singh Creating new market is very difficult to do and also very difficult to invest into. Most investors would then look at proxies / market adjacencies combined with small proofs in terms of traction and timing that it's possible and ready.