VC Investing Rules. #1
- Satish Mehta
- May 3
- 2 min read
As I get ready to hang up my boots as an investor and embrace the social sector full-time, I thought of jotting down the 40 key learnings from my 40 years of investing. It is not really wisdom, just a compilation of my own learnings.
Rule#1 of VC Investing
How to deal with promoters?
Trust your promoters
Do not interfere in their work
Help only when asked
Be available if there is a problem
Take on some of their pain
Do not share their limelight.
Being an entrepreneur is not easy. Anyone pursuing this path deserves to be applauded, irrespective of the outcome. Being an employer instead of one more job seeker is great for the country. It is not always great for them.
On the other hand, VCs are not good enough to be promoters. They usually lack knowledge or age (are too old), or don’t have the skill set or the guts, or all of these. They are just distributors of capital — which is a commodity. In most cases, it is not even their own money. They are just there because someone has to play that role. There isn’t much competence required to be a VC. Anyone can spray money and pray - especially if it is not your own. VCs are partners in profits and not in losses. Whilst they encourage promoters to take risks, they are themselves risk-averse.
All said and done, one has to understand that Venture Capital investing is not an arm 's-length business. It is a related party business. VCs invest with their friends, batchmates, neighbours and relatives. They do not find promoters through headhunters. They deal with known people. There aren’t many hard and fast rules about investing, valuations or term sheets. It is all very flexible. Celebrity fund managers are rarely visible. What you read about in the media are junior employees of VC funds. Everyone is called Managing Director, and it would be a good idea to grade them. The person who brings in the money and actually controls the fund is called the Sponsor, and only SEBI knows who the sponsor of a fund is. The Sponsor raises the money and makes the investment decisions in consultation with his investors. Everyone else is part of overhead.
Except the Promoter. That is the most important piece of the ecosystem. Any VC who believes he can bully him or dominate him has probably invested in the wrong promoter. Promoters believe in themselves. That is why they take the absurd risks involved. They are often also very competent. The VC works for this promoter. It is not the other way around. The promoter is irreplaceable. All others are dispensable … actually disposable.
The commodity of value is trust. VCs should only fund people they trust.
And, once they fund, they should continue to trust.
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