Notes from the Singaporean Private Equity Tech Conference 2017.
As Founders, learning how to work with funds and investors is a skill we need to acquire. This is what I learnt from two veterans in the field.
1) It’s better to ask for Private Equity after you have developed your core value proposition and proof of concept. The Private Equity can then provide consulting and enhance it. They are also good at recruiting for key management team players once you have your product and customers in the place.
2) When you are in a good stage of innovation and are moving fast, be aware that too
much process can slow you down and be dangerous. Many investors who invest feel they have a say in everything and this makes the stage of innovation longer than it takes to market. They may also be concerned with making a return in the near future than the perfection of the process and the customer experience.
3) Angel investing should not be seen as a charity. Rather than look for handouts, choose angels whose network and experience make them the most valuable addition to your team. You want investors who are implementers not just those who intend to give you money and then sleep on the job.
What stage are you at before your funding raising?
If your growth aspirations are moderate, it may be best to do alone. Don’t get funding. Your clients are always your best form of funding and feedback.
However, if you are determined to conquer the market at a fast pace; then capital and access to markets is the biggest value driver these investors can give you. But be very clear what you are expecting from them apart from money.
4) Make a distinction between coaching vs merely advice-givers. You want investors who get their hands dirty not simply tell you what to do. Most capital providers leave you to run your race and they only give you water, if at all.
5) For entrepreneurs who are keen to just scale, you may need to compromise. When you can compromise and still grow that’s good. However, compromise can be like too difficult a yoga position. How long can you hold it? Will it be functional? Too many founders push themselves to semi -dysfunctional positions for fear of losing the capital and then they kill their own business.
6) How does one manage 3 private equities at the same time?
You really need to manage all their expectations. Make the call when you need the help and also who gets to help. No marriage is perfect.
Most Private Equity funds have a very clear thesis. They are very cognizant of a time horizon. Private equities can be helpful and want to make the business better. However they are intent on an exit in 4-5 years.
You can expect their direction with your company to change at that time. Your task is to give them a great exit. Try to tamper any new business activity down at the time of 4-5 years. In fact, try to give them the return they are looking for in two years of their entry.
7) How do you help get them a good timing for an exit?
When you have a cycle of investors, you get to know their needs and help generate solutions to mitigate. Like in a marriage, a new investing partner has needs to be dealt to. Never pretend or overlook that they have needs. They are depending on your success to be successful. The big private equity cycle people in and out.
So only if you are sure you can be 80 % aligned, you may not want to take on that PE because if not they are not aligned it’s your fault not theirs. They are making a major decision in the absence of all information. Founders always have more in depth information than their private equity partners. If you want them to exit and they don’t want to exit then that’s another discussion. They want to leave at a good time to leave so as to not make a loss. The usual cycle is 5-7 years so make sure you have the conversation up front before that point otherwise you need to be ready for next 5 years with them.
Three red flags, for you to spot so as not to work with Private Equity
1) Do they recognize their limitations to help you? If they don’t they are coming in thinking they bring in more value than they actually do and also believe if it fails, it is all on you.
2) A common Asian red flag, is when working with family conglomerates, remember their business cycle is slow. If yours is fast, there will be no interface.
3) Are the family businesses also investing in something they understand well? Many property funds are now investing in technology. This is counter to how their own business minds think. They are used to buying distressed property. This means cheap investments and then how to leverage. Technology involves much more investment upfront to build and highly collaborative. Tech is what we have to do together to be more successful.
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