founders-strike-successful-exits

Why founders who strike successful exits are ‘safe bets’ for investors

What’s common between Mukesh Bansal, Kunal Shah and Ashish Kashyap?

They are all entrepreneurs who founded companies, sold them, made an exit and went on to start another venture. That’s a rare breed in the nascent Indian startup ecosystem. Which is why all of these names I listed above have been able to scoop record-breaking venture money when they decided to take the plunge all over again.

Some of them are yet to make their ventures official like Kunal Shah, who co-founded Freecharge, a mobile wallet, and sold it to Snapdeal for $400 million, in a mix of cash and equity. But that hasn’t stopped Shah who is working on an incubator like structure at his new company from getting the big bucks. I had reported earlier that he’s mopped up $30 million from Sequoia Capital, along with others.

What’s the key?

It isn’t just about being a second-time entrepreneur but one who has been able to take his or her startup to some sort of a conclusion.

When I asked the travel portal Ibibo.com co-founder, Kashyap, who as we reported on Monday, shored up $30 million in seed capital to launch his brand new wealth management firm, listed three reasons for getting the investor love…

  • These founders have the credibility of delivering financial returns to their investors in their earlier avatars.
  • They have demonstrated track record of execution at scale and solving problems.
  • For these founders creating massive impact is the most important motivating factor.

VCs follow patterns

We know VCs are the pattern following type. So it’s not surprising when they want to back founders they are familiar with.

For instance, Mukesh Bansal, who sold Myntra to Flipkart, and later roped all his early-stage VCs to CureFit, the health and wellness startup, he co-founded with Ankit Nagori, a long-time Flipkart employee.

In 2016, he raised $15 million, an eye-popping first round of investment from his Myntra investors including Accel, IDG Ventures and Kalaari. Since then the two-year startup has gone on to pick up more than $150 million in risk capital.

And like I mentioned earlier, Shah of Freecharge has also cobbled up the endorsement of Sequoia, which was not only an investor in his previous startup but a fund he worked for in the investment team post selling Freecharge and exiting Snapdeal.

VCs on their part say there is a relationship angle for the funds as they want to continue their association with someone who has delivered for them. “It isn’t all monetary,” a VC posts.

Bottom line: 

  • I feel in India where VC returns have been slow and sluggish, these safe bets work for risk investors. Why take a wager on an unknown, first-time founder, instead give a bunch of money to someone who has helped get an investor a decent return in a largely exit-starved environment.
  • Also significant, is the point about VCs wanting to build a reputation of backing entrepreneurs who have delivered exits for them as it helps in creating an image of being founder friendly. Not supporting an entrepreneur you’ve worked with earlier can be seen negatively in an industry which is driven by relationships and also by perceptions.

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