Dr. Apoorva Ranjan Sharma is the Co-founder and Managing Director of 9Unicorns. He is a seasoned veteran in the startup sector and a serial investor. He is a seasoned veteran in the startup sector and a serial Investor. He is a globally acclaimed angel Investor, speaker and previously been a speaker at RISE conf. Hong Kong, Web Summit Lisbon, TiE Global SF and many more.
“Just like farmers, venture capitalists seed, tend, and feed portfolio companies in the hopes of reaping a bountiful harvest.”
– William Bygrave and Jeffry Timmons, Venture Capital at the Crossroads
For any entrepreneur, the goal is to build a successful business that creates economic value. Likewise, the investors’ goal is to maximize their capital surplus by helping these entrepreneurs build valuable companies with financial support, strategic guidance, and mentorship.
It takes a considerable amount of time and a lot of due diligence to spot that one or two startups that could turn that investment into a fortune one fine day. It is equally taxing and grueling for an investor, along with the founder, to turn one idea into a billion-dollar business. It is not always that one idea or one founder determining the startup’s growth from an investor’s perspective but a thought-through strategy that includes a combination of innovation, vision, funding, and determination. A systematic plan is a crucial ingredient that brings all these factors together to make a success story. Informed, data-driven strategies across functions play a critical role in the decision-making process, helping the leadership create a blueprint of progress.
Investors have their strategy for how long to stay invested or when to exit while also contributing to developing the entire startup ecosystem. For every investor, a pre-planned exit strategy is essential.
While most of the time, the exits are well defined and timed but the importance of a robust exit strategy depends on scenarios such as sudden market changes, personal business problems, unexpected offers, and even illiquidity. According to the UBS (NYSE: UBS) Q1 Investor Watch Report, “Who’s the boss?” 48% of business owners lacked any formal exit strategy even though selling the business was the preferred long-term plan of 52% of the respondents. Another study by Securian Financial Group showed similar results, where 72% of small business owners had no exit strategy at all.
Proper exit strategy needed?
Of the thousands of businesses that start every year, investors tend to seek the ones with well-established exit plans that align with their future goals. One of the primary reasons is that organizations that have an effective exit strategy reinforce the investors’ confidence in their business vision and management. It also allows for a smooth termination, transition, or transfer of the business ownership in case of any eventuality. Doing so empowers organizations to minimize risks and maximize the benefits for all the stakeholders involved.
With a pre-planned strategy, investors can acquire the desired return or cash in on their funds when required, hence providing them the flexibility to get the most out of their investment. Take the example of Beardo, a recent example of a successful exit story from the Indian startup ecosystem. Following the acquisition by Marico, the men’s grooming brand provided lucrative returns and a full exit to its investors and founders within five years of its incorporation. The value of the acquisition fell between INR 350 and INR 400 crore.
Beyond the financial pastures
Although an investor committing to a startup indeed hopes to receive an amplified return on their investment, to say that they are only interested in their financial gain is incorrect. For an investor, the story doesn’t start and end with an exit strategy. Investors also act as critical drivers of social change and innovation by supporting socially driven enterprises and causes, including those operating in the sunrise sectors such as cleantech, agritech, biotech, etc.
Besides encouraging sustainable practices like energy conservation, waste reduction, and green energy creation, investors mentor young entrepreneurs and provide them with the necessary guidance as and when required. Strategic direction helps early-stage startups to find the right path and solidify their vision in the dynamic business landscape. By doing so, investors extend their duty of care beyond providing mere financial help, thereby forging a more profound and meaningful relationship with the startup ecosystem. This synergy forms the backbone of the latest stage of the industrial revolution, which aims to lead the world towards a progressive and prosperous future in line with sustainable development tenets.