Startup founders turn picky about onboarding investors
Mumbai: Call it a case of role reversal in the startup arena. Founders, who used to be closely vetted by investors, are now using the same magnifying lens to carry out due diligence on the former.
Startup founders have turned extremely cautious about the type of investors they take on board following a string of incidents wherein investors turned against them and have backed off from follow-on rounds. From reference checks to diligence on the funds, founders want to be sure investors are aligned with their vision and will support them in times of need, half a dozen investors, industry experts and founders told Mint.
The recent instances of investors training their guns on founders, restricting follow-on funding, and ensuring a stronger business model is established have spooked the founders. The trend has picked up pace after the funding winter got pronounced, leaving cracks in the investment ecosystem.
“In the mid-late-stage growth market, only the top quality 10-15% of the assets are of interest to investors—these founders have all the choices. Interestingly, even within these, the winning and losing bids have 30% or less margin—so the softer issues are higher in the founder’s consideration set than ever before," said Kashyap Chanchani, co-founder and managing partner of The Rainmaker Group, an investment bank.
From who the company takes on board to what rights each investor gets, the founders are spending more time on these issues. “Does the investor have a large balance sheet? Does their name help attract more investors or make the IPO easier? Does it change my board dynamic dramatically? How are the peer reference checks adding up? We are seeing these questions being asked by founders more than ever before," he
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