Last October, I shared my key takeaways and observations from my first year in venture capitalism at an early-stage VC fund, Vertex Ventures Southeast Asia and India (VVSEAI).
In my first year, I guess, like many other analysts and associates, I aimed to perfect the hard skills, crunching numbers, modelling different scenarios, learning to challenge assumptions, and asking the right questions.
What does it take to be an outstanding investor?
This year, I’m close to my second year at VVSEAI, and I often thought, what does it take to be an outstanding investor? I showed this meme in my previous articles as it resonated with me.
A VC role is perceived so differently by different people. Many think that being a VC is all about finding the right startup to invest into, riding its growth, and making huge returns for the limited partners, and that’s it.
And, so often, I hear that the main strategy is to invest in many so that hopefully, one or more of them lead to a goldmine. At VVSEAI, I soon learned that this couldn’t be farther from the truth from observing my partners. It is more than just about picking the right horses. It is also about backing them till they succeed.
My partners kept reminding me that the hard work starts after we invest. I thought I knew what that entails. Until recently, a portfolio founder, Prajit Nanu, shared his journey and various stories with all our team members at a recent company offsite.
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Nanu is the CEO and co-founder of Nium, a recently-minted unicorn in the fintech space. Their vision is to build a modern payments platform that helps global businesses move money anywhere in the world, in real-time. For the uninitiated, Nanu is part of VVSEAI’s family.
We first invested in Nium’s Series A round back in 2016 (back then called Instarem) and have worked closely together.
Having built his startup into one of the top 250 fintech companies globally, Nanu has crossed paths with countless investors in the past six years.
It would be refreshing and extremely valuable to share his keen observations on what separates an outstanding investor from the rest. After all, Nanu has had extensive experience working with various types of investors.
The following are some of my reflections from his insightful sharing.
Sharing the same vision and conviction
“Not all capital is equal” is a familiar maxim in the venture capital space, and yet, not everyone fully comprehends what it means.
“I have seen many first-time founders who made mistakes by being swayed by investors who gave them the highest valuation, without considering the entire ‘package’ offered by the other investors,” Nanu shared. “Most importantly, does the investor share the same vision as you do?”
Nanu shared that although Nium is now a unicorn, their startup journey had been an arduous and turbulent one. They had iterated their model not once, not twice, but five times to become what we know them as today.
Little known to others, Nium’s business was at the cusp of shutting down no less than three times in its early years. He appreciated that VVSEAI shared the same vision and demonstrated the same conviction as he, right from the beginning.
During the challenging moments, when Nium was in “survival mode,” Nanu shared that his portfolio manager, Genping Liu, constantly reached out to him for ideas on gathering enough funds to survive the immediate year and steer the business forward together.
The rest of the VVSEAI team also called on their vast investor network to convince other investors to back Nium at a time when few wanted to, as Nium’s fate was uncertain. He felt that this was rare among the investors he had met, as he had heard of many stories where the investors pulled the plug when the going got tough.
Hearing this made me realise that an outstanding investor buys into the same vision as the founders and is ready to back them for the long term beyond having the ‘hard skills’. It’s easy to draw up an immaculate plan to recommend a startup for investment at the investment committee (IC) and then write a cheque.
But without the same conviction, it would be hard for the investor to defend the startup when things go south and justify additional funding to tide them over. Hearing how much time Genping spent with Nanu, I finally understand why he said that as a VC, ‘the hard work begins after the investment is made.
Being there in both good and bad times
“Beyond providing capital, does the investor add value in other ways? Would they open doors to potential customers and partners? Are they able to introduce new investors for the next round? Would they help attract C-suite and tech talent?
“Are the founders able to be vulnerable and honest with their investors so that he or they can support them?” Nanu thought these are important questions that someone fundraising should be asking.
Reflecting on what he shared, it became clear to me that the hallmark of an outstanding investor is ‘a fit’ with the founders, who can offer both tangible and intangible value in a complementary way to the founders through the ups and downs of the business.
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At VVSEAI, it is sometimes astonishing how much time I see my partners spend with their portfolio founders, supporting their company’s growth. It is uncommon to see them having calls with each other as frequently as weekly and constantly helping to make introductions to the next potential customer, partner or investor or searching for candidates to fill the management positions.
Beyond the ‘tangible support,’ a particular quote from Nanu stuck with me. It underlined a simple fact that can sometimes be overlooked, founders, though often very optimistic, are humans. They require emotional support and encouragement.
Nanu noted that in growing a startup, “Lots of rejections will happen, and a founder needs support, especially when the chips are down.” In investments, one often talks about the “sleep at night consideration,” arising from the margin of safety. To founders, the greatest margin of safety allowing for a good night’s sleep is knowing that your investors will be there during rainy days and thunderstorms.
In fact, Nanu mentioned that one of the most comforting aspects of Nium’s journey with VVSEAI was how the VVSEAI management is always just a Whatsapp message or call away — an open line he could tap on to confide in or seek advice without worry.
“In fact, I was consulting Genping so often, on topics as minor as selecting the ideal office location, so much so that I felt he was almost like another co-founder in Nium,” Nanu mused.
I recall an award-winning documentary Undefeated, American football coach Bill Courtney famously said that “The measure of a man’s character is not determined by how he handles his wins, but how he handles his failures.”
A similar parallel can be drawn for venture capitalists (VC), in which the true measure of a VC is not determined by how they celebrate the wins but by how they treat their founders amidst setbacks.
“The ‘outstanding’ investors are not only there to celebrate the wins, but can also always be relied on to sit by the founders’ side through uglier times.”
I’m proud that most of us at VVSEAI are someone whom a founder can turn to in both the good and bad times. When we mention that our founders are part of the “Vertex Family”, it is not something we say in passing, our founders hold an important place in our hearts.
Not afraid to offer stern, but fair criticism
“Iron sharpens iron. Man sharpens man.”
No one (myself included) likes receiving criticism or negative feedback. Whether it is due to pure ego or a firm conviction in your idea, a common knee-jerk reaction is to think that the critic is in the wrong.
Nanu shares, “At an early stage, you want your investor(s) to challenge you, but not block the path. Be supportive of the founders when they are pivoting … disagree if it’s a crazy idea, but do not mock their ambitions.”
He reflected on a period of tension in 2020, whereby Nium and VVSEAI engaged in a back and forth conversation regarding Nium’s intentions of applying for a digital banking licence in Singapore. Nanu notes that the constructive disagreement was a watershed moment that actually paved the way for Nium’s success today.
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It was a tough call for him, but he eventually heeded VVSEAI’s recommendation to forgo the licence in favour of a greater focus on its global B2B payment business. In retrospect, he said it was “…probably the best decision [he] made that year.”
Nanu emphasised that some friction between investor and founder is actually beneficial, provided that criticisms are made with the same end goal of fulfilling the founder’s vision in mind.
Nanu’s nuanced recount made me realise that founders would grow to appreciate investors who are not afraid to initiate tough conversations from the heart.
In fact, by poking holes in the founder’s assumptions, investors (who tend to have amassed a great wealth of knowledge within their industry of expertise) who are not merely “yes-men”, go a long way in shaping business strategies for the better, especially for fresh-faced founders lacking an in-depth understanding of their market.
Obviously, bombarding a founder with overly harsh or non-constructive criticism can do more harm than good. I can only imagine such treatment completely wounding or demoralising a founder to a point where his/ her drive to fulfil the vision is eradicated. Being able to walk the fine line between challenging founders’ ideas and yet, not disregarding or disrespecting their grand ambitions is the hallmark of an outstanding investor.
Mulling over the three key takeaways from Nanu’s sharing, I had a eureka moment in which the seemingly disparate themes clicked all at once; for a founder, all the qualities that make a great investor are simply the ones that make a great friend.
To me, a great friend is someone who:
- Shares similar beliefs and convictions and sees the value of all that you have to offer
- It supports you in a complementary way to help your business grow more quickly
- It is reliable and trustworthy and can be counted on, be it rain or shine
- Does not mock your crazy ambitions but challenges your assumptions to get you one step closer to your dreams. The saying goes, “A true partner sees us more clearly than ourselves and is willing to say things most people won’t.”
We are grateful to Nanu for openly sharing his thoughts and perspectives on how a great investor should operate.
At Vertex Ventures Southeast Asia and India, we constantly strive to be the best partner to our founders. This all begins with having honest conversations with our founders so that we can have the best understanding of their needs and go on to position their companies most beneficially.
This article first appeared on Vertex Ventures.
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