#34- Cruel Intentions
Cruel Intentions in the Indian early-stage ecosystem
During a recent conversation with a founder:
Me: The last time we spoke you had commitments from a few investors, also received a term sheet from a large accelerator, didn’t you?
Founder: Yes! We did! Almost closed the round.
Me: Well then, congratulations! When are you closing?
Founder: No, not yet. They sent us a term sheet that we agreed and signed, and then they made edits to make the terms unfavorable for us. If this is the way they want to work, to one-up us after they signed a term sheet, I do not know if we should be working with them. The round is on hold.
“The essence of communication is intention.”
-Werner Erhard
Another conversation with another founder a few weeks ago:
Me: I heard you snapped up a small commitment from the CEO of a large corporate! You fox!
Founder: Yeah! He really believes in the team and the model! He’s rooting for us. But I am not sure if I want to accept his offer.
Me: Why is that?
Founder: His commitment is less than 5% of the entire round while the lead investor has taken half the round. He wants a board seat which even the lead has not requested. While he’s been enthusiastic about our prospects, and also has connections that can propel our growth in a certain foreign geography, if he is really on our side he can help us irrespective of the board seat! I mean we’ve had people who opened doors for us even without being investors. You do not need a position to help open doors.
Me: Yeah. A board seat is a privilege, not a right. You know what they say about people who actively want board seats, right?
Founder: Vested interests. Stay away with a 30-foot pole!
“Every journey begins with the first step of articulating the intention, and then becoming the intention.”
-Bryant McGill
A conversation with a founder just after the lockdown began
Me: Hey, you raised some money from that network, right? How was your experience? One of our portfolio companies is seeking their participation for its next round.
Founder: Well, we did. But after issuing the term sheet, there were some dropouts, and the final commitment was a little less than half the original commitment. We had some shortfall, and had to go on the road again. It was a nightmare, two weeks before closing!
Me: Wow! But why did this happen? Did you ask?
Founder: We did. We got conflicting answers to be honest. But since we were pressed for time, and got hit by the lockdown, didn’t pursue the matter. Some people said COVID & liquidity issues led to dropouts. A friend of mine who pitched to them a week after us got oversubscribed by the same set of investors, so I dont know what’s the real reason. Another investor we know said this network sometimes uses this strategy to lower valuation or get better rights. Since we didn’t negotiate on the quantum, they did not come back to us for this. In fact, we even edged them out of the board seat considering their commitment was short. A blessing in disguise, they own less and also don’t have a board seat.
“Intentions are invisible but they are the true test of character”
-Alfred Armand Montapert