Funky Monkeys 2024

Nazara Technologies buys 60% in Funky Monkeys for physical entertainment foray

Candere – 2024

Consumer Candere Digital-first Omnichannel Affordable Jewellery brand Founder exit to

Shareholder Agreement – practical primer

Most of the first-time entrepreneurs have valid questions and concerns around the Shareholder Agreement (“SHA”) in the context of any VC / PE funding. It is a legally binding document and would be the basis for any serious dispute resolution which remains unresolved via mutual deliberations and sometimes even after arbitration [if the SHA provides for arbitration as a dispute resolution mechanism]. Entrepreneurs agree to various covenants when raising VC / PE funds. After execution of the SHA, some of these aspects hardly ever become contentious e.g. Founder’s Lock-In, Employment Agreement, Information Rights, Right of First Refusal, Anti-Dilution Protection etc. Not to say “never”, but “hardly ever”. Most of the disputes involving the incoming fund investor and the founding team arise from items listed in the what is called “Super-majority” or “Veto” rights of the investor, & more particularly around one or more of the following aspects: Business Strategy, Future Fund Raise amount, timing & attendant terms, Corporate Governance and Exit. Business Strategy encompasses many facets including growth strategy, unit economics, hiring & compensation, change in scope of business (or “pivot”) et al. Corporate Governance is much in limelight in recent times given the controversies at Infosys, and hence perhaps needs no further explanation… except to add that there could be acts of clear dishonesty or misrepresentation which can also lead to serious disputes. When such serious disputes arise, any institutional fund makes every effort to find a workaround via mutual discussions, via interlocutors etc. They extend time windows to allow the founding team / management team a chance to set things right by taking corrective action. The fund teams seriously, seriously resist any arbitration process and completely hate having to go to courts. One might ask: what is their fear? It’s largely self interest… they know that Indian judicial system can take forever to give a ruling, and that too can keep getting contested all the way up to the Supreme Court depending on the enormity of what’s at stake. They also fear: (a) value erosion for their investment in the company while the legal proceedings take their course; (b) the severe drain on their bandwidth together with the uncertainty of legal expenses bill; & (c) the bad press for the fund and the fund team, which is bad for business overall. My advice to entrepreneurs – please have a balanced view wrt the SHA. Respect it and abide by the spirit of the SHA. But don’t dread it. Finally, it’s your word and commitment. As much as fund teams’, your future reputation as a credible entrepreneur and dependable business person is equally at stake if you cross the line.

I don’t need VC funding

There are quite a few entrepreneurs who say they do not need VC funding. At times, it is their considered view. At times, it is based on their sense of what VC funding entails, and primarily around poor experiences of VC-funded entrepreneurs where the business or relationship went south. It’s worthwhile sharing 2 beliefs of mine at this point: (1) outliers create better stories, both on the success and on the failure side; & (2) Failures create stronger biases than successes, on the margin. The fat middle is always forgotten! There is no gainsaying the awesomeness of a self-funded successful business. If one can create and maintain profitable market leadership without any external funding assistance, that’s a founding team worthy of serious admiration and emulation. We have enough and more such successes in India, some known & many unknown to the larger world. However, I come across many entrepreneurs whose businesses are profitable and they are happy to plough profits back into the business and continue growing organically. Hats off to them. However, I would leave them with some thoughts. One, the world is very dynamic. Your current success, profitability and market position is not to be taken for granted. Many businesses have seen erosion of their market position and profitability, very rapidly, because they were blind-sided by new market dynamics or by competitors who upped the ante, with or without external funding. Secondly, there is a time and place for everything. While organic growth is good, one needs to keep thinking about building and protecting market leadership, which is never guaranteed. It’s a well known fact that market leaders take a disproportionate share of the economic spoils. To build and maintain market leadership, besides many other ingredients, it is always good to have surplus financial resources at your command to move quickly and grab the opportunity, rather than wait for internal accruals … in which time the market opportunity might have vaporized. Having said the above, for the entrepreneurs who don’t care aggressively about leadership or profitability, have more modest ambitions and prefer peace & calm over daily guerilla battles, it is perfectly fine in saying “I don’t need VC funding”. But remember, if you are in business, your desired state of peace and calm is never fully in your control.

Who is the best-fit VC for my business?

I am often asked this question by entrepreneur friends when they have a choice amongst competing VC funds ready to fund their business, all other commercial terms being more or less equal. First, a universal truth – every VC becomes your friend and advocate if your business tracks well, and value creation continues to happen at a fast pace, post investment. They encourage, talk very well about you at every forum & go out of their way to help you by leveraging their knowledge and networks. However, this is something you don’t know a priori when you have to choose from amongst two or a few interested funds. At the point of deciding which VC fund to invite into your business, the key parameters to diligence out and evaluate are as follows: Brand / pedigree of the fund as an institution Fund’s past investments in your business sector / segment, and the implicit industry focus & insights it foretells Fund’s ability to write or syndicate the next larger cheque if you needed additional capital for the next level of scaling up Profile of the Partner from the fund who is going to take the lead on the investment in your business – past experience, years at the fund, personal chemistry et al Fund’s & Partner’s post-investment behavior with other portfolio companies – this would require speaking with the entrepreneurs of a few portfolio companies of theirs; choose to speak with a set of entrepreneurs … those whose businesses are doing well & also those whose businesses are not doing so great. Discussions with the latter is essential   Naturally, if you are not facing the problem of plenty, the question about best-fit VC doesn’t arise – Beggars can’t be choosers!

Morbid Indian VC Musings?

The last decade has seen a lot of VC investing activity in India. Calendar 2015 particularly stood out with frenzied VC deal making. It led to a very strong perception that VC funding was available for any “good” business idea, & the definition of “good” became very elastic. Students coming out of colleges started favoring venturing over employment. Taking up a job after graduation / post graduation seemed to be for ‘dull’ folks. While the Indian entreprenerial spirit has gotten a boost, I get the feeling that it has also created 2 large silos of disgruntled entrepreneurs – those who tried and didn’t get any VC funding, & those who got initial VC funding but failed or are failing in their efforts to raise the next round from a new fund investor. Let me elaborate a bit. The entrepreneurs who ventured out, put in their savings [and their friends’ and family’s] and got some initial traction, always believed that VCs would be kicking their doors down to fund the next round basis the initial traction. This hope rested on what they saw happening around them. Nobody told them that VC funding can’t be taken for granted. Nor that VC funds’ investment preferences change as quickly as the weather in the Equatorial belt. Besides, in their wishful thinking, they would compare with one or more other ventures that had scooped VC funding with [in their wisdom] weaker business propositions or had lesser traction which in turn would strengthen their belief that VCs would queue up. When that didn’t happen, it left them disgruntled… enough to question the wisdom of VCs. VCs started looking “unsmart”. On the other hand, there is a growing legion of entrepreneurs who raised the first VC round, sometimes from more than one VC fund. They put their backs behind the investment thesis that they had sold [and the VCs had bought], & scaled their business rapidly. However, many of them took their eyes off the ball wrt profitability and business model viability. Initial assumptions in respect of the market opportunity and its immediacy failed to play out. As a result, they needed additional funding to pivot or re-engineer their business, including scaling down operations and scaling back on the growth momentum. After all, there was no point in chasing users / customers and revenues which would add to your burgeoning losses. To their dismay, when they looked at their existing VC backers for additional funding for the transition, they found them uncertain. Often times, the VCs gave them the message that they would be willing to co-invest ONLY if the entrepreneurs could find a new investor. Other times, they blankly refused to support any further…where it seemed to them that it would be good money after bad. This has created the second set of disgruntled entrepreneurs. My conjecture is that we will hear a lot of stories from such disgruntled entrepreneurs, adding to the pile which already exists and is easily found on the web and social media. 2017 might turn out to be a year when the benefits of VC participation in a venture’s growth trajectory [capital + multiple other value adds] could get drowned out in the flood of sob stories from the 2 sets of disgruntled entrepreneurs. This might make many entrepreneurs pause and think, about whether or not they want to raise VC funding. Those who have their backs against the wall will swallow the lump and do the VC rounds. Those who can manage with existing internal accruals by stepping down a bit from the growth accelerator, will perhaps refrain from going out to VCs or will be really, really selective … the best amongst these should be able to hang out a sign for the VCs saying “By Invite Only”.

India’s Core Strength: Independent Judiciary, Institutions & Regulators

I vividly remember an evening in a tent at Pangong Lake in Ladakh, when I had gone trekking with 3 other very close buddies more than 5 years back. Relaxing by the lakeside, the four of us ended up chatting up about this and that, and the highlight of the evening was a heated argument about the reforms and economic policies followed by China versus India, and how India was lagging far, far behind. The friend advocating China’s policies as the “better” way coincidentally happened to be working in a BFSI MNC and was based out of Singapore. I ended up batting for India. Among the many aspects we debated, my key points in favor of India were as follows: India is the world’s largest & functioning democracy – the word “largest” needs no definition. By “functioning”, my main point was that political transitions at Central and State levels have almost always happened without any disruption (i) even when the incoming political formation’s ideology was at the opposite end of the incumbent’s; & (ii) without any role being played by the military or any institution which could potentially take it upon itself to play kingmaker. Indian diversity is perhaps unmatched across the world – religion, caste, class, language, food, culture… you name it, and it exists. Yet, we mostly get along rather well. Again, without any government diktat or highhandedness. Mostly as a matter of choice that each one of us individually exercise every day. This uniqueness gets magnified when you consider the freedoms that we enjoy. India has been able to establish credible independent institutions, maintaining reasonably strong checks & balances. Most notable among them are the Supreme Court, Election Commission and the Reserve Bank of India (“RBI”). The Constitution and other enabling legislations under which these institutions have been set up are quite strong in themselves. Additionally, we have been blessed with a series of above-reproach forward-looking individuals who have led these institutions with aplomb and further strengthened the credibility of these institutions.   The recent escalating war of words between senior government functionaries and the incumbent Chief Justice of India severely undermines the credibility of the Supreme Court, one of the most key pillars & watchdogs of Indian democracy. It’s not my place to apportion blame. However, any keen watcher of this unraveling saga should be concerned about what it portends. There may be a few shortcomings once in a while and there may be divergence of views at times. However, it is in no one’s interest to create a situation where the sanctity of Supreme Court and the people at its helm begins to take a knock in the public domain. Differences of opinion are but natural. In keeping with the stature of the institution in question, such differences must, and ONLY, be dealt with behind closed doors. These are not aspects which can be put to public vote, formal or informal. Who is to blame? Who should back off? No one can advise. One can only pray that better sense will prevail among the individuals who can direct what happens next, and that the public spat will be put to a stop expeditiously. If not, one of the main pillars of Indian democracy gets weakened and India loses credibility. That thought itself makes me very sad and fearful about the future.

Shareholders First

Enough said, and yet unclear – that’s what’s unfolding in the corporate group’s holding company’s boardroom that is catching everyone’s attention in India. Here are the only 3 things in descending importance that should form the basis for the behavior of the warring parties: Overall interest of all shareholders Majority shareholders’ wishes Brand / Reputation impact   The one-who-doesn’t-want-to-go is strongly pitching that his decisions at the helm were in the best overall interest of all shareholders. And he & his family directly / indirectly are a significant minority shareholder – he has skin in the game & hence some credibility. The one-who-decided-to-intervene is citing erosion of Group’s Brand / Values, surely has the backing of the majority and believes that he too is acting in the best overall interest of all shareholders, mid- to long-term.   The saga that is unfolding involves many leading names from the industry, academia & expert professional practitioners, and will engulf more as the ripples spread. No one can predict where things will head. However, 2 things are dead certain: Many outsiders will jump in, and fish in troubled waters for their own vested reasons, & Trust of the small shareholder in Corporate Governance, already weak, will erode tremendously given the historical stature of this specific corporate group and the muck that will be raked about the goings on in various boardrooms.   Don’t the warring parties know this? Can’t they anticipate what is likely to follow? Would it not have been better if they had resolved their differences privately? Don’t they know that what’s unfolding is hurting the interest of all shareholders in the immediate term, and may be difficult to recover from even in the medium- to long-term? Yet, they did what they did. Even the best of us are finally humans. Expect to see more of the human foibles as big names take sides in this battle which will scar many reputations. Whoever wins, the small shareholder’s trust in corporate governance, and an implicit faith in the integrity of many stalwarts in various boardrooms, will be severely dented.