S02E08

Finding Founder-VC fit with Ritesh Banglani, Co-Founder of Stellaris Ventures

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Ritesh Banglani, Co-Founder of Stellaris Ventures, speaks to us about what to look for in a VC for your startup and how to know when a VC has conviction in your startup enabling you to find a Founder-VC fit.

Ritesh Banglani is the Co-Founder of Stellaris Ventures, a $160 million fund in which Ritesh invests in healthcare, travel and financial services companies, which are tech-enabled. He has a strong interest in companies that are solving uniquely Indian problems, especially those applying new technologies to their industries, for the first time. Ritesh speaks to us about what to look for in a VC for your startup and how to know when a VC has conviction in your startup enabling you to find a Founder-VC fit.   

Edited Excerpts

Q. How important is it for a founder to get a top partner at a firm? 

Ritesh: It’s not important at all. What you want is a believer. I would rather have the full attention of a principal than 1/10th of the attention of the senior-most partner in the firm. What you want is someone who believes in you, someone who is willing to give you time, and someone who’s willing to invest personally and emotionally into the business as well. 

However, one way that it is important is when it comes to your board members influence within their partnership. They need to bat for you inside their partnership when things are not looking good or when it’s time to make a follow on investment decision. To that extent, it is important. 

Q. How can a founder tell if a VC has conviction in their startup. 

Ritesh: The first element of conviction is how much personal credibility your partner puts on the line for you. Venture firms are organised differently from regular firms. There is no hierarchal decision making, and a lot depends on the credibility of the sponsoring partners. How much are they willing to expose themselves to invest in your company? Do they answer the problematic questions themselves, or do they punt it to you? When there is pushback, do they vouch for you? 

The second-way conviction is demonstrated through the capital invested. Are they offering you a conditional term sheet? Are they only interested if another fund is also interested? These are all signals of lack of conviction. 

Q. What is the optimal speed for a funding round? 

Ritesh: Both very fast and very slow are problems. Very slow is a problem because the founders don’t want to spend all their time fundraising. The founder wants to get on with the business and often views fundraising as a peripheral activity. 

Too fast is a problem because if a VC decides without doing much diligence, it is a signal of lack of conviction on behalf of the VC. The sweet spot for seed-stage investments in India is two-to-three weeks. This is the optimal time where you’ve had multiple meetings, built up a relationship and done independent diligence. 

There are also two critical elements of the process. The first one is that you need to leave every meeting with a sense of progression. Suppose you’re still discussing the same questions in the fifth meeting. That’s a negative sign. The second element of the process is going through the ranks of the VC firm. The worst firms for founders are the ones that make them go through multiple meetings with every step of the firm hierarchy without making any progress. 

Also See: Raising funds, hiring, and crossing the chasm with Hemant Mohapatra, Partner, Lightspeed Venture Partners  

Q. Is it necessary to get a follow-on cheque, or is it enough to be able to find a path to a follow-on cheque? 

Ritesh: The ability of a VC to write follow-on cheques plays a huge role in selecting the VC. I would choose a VC who can also write my next cheque, rather than someone who can only write today’s cheque. 

When it’s time for the follow-on cheque, most companies find themselves in a place that is neither too good nor too bad. In that medium place, a VC with a large chequebook will usually write a follow-on cheque themselves.  

However, there is a downside to taking a small cheque from a large VC. Because it signals to the outside world that nobody should be writing a large cheque, take my fund Stellaris. We invest in sed-stage and Series-A rounds. If we were coming in for an angel round and we refuse to invest in the seed round, it sends a signal to the outside world that there are investors who do not believe in this startup. This gets exacerbated as you move up the value chain.  

Q. VC’s often make a big deal about the value add that they will bring to a company. How important is this? 

Ritesh: There is a big divergence in opinion between new founders and old founders regarding this. New founders index quite heavily on the value add. They believe that investors will help with the product, strategy, sales, finance, and other aspects. 

For the experienced founder, VC value add is not an expectation and is a bonus at best. My view is similar to this. Don’t make the value add a critical factor in choosing your VC but look at it as a bonus.  

Influence is different from contacts, and in most cases, the value add driven by the VC’s are small. What matters is the VC’s influence on the startup customer and not only the connection with that customer.

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