SUMMARY
Debunking the idea of investor FOMO, Lunia advised that startups proactively should not look for investors who are writing cheques out of FOMO
“You want it to be meaningful in the scheme of things, with investors who actually feel sad if things go wrong,” he stated
"You don’t want to be a part of somebody’s experimentation, but their core strategy," the India Quotient founding partner added
Inc42’s Fintech Summit 2022 ended last week with a bang and it is not surprising that certain comments from the industry stalwarts are still echoing with us. One of those was India Quotient’s founding partner Anand Lunia’s comment on investor FOMO and how early stage startups should be on the lookout for investors with ‘skin in the game’.
When moderator Mukesh Kalra (ET Money founder) picked a question from the audience asking if investor FOMO (fear of missing out) was dying out, Lunia stated that seed investors are different from ‘investor’ investors.
Debunking the idea of investor FOMO, Lunia advised that startups proactively should not look for investors who are writing cheques out of FOMO.
He added, “With all due regards to Tiger [Global], you [an early stage startup] don’t want Tiger Global to be your seed investor. For an investor who is writing one cheque a week, you don’t want the investor to be your seed and only investor on the captable.”
He further specified that getting this big of an investor in the seed stage is not setting up for success, but quite the opposite. The comment was not a jab at Tiger Global – one of the world’s largest VC/PE investors, but intended to make a point that early stage startups have different needs from what big investors can provide.
The idea of not wanting a big investor as a ‘seed stage investor’, as explained by Lunia: “You need somebody who has skin in the game, although it’s a ten-year ratio. You want it to be meaningful in the scheme of things, with investors who actually feel sad if things go wrong. You don’t want to be a part of somebody’s experimentation, but their core strategy.”
The explanation is simple – a big investor like Tiger Global will not be able to advise an early-stage startup as much as it is needed.
It is noteworthy that Tiger Global had a median cheque size of $114 Mn in 2021 when it had backed 187 companies from India alone. The US-based late-stage investor has yet only marked its first seed stage investment in India with the ecommerce enabler Shopflo. In fact, alongside other investors such as TQ Ventures and Better Capital, the complete seed round of Shopflo was only $2.6 Mn.
The early-stage investor previously during the panel discussion titled “Can Indian Fintech Survive The Economic Downturn?” had also stated that an investor can diversify to 40 companies, while the founder has only one company. So, founders have to think of the next 50 years.
Perhaps someway along the 50 years, Tiger Global should be a part of the journey, but as Lunia pointed out, early stage needs are quite different and need a strategic ‘seed’ investor.
Update Note | July 5, 2022, 5:55 PM
The story and headline have been updated to add more context to the conversation.
