Mentoring, investment and equity dilutions: Some points to ponder…

Today, mentors, investors and angel investors are available in plenty in Bengaluru. There is a lot of energy and excitement in the air. While a great mentor and investor can do wonders to take your company from one orbit to the next, a bad one can deplete your energy and dilute company value. Here are some thoughts from Gyan, the super-mentor on the current scenario.. "to trigger thinking":

•·        Think through the long term impact of the investors/mentors/advisors on your business when you decide to give away equity, both positive and not so positive

•·        If there is a mix of investors/mentors .. try to question and understand the benefits from each of them. You may have a mix of investors from a group fund as well as individual contributions. Understand who is to be involved and how they will be involved, ie if Board seat, if role in business etc. Understand how each one can add value to your venture in the long term.

•·        If there are many investors/mentors involved, do take time to see if they have worked together and their dynamics at work. In one case, a company had three sets of investors who invested in at different times into the business. The company founders later confessed that at Board Meetings, the investor representatives spent more time in arguing than contributing to company strategy. Ask around, with companies and entrepreneurs these mentors/investors have worked with. Get feedback whereever possible.

•·        If you are unclear about what can help, you can also avail of free mentoring sessions, which may help in getting clarity .. for example many groups in Bangalore offer 1-2 mentoring sessions free of charge, including NSRCEL @ IIMB, TiE Bangalore, alumni groups of leading academic institutions etc.

•·        You could also question entrepreneurs at different networks and groups such as TiE, OCC, Startup Saturday etc and then take a view.

•·        If you give away equity shares, to understand all implications, it may also help to talk/consult a third party advisor, who can give you a neutral view (we call it arms length perspective)

•·        Investment and giving away equity stake in a company involves a long term commitment from both parties, not to be done on impulse or without much thought given to the pros and cons

•·        On the part of the investee company, it can be likened to giving away family wealth and assets! Once equity is shared / given away, it is not so easy to get it back if there is a rethink.

•·        There are legal and tax issues which may make a significant impact on decision making, both to the giver of equity and the taker of equity; both at the time of  investment/equity share issues as well as at the time of divestment, sale of stake

•·        Think through the valuation of your company when you decide to give away equity, valuation today as well as possible valuation in the future .. across a variety of time lines such as in 3 years from today, 5 years from today etc. Even if you do not have all answers, think through the possible ranges of valuation

Best Wishes!

Anjana Vivek
About Anjana Vivek 45 Articles

Anjana Vivek, Director, VentureBean Consulting Private Limited, is a consultant, teacher, writer; CA & visiting faculty at IIM(B). Her specialties are business models, funding strategy, entrepreneurship, M&A and valuation.

1 Comment

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