Be careful before investing in a startup in India with no strong leadership

1:23 AM Suvir Sujan 1 Comments

Many times, I have heard VCs in the US talk about investing in a great product or concept without a strong CEO. Typically a bunch of engineers build a great product that can change the world, but there is no management leadership within the founding team to build a business around the product. In such a situation, a VC invests in the company and brings on an entrepreneurial CEO who can run a very young company.

Given the risk taking psyche and the robust entrepreneurial ecosystem in the US, hiring a professional management that can successfully lead a startup is possible. However, this is not as easily done in India for several reasons :

1. The risk taking ability amongst these managers is low. What if the company fails? The lack of a safety net in case of failure scares many potential managers from joining startups.

2. Parents, family and friends have a big influence on career decisions. Leading unknown companies are not widely accepted as a mark of success. Joining a Mckinsey or Citibank is looked more more favorably than joining an unknown small company.

3. Cash is more important than stock to many of these managers as they have to look after not only the spouse (who typically doesn't work) and children but also the parents and in many cases siblings as well. Typically startups don't offer the renumeration that can sustain these obligations.

4. Many of the managers are not trained as entrepreneurs. They may be bright, but they are not comfortable with selling unproven concepts to customers, hiring top talent to an unknown company, thinking out of the box on pricing, promotion, processes, etc. So even if you are able to convince a professional manager to join the startup, the chances of being able to successfully execute during the early days of the company is low.

As the entrepreneurial ecosystem builds over the next several years as more and more startups get funded, hiring strong entrepreneurial leadership into a start up will become easier. However, for now, I would caution any investor that is looking to invest early stage with no strong leader who can run the company in its early years to think twice before investing.


rajesh said...

Investors (venture capitalists) philosophy seems to be that you dont need to know to bark to buy a dog.It is enough if you can find out which one barks better...what a sad state