1Mby1M Virtual Accelerator Investor Forum: With SC Moatti of Mighty Capital (Part 4)

Sramana Mitra: Why do you want minnows on the cap table?

SC Moatti: Sometimes, you need them because they will help you early on. They will help you get started.

Sramana Mitra: Then they don’t fall in the minnow category. If they’re passive investors, you don’t want them but if they add value, they’re not passive investors.

SC Moatti: You have a good point here, but sometimes to get things started, you will need to have some of those on your cap table. You may not want them, just like you may not want to do the grind every day, but then there is reality. You need to make some compromises. What I’m saying is they will end up on your cap table and this is how you want to effectively manage them. You want to keep them entertained, but you know that they’re not going to add a ton of value to you.

Sramana Mitra: As an entrepreneur when you have limited choices, then those kinds of investors may end up on your cap table just because you don’t have the power to get to whom you necessarily want to get to. As you develop validation of your concepts and your customers start to engage with you and your value proposition starts to get validated, that’s when you start to get bargaining power. Then you shouldn’t be having those kinds of people on your cap table. You should go for the people who add value.

SC Moatti: You say bargaining power. I don’t think of it this way. We’re dolphins so we’re not in a power struggle mindset. We work with our entrepreneurs. I would rephrase that as you start to gain traction, revenue is the best way to fund and grow your company.

Sramana Mitra: In our community, we have a mantra, “Do not go to VCs as beggars. Go as kings.” The problem is there is a lot of people who are randomly chasing VCs all the time. They probably go to 50 meetings and get rejected by all 50 just because they don’t have the books to raise the round with.

Instead if they spend that energy chasing customers, they would make a lot more progress, a lot more headway. Everything would go in the right direction. There is this problem in the ecosystem where entrepreneurs wake up one fine morning and decide to be an entrepreneur. The first thing they need to do is go chase VCs. It’s a rampant problem actually.

SC Moatti: I would agree that the best way to go to a venture capitalist is as kings. I like that expression. To help your audience, I’ll share a very important distinction. As an entrepreneur, your job is to say yes. Yes, we’ll deliver on time. Yes, we’ll take on that contract. It’s a job of saying yes. As an investor, your job is a job of saying no.

Entrepreneurs often come to me and they will have this narrative, “It’s been very challenging lately, because we’ve had a lot of attrition on the team. Our product isn’t selling as much as it should. We need to get a few million dollars in so that we can get past that.” You’ve just given me five reasons not to invest.

Sramana Mitra: Those kinds of narratives never sell with investors.

SC Moatti: Right. If someone comes to me and says, “We have so many contracts. We are experiencing so much growth. Everybody wants to be on the team. I just don’t have enough money to hire people so that they can  go ahead and deliver on our customer commitments.” Then all of a sudden, I start to think, “That train is leaving the station. I better get on it, or I’m out.”

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With SC Moatti of Mighty Capital
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