Giving wings to business risks
From humble beginnings in Kolkata, India, engineer-turned-serial angel (early stage) investor Jayesh Parekh is poised to close his second fund with Jungle Ventures.
The seed and Series-A US$100 million pan-Asia investment fund, comes hot on the heels of the Singapore-based venture firm fully investing its first US$10 million pan-Asia Angel fund, which invested in 30 start-ups including two with Kiwi origins: video transfer firm Ebus; and inventory management company Tradegecko.
A self-confessed Kiwiphile, start-up mentor and social enterprise champion, Jayesh took time out from sharing his wisdom (and humour) at the combined 2015 Angel Summit and Asian Business Angels Forum in Queenstown last month to tell NZBusiness whether being an entrepreneur is more nature or nurture, and why an entrepreneurial mindset is important for business growth. Lesley Springall asked the questions.
There are people who are born-risk-takers. It’s handed to them genetically.
Then there are people who are from a business background, but not a risk-taking background, but that does not mean those people can never be entrepreneurs. If you can cultivate a risk-taking ability then you can become an entrepreneur.
But why is an entrepreneurial mindset important for businesspeople?
Jayesh: “There are two things about an entrepreneurial mindset – one is that risk-taking ability and the second, and most important, is what I call ‘business acumen’, a visionary who sees opportunities and how to make money from them.
“There are people who have business acumen, but don’t have the risk-taking ability. They can grow to very senior levels in Apple, Facebook and Microsoft, but they never start their own business because they don’t have that risk-taking ability. The only risks they take are ‘intrapreneurship’ risks; they don’t risk their own money.
“You need both to grow a business.
“An entrepreneur often thinks just because they have started a business, they have taken a risk, but there are three levels of risks: the first is to graduate from college and start a business or work for two years then start a business, but that’s not really much of a risk for anyone. Then there’s the next risk level, when you first take someone else’s money. The third level is growth money, when you take $5 million or $10 million dollars to energise and change the company from a secure path to a growth path.
“That’s a big level of risk because that businessperson could just stay where they are – they’ve got a good life, why do they want to take $5 million more, why put everything at stake? So there is some risk taking at each level, but it’s extremely important to be entrepreneurial at the third level, because that’s when there’s the most risk and that’s when you need the vision to see the opportunity to scale.”
NZB: Is that something a business person can hire in?
Jayesh: “Yes and no. In India you can, for example, hire in a graduate from the Indian Institute of Technology or an MBA graduate from the Institute of Management. However, the economics of making profits out of a business must really come from the business owner because it is their vision and strategy and any person they hire in, however business savvy, will still just be executing this strategy.”
NZB: What do you look for when choosing to invest in someone?
Jayesh: “There are three things I look for. The first is ‘who’. Who is the entrepreneur who’s standing in front of me?
What is their background? What is their passion? What is their vision? And what is their business acumen and risk-taking ability?
“If they pass that only then will I move on to the next step – the ‘what’. What is the idea? Is it scalable? Is it a repeatable? What are the economics of it? Is it well thought through? Is this something that I can see growing in leaps and bounds? Is it an innovative idea? Is it a disruptive idea? Is it a ‘me too’ idea? As soon as I know that and if I like it, I will go on to the next question, which is ‘how’.
“So I go to this hugely important risk factor, the one most people look at first, and look at it third. How are you going to execute this? Is this really going to work? Is this just multiplying 20 percent per quarter growth? Is this something the entrepreneurial team can defend? Do they have the ability to do this? Do they have the ability to hire and plug the holes in the team if they don’t?”
NZB: What percentage get to ‘how’?
Jayesh: “At Jungle Ventures we see a few thousand ideas, but we can only make three to five investments a year.
“Sometimes I do come across some amazing people, but the idea might not fit the Jungle thesis, as we are four partners – whereas before when I was just an angel investor, the percentage was a lot higher. I used to be a lot more all over the place; as soon as I liked something I’d fall in love, and I fall in love very easily.”
NZB: What gets you excited?
Jayesh: “Personally I get excited about innovation and disruption and therefore I look for intellectual property (IP). If the idea is defensible, that really excites me.”
NZB: What’s the most common mistake entrepreneurs make when they try to approach investors?
Jayesh: “They get really carried away with the market size and the top down approach. They say, ‘look the market is $3 billion and I just want two percent of it and therefore I’m going to make $50 million, $60 million or $100 million’.
“In the past, the economic model was all important. But nowadays anyone can build a community so it’s not so dramatically important; but I see entrepreneurs getting hung up on it. They throw in things like 100 million users or $100 million revenue in three years and that’s in the unbelievable category.
“So, really, the biggest mistake I see entrepreneurs making is undermining the ability of an investor to see through the rosy picture they are painting. Yes, we like our entrepreneurs to be passionate and to think big, but if they are honest and show a little bit of self-doubt that gives the impression they will listen. And a good entrepreneur has to be smart, savvy, but he also needs to understand other people’s points of view and then be able to make a decision and follow it.”