After the Closing: MoneyTap
With most new investments, portfolio companies go through an announcement process – where they describe what the company does, and why Sequoia India (“Sequoia”) decided to partner with them.
Post the recent Sequoia investment in MoneyTap, we tried something new – an attempt to lift the veil of secrecy on what happens over the course of the pre-investment process. In Bala, the CEO, we also have a person uniquely placed to answer these questions, given that he was a VC himself before starting MoneyTap.
After the first board meeting, we cornered Bala and attempted to get some candid insights from him on what it was like to raise his latest round of funding from Sequoia.
Listen on for more on the investment process, tips and tricks on how to manage it for other founders, and some tough questions from Bala for us :)
You were an investor before this and now a founder. From a founder’s lens, what was it that you look for in your investment partner and how did you go about the process of looking at Sequoia?
The one word that comes to mind after interacting with Sequoia…from the first meeting to the close, is the word “professional”. Every interaction was professional and every time any member of the Sequoia advisory team - be it from legal, financial, or the investment advisory team - said they would do something, they have done it. They were always reachable, would always return phone calls, which many members from the community don’t. That was important for us.
We had a choice of multiple investors to go with, and at the end of the day what swung us towards Sequoia was the fact that we were dealing with professionals and it gave us confidence… You know, the investment process is like the dating period. So you go through it for a few months and then after you have the person on board, it’s like marriage - you have to live with that person for a much, much longer time. So in this period, the primary criteria that we all use (all founders will say this) is that we are comfortable that these people are professionals and will treat us the same way going forward. So that was our main driving criteria towards Sequoia - and of course being a great fund and brand name and everything else.
So let’s talk a little bit about the dating process - from the first meeting till the process closed. A lot of folks ask us what that process is like. You have been on both sides of the table. What was the process like for you? What worked, what didn't work - just give us an overview.
The process is somewhat similar to most of the VCs, only the timeframe changes.
First of all, show up at the table. As entrepreneurs that’s number one, since obviously you might not even know the person or company exists. For most investors, and I am sure Sequoia does this as well, what’s most important is the vetting process, the process of looking at the entire gamut of people working in that space and researching them.
Number two is actually being prepared. It took about 2-3 months internally for us to be actually ready for investment. That has got to do with some of the numbers, how the business is doing, and so on and so forth.
I think it’s a bad idea to prematurely look for money. When we met the Sequoia advisory team, sometime in October - November last year I think, we were not ready. And we made that clear. For us, that meeting was more about investors getting to know us and the company, about getting on the radar of the VCs. Knowing when you’re ready is a delicate process. It’s an art and a science. This is where my past experience as an investor myself helped.
Once you are ready, then you start actively engaging with the investors.
The way it worked with Sequoia was that the investment advisory team came onboard, combed through the numbers and other details to fully understand the business. They talked to potential customers to make sure that this is the right investment for the company.
After that, it came down to the decision making process where we had to present to an investment advisory committee followed by multiple rounds of questions.
Once the decision was made to go ahead with the investment, we signed the term sheet. This is basically the equivalent of an engagement ring – when you are not yet married but everything looks good.
Then the process of diligence starts, both financial and legal, where it’s mostly sort of proving that whatever you said is true, is true. But in a greater level of detail. And this is where I think the experience with Sequoia was a very professional one for us. Most entrepreneurs don’t like the DD (due diligence), because it involves a lot of the bureaucracy and red tape. But for us it also helped us clean up our own work. As an entrepreneur, we don't pay attention to a number of things we may consider low priority. But the DD helped us bring everything together, make it squeaky clean - and I think it’s a good exercise.
After that, all that’s left is the closing and signing of the deal.
But dating is obviously a one-way street. Sequoia evaluated MoneyTap as a company but you evaluated Sequoia as well. I am curious to hear your feedback. What do you think Sequoia could have done better?
I don’t have anything major to say honestly, as I said it was a professional and thorough experience. But I think there some timing issues in this particular case. The investment advisory team was travelling on work and if not for that, we could have probably shaved off a few weeks from the process. But I imagine this is not a very common thing. I think it was one of those annual events that happened right in the middle of our talks and we did get a fair heads-up. But it was one of those factors. Otherwise I can't think of anything significant that could have been done differently.
Now that we are a family, I’m curious about all the other girls you have dated. What is the Sequoia process like, because clearly there is a fair amount of rigor from what we could see. What did Sequoia see in us?
I was expecting such a tough question from you.
At the time of the first meeting, Sequoia had been looking at this sector for over a year. This is somewhat characteristic of the decisions that Sequoia takes as a firm – to really try and understand the market fairly deeply.
So, a sub-team spends a lot of time just trying to evaluate the opportunities. Which is why, hopefully, the questions you were being asked during that first meeting would not have been very basic. I think the opportunity in this sector was always real but there was always something missing. And I think that’s the bit of a dance that the investors do that makes it look very subjective from the outside, which is like “hey, why invest here and not there?”
At the end, nothing is perfect. But everyone in the advisory team has a point of view on what imperfections one is willing to look at and deal with - and that’s true for everything. In life as well, we understand that there are somethings that will be fixed and some things that can’t.
I think in Sequoia’s case, one of the things the team did not want to take any chance on, was backing the right team. For the business that you guys are trying to build, not every team is the best team in absolute. It has to be the best team for the problem that you guys are trying to solve. And I think the fact that you guys had that team in place - with of course your background, and your co-founders backgrounds - was what gave everyone the most comfort.
Any other risks, the team was willing to live with. This will be a long journey, there will be ups and downs and that’s totally fine. I think as long as we are in a partnership, everything else gets figured out over time.
So we just got done with our first board meeting. For the benefit for our audience - this was a 3 and-a-half hour board meeting that started about 15 secs after 3:00 pm and ended about 5 secs before 6:30 pm. So Bala clearly knows how to run a board meeting.
And my final question is around what kind of people do you want around the table in your board. Like you mentioned this is a marriage, a very long term thing and everybody has a different point of view but if you were to list a few points that are very important for you as a founder in terms of your board members, what would you say those are?
So one thing from my experience as sitting on the other side as a board member, as an investor, and now as an entrepreneur, is that most of the entrepreneurs basically rush and get the first cheque or the best valuation or the best brand. And nothing wrong with that, one should optimize for your own shareholders to get the biggest cheque and the best valuation and all of that, those are important.
But I would really urge every entrepreneur to pause a bit, and think about few other factors. Because if you have a good play, if you have a good team, you will get funded, it’s a matter of time. Don’t be so desperate to grab the first cheque or the highest valuation - because who you choose as a partner really does matter later.
It’s one of those things, like Harry Potter - it’s not the wizard that chooses the wand, but the wand that chooses the wizard.
An entrepreneur should think that way. They should always think that they have a choice - and they should make the best possible choice. I would definitely urge every entrepreneur to think this way. No matter how desperate you are, no matter how low your bank balance is, even if you think you might go out of business tomorrow - your mindset should be that I can get whoever I want to because I have a good business.
In terms of what you look for - you should really look at the stage of your company and the type of the board member that is going to be there. There are board members and venture capital firms which are right for very early stage, from zero to pre-idea, or from idea to product market fit. You want to choose the type of fund accordingly. Prime Ventures was the type of fund that was catering to that. When you go to the next stage, you want that type of fund which is going to help you in that part of your journey. A large number of entrepreneurs make a mistake here, saying “money is money, who cares, I’ll manage everything”.
It’s one thing to be cocky and to manage everything. But it’s important to understand and be a little self-aware about what your weaknesses are and what your business needs. You are really just shooting yourself in the foot and kidding yourself if you think that it doesn't matter, it really does matter.
If your business needs some super creativity and you think that you don’t have it, you need to be honest about it and your board members instructions should complement that. If you feel that you are very execution oriented and you need someone to do lateral thinking, then make sure your board members are like that – in fact, you should push them in that direction.
Because what you ask for is what you will get at the end of the day.