As an investor which fund do you invest in.
Past returns may be talent or just luck.
Finally venture capital is a gamble. Is it ?
I meet at least two investors daily who want to invest in a VC fund. Not to be outdone, every govt ministry from the National Research Foundation in DST to the MSME fund to the National Infrastructure Investment Fund to NABARD to SIDBI to banks like SBI …. All want to invest in funds. There is way more money out there then there are promoters.
The hope is that the Fund will mange their money for a paltry fee of 1-2% pa fee and 20% of the profits if the return exceed a given minimum (called waterfall).
Now why would any sensible Fund Manager give any investor 30 or 40% return pa when he can borrow money at lower rates. He would do so only under five scenarios:
– he actually has no ability to repeatedly generate even bank rate of interest. He doesn’t have a job, is incapable of promoting a company and therefore is happy to take the 2% management fee. Profit or loss is the problem of the investor. This is the “No Capability” type of fund manager.
– he has no ability to borrow money at lower cost so the only way he can be in business is by getting someone else’s money at a high rate of return. In all probability, it is a new fund manager trying to build a track record for future fund raises. This is the “credit unworthy” type of fund manager.
– he has no credit worthiness, no ability and no money but he was for a short time employed in a fund that also had no ability but got lucky. It made a fluke investment which became a multi bagger. Success has many fathers and each person in that lucky fund would claim fatherhood of the successful baby. This is the “Lucky” type of fund manager.
– he has nothing. No past track record, no credit worthiness, no known capability. He brings in a unique combination of ignorance and freshness of approach. This is the “freshie” type of fund manager.
– he has no VC industry knowledge but is either a retired promoter or retired corporate executive in say Silicon Valley. You have a unique combination of an overestimated opinion of yourself and a highly under estimated opinion of those left back in India. This is the “NRI” type of fund manager.
Now if you had a lot of money and or greed, which of the the above would you invest in. Obviously none. You should put your money in a bank FD and play golf. 90% of the VC funds in the world do not generate return which is higher.
However, if you were Abhay Karandikar and had a mandate to invest Rs 100,000 crores of the RDI fund, you have to invest in a fund. It is not your brief to keep money in a FD. Your brief is to catalyse the creation of a deeptech ecosystem.
Now what fund would you invest in ?
It is not a simple answer.
There is no unique answer.
But think about it.
Repost this with your thoughts.
Till I share my view.
