In part 4 of our 5-series blog post on Blume founder Karthik Reddy’s conversation with Deepak Jayaraman on the Play to Potential podcast, Karthik shares his thoughts around how a VC fund should identify great entrepreneurs. When it comes to picking these great founders, it’s important that they are always willing to learn and have the ability to build great teams, shares Karthik. The full conversation is here.

How do you evaluate an entrepreneur and specifically I am curious about this, at least in my head there is a tension between two different elements, one is about the entrepreneur having a certain dogged persistence about an idea the other is about the entrepreneur being open and willing to input when new funders come in and it’s a fine line, you don’t want people on either side of the spectrum, so how do you sort of walk that tightrope from the judgement standpoint at the time of investing in a longer way?

So I will answer your first question which is around, what do we look for in the founder, and which actually leads into the next question – capacity to learn listen not be obstinate beyond a point is very very important in my view and we will come to the second question but because you have intertwined the two questions interestingly, the more stubborn they are in taking inputs in such an early stage of the business the more unlikely they are to succeed in my view. Because actually at the early stage you don’t know anything, you don’t know the challenges of organization building what the problems set can expand to, which direction it can go to? And that is what we actually look for in the founder so all of these are interlinked so what I mean by that is essentially we realized that great founders have two sets of qualities around organizations that it is not about them it is about building phenomenally great teams and across the board. So philosophically you have to be willing to share rewards, you have to be willing to share responsibilities, you have to be willing to, therefore, take inputs, you have to respect them, it is not about the paper exercise of building a team. If you are not surrounding yourself with views of people who you respect then why bother? And then extending it one step further, they have to respect that we are partners as opposed to us versus them and again if they don’t, they will obviously disregard our inputs. The two are intertwined and these are the characteristics you are typically looking for, do they appreciate the feedback that you are giving? And so it’s a double-edged sword, that’s why I said if you are being arrogant about your views, a lot of founders become cynical about why the hell should I take the VC’s views? Or anybody for that matter, let’s say 9 out of 10 people in the world, broadly we see it a lot more in India than we should in my view, and which is why the Valley is the Valley I keep saying, culturally the Valley will not like dismiss you, and as the eco-system engages, these guys become harsh, they put up more barriers and stop listening than they should even though they might not have started that way because they are getting so much pushback, from customers, from investors, from some bigger company…

 

…. It’s the climate that drives behavior right?

In some sense; which is what we work very hard to refine, for example we will tell our founders that go and meet your competitors, go and have like open dialogues, learn from each other see where you might compete in the future. There is no harm, don’t sit and bitch about it without even meeting each other, which happens; that’s the kind of openness we try to build. I take another view, been in it for six years now, I don’t see myself doing anything else in life; if I am doing this for another 20-25 years I better be in an eco-system I like to be in, how much ever it is been corrupted by somebody else. I am saying what the hell I am not going to live with the crappy eco-system and put my life through this; I wanted it to be better and I will fight it so I blog about it, I blog about the behavior because I said if I don’t fix it then I am to blame too.

 

So that’s one aspect; the other aspect I think is truly whether they are passionate about solving a very specific problem and not one of the other two things. So you say what’s unique in that? I can tell you what’s unique in that, there are lots of founders who think there is a fashionable problem to solve, that’s not the founder we are looking for, for one and the classic unfortunately entrepreneur hat that India was willing to put on people was as long as you know ki “Achcha business karta hai, yaa achcha paisa banata hai, tho achcha entrepreneur hai”, that is not startup venture investing, that is every other type of investing but it’s not venture capital early stage. If you are trying to pick there and saying I want a decent probability that this succeeds, and look at the odds that are stacked against you, we have been talking about for now. It has to be that this person is passionate around solving something in the world even if he is truly like hardcore Madu, Gujju style wants to make money, it is got to be around that. Then then that passion comes through and then it reflects in hiring, it reflects in your ability to build a business, capital, every element of not perfectionism but like great product and brand that you build, without that, it is just Dhandaa, let us get it done. And I think this is a huge difference; the second difference is, it is not just about the problem you are chasing, sometimes people fall in love with the solution they are selling…so they say, this product is a rockstar product, I (VC) am saying customer doesn’t think so, no but I (entrepreneur) don’t care, mine is a rockstar. So if you don’t know how to listen to your customer and adapt and not lose sight of the fact that you are solving the same problem, please focus on the problem, not on the solution.

 

… but how do you suss this out at the time of evaluating the entrepreneur?

I think you question them, on whether they have thought through what behavior they are influencing, why are they doing this? Where was the origin of the problem in their heart? Why did they think they should chase this idea; sometimes backgrounds, how you grew up cues on this. So Sam Altman gets credit for it, a lot of us think, but he blogs it better. Sam Altman says I always start with the childhood, and so you want to understand the person deeper and their motivations, not simply with the fact that they came up with a cool idea in a college lab, and decided they want to become startup entrepreneurs. That might be good enough, I am not saying no, but at least ring fence this, that’s all I am saying.