Raising venture capital or private equity funds at a valuation higher than what you deserve is a mistake for entrepreneurs, said Neeraj Kakkar, the CEO and co-founder of Hector Beverages which manufactures Paper Boat drinks, at a time when private market valuations are falling.
“Raising money at high valuations makes you try to live up to that valuation from the next day onwards. We were celebrated, but that mistake cost us a lot of sleepless nights,” Kakkar said on April 12 during a session at the Sharrp Summit in Mumbai.
Hector Beverages, which makes soft drinks and beverages under the Paper Boat brand, raised $50 million in a funding round led by Singapore's GIC Special Investment Pvt Ltd's Lathe Investment Pte in August 2022.
Earlier, in July 2020, the startup raised around Rs 28 crore ($3.7 million) as part of its Series C round from Sofina Ventures and A91 Emerging Fund.
Reflecting on his fundraising journey, Kakkar shared with Rishabh Mariwala, co-founder and director at Sharrp Ventures, that his company had managed to raise funds at a pre-money valuation of Rs 600 crore, having revenue of around Rs 40 crore.
“Raising money at a higher valuation is good for other investors, angel investors, and the investor who's doing a secondary, but it's the worst thing for entrepreneurs,” Kakkar said.
The 10-year-old company's investors also include Sequoia Capital, Catamaran Ventures, and Trifecta Capital.
According to Paper Boat's chief, as first-generation entrepreneurs, founders are bound to make a lot of mistakes. However, he believes that after raising VC money, there is added pressure to grow quickly, which can accentuate those mistakes.
“The only way to do that (grow fast) is - you burn your way through it. And I did that in a spectacular fashion,” he quipped.
When asked how the brand value and storytelling of Paper Boat helped the company in its growth journey, Kakkar said he would cut his media spending by 80 percent, if given a do-over.
“I wasted too much money on advertising during that phase when the distribution wasn't there, the product market fit was a bit shaky. I should not have wasted that much money,” he added.
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