Belonging to a small community in Agra with a housewife mother and scrap-trading father ('raddiwala'), she was one of four children but the only daughter; this meant that she was put in a local hindi medium school (against her wish) while my uncles went to the best city schools.

At 17, she was sent to Delhi ('bade sheher'), to live with her aunt so she could learn how the affluent cooked and ate and lived. She had to learn these things because she was taught this was the only way for her to attract a wealthy suitor.

She got married to my father at 19. My father was a paper trader in Old Delhi, so were his father and older brother. Street wise but stubborn, my father's family had simple goals and a narrow focus - save, preserve and sustain.

She had my sister at 20. This changed everything.

She always said that exposure is more important than money. And education is the greatest leveler. Her actions always matched her words. Several fights later, she had convinced my father to leave the joint family and move to a better locality (beyond our means but manageable).

I was born five years later. My mother's unconditional love and encouragement motivated my father to focus on growing his business. We all moved to Dehradun so that my sister could get access to the best tutors. She got through to Welham's! And I, DPS!

But good times seldom last. His business came crashing down. Our expense profile assumed steady future earnings. We had to cut back on everything. It is difficult for a 6 year old to understand why things need to be sold - TV, car, etc. Their relationship suffered too.

My father refused to do anything about the situation. Wasn't willing to do anything other than the business my grandfather trained him for. Made bad investments and emptied our savings.

He often blamed my mother for all of it - "I never wanted any of this in the first place."

She was now 30, with two small kids and no formal training or source of income. She refused to accept the situation as is. Couldn't let my father sell the house or take us out of our schools. She borrowed a small sum from my neighbour-aunt and decided to start a business.

The next day, there was a tailor with a sewing machine stationed in our living room. With the money she had, she barely managed to stitch one suit, went door-to-door to display her design and took orders on a notepad. All while running a house and raising two kids!

It worked! The design was a hit, orders poured in. She charged a mere INR100 for plain stitching (the north star metric for small boutiques). In 2 years, there were 15 people working in our house. My childhood was spent with kaarigars and Masterjis - loved every second of it.

My father took a backseat. As she earned more, he worked less and earned and spent even lesser. My mother gave my sister and I a choice - live comfortably now and be on your own (financially) once you're 18 or cut back so that she can save for our future. We chose the former.

We knew we couldn't afford to go to private / foreign universities for our under-grad. My sister went to SSCBS to do BBA and I cleared my law entrance to study at GNLU. She bought a new shop in our local market with the money she earned (saving for our future anyway).

Her business grew. There were 30 boutiques in a 2km radius but none as successful. The USP? She did everything herself - taking measurements, buying cloth and dealing with customers. And post her 14-hour workday, bought groceries and cooked for us. Listened to our problems.

My sister went to Paris for her Master's (on full scholarship). I interned at top law firms. She was our best friend and the provider of the house, and did it all with a smile on her face. She advised her younger brothers to move to Delhi from Agra. They were now flourishing with her support.

I got a job at a leading law firm and a few days later my sister got married in Paris with a dreamy ceremony at Champs-Elysees. She looked down at the street, tears rolling down her cheeks, thanked god and decided to shut shop. Also, her mental health had caught up with her.

She had achieved much more than she set out to. Had only raised a 'small round' from her friend, never scaled or opened a second store and didn't have a bumper exit.

But she changed all our lives and the entire family's fortunes. And inspired countless people along the way!

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Investing through LLPs has become popular among investors seeking startup exposure, but the model is largely unregulated and high-risk. LLPs cannot be setup solely for the purpose of engaging in investment activities, yet many are, under the guise of providing “advisory services,” exposing partners to potential regulatory violations. Such setups often breach private placement limits, risk classification as unregistered Collective Investment Schemes, and offer limited investor protection or redressal. They also face higher taxes and compliance burdens than regulated structures. Despite the promise of accessibility, LLP-based pooling is marred with regulatory complexities and hidden costs. AIFs and SEBI-regulated platforms remain the safer, compliant routes for private investing.

Sudhir, an erstwhile CXO at a logistics company, came across a post by a startup evangelist promising 6x returns on a (risky) startup investment. With limited exposure to the ecosystem, but driven by a fear of missing out, he decided to invest. When he learned that the minimum contribution is INR 40 lakhs, he told his former colleagues about this lucrative opportunity. In no time, he convinced four of them to co-invest. They set up an LLP with five partners, each contributing INR 8 lakhs, and completed the investment. In six months, the company had gone on to raise another financing round, doubling its valuation. Word got out and Sudhir was now flooded with inquiries from folks looking to hop on the bus. By year two, the LLP had more than fifty investor-partners and had invested in four more startups.

Mark, a restaurateur, opened a cafe in South Mumbai serving specialty coffee. In the last few years, homegrown coffee chains had benefited from a surge in youth coffee consumption and increasing investor interest. On the back of the success of the first store, Mark decided to approach investors to complete his first fundraise. Several disagreements on valuation later, Mark found himself evaluating an investment offer that involved two partners setting up an LLP, and raising the target amount through several investor-partners contributing anywhere between INR 10,000 to INR 10,00,000 at Mark’s desired valuation.

An investor roadshow in a tier-III city proved to be a great success. When you look at what was on offer, it is clear to see why - minimum cheque size of INR 5,000, tax-free assured returns of at least 15%, and a capital end-use for advancing farming in the country. Eventually, 5000+ investor-partners contributed more than INR 180 crores through one of the three LLPs set up for pooling investor-partner funds.

On the face of it, the schemes may appear very different and not set alarm bells ringing. But there’s a lot that is common - the participation of retail investors en masse, low ticket sizes, unregulated investment structures supported by LLP formation, and an eventual unravelling of such schemes that leave investors stranded, often with no regulatory recourse at all. Admittedly, investors should exercise their due diligence before deciding to invest. But pointing fingers only at the investors is very short-sighted. Often, what allows these unregulated structures to grow, operate, and go under the radar is a myriad of regulations that are unknown, or complex and unclear.

Regulatory Risk

Investment Activities

LLPs cannot be formed solely or mainly for the purpose of engaging in ‘investment activities’. Investment activities fall under non-banking financial activities, which are regulated by the RBI. The RBI permits only companies (registered under the Companies Act, 2013) to conduct non-banking financial activities. LLPs are not eligible for such registration and, consequently, are restricted from carrying out investment business as their principal activity.

LLPs, to circumvent this restriction, will often call out an ancillary business activity (for example, providing investment advisory services) as their principal business in the LLP constitution documents. This may not pose a challenge in the initial days of LLP formation, but as the LLP continues to onboard investor-partners and make and exit investments, it will be increasingly under risk of scrutiny. Such scrutiny may even result in penalties being levied on the LLP, and in certain situations, even on the investor-partners in their individual capacity.

A related consideration is that the income from the provision of such services is taxable at 30%. While the profits distributed (from such income) to partners are exempt from tax, the tax rate on LLP’s income can rise to 40%+ with the inclusion of surcharge and cess. Regulated AIFs, on the other hand, are pass-through entities; in the event of a distribution event, the AIF does not bear any tax burden. The investors are liable to pay tax on the investment proceeds received by them. As of 2025, based on the holding period, the rate of taxation is either 20% (Short Term Capital Gains) or 12.5% (Long Term Capital Gains).

Private Placement

Due to the low-ticket sizes, and the inherent nature of investment schemes that utilize LLP structures, newer investor-partners need to be solicited and onboarded to raise funds.

Companies that accept such an investment may, without even being complicit in the solicitation activities, violate the private placement rules specified in the Companies Act. Private placement guidelines restrict making an offer, or even advertisement of an offer for securities to more than 199 individuals. In addition, the company cannot release public advertisements or utilise media, marketing, or distribution channels to attract investor interest. The company is even restricted from using distribution agents to inform the public of a private issue of securities.

Unregulated schemes often leverage investor roadshows, digital ads, webinars, etc, which are, in most cases, conducted and published to audiences much larger than the permissible limit of 199. Such schemes are at risk of levy of hefty financial penalties, and being ordered to return funds with above-market interest rates.

On top of that, the advertisements, bereft of regulatory oversight, need not follow a code. The result is that investors are often misled or swayed by celebrities, technical jargon, deceptive statements, and exaggerated returns. Compare this with Online Bond Platform Providers (OBPPs) that come under SEBI’s purview and are mandated to follow a comprehensive advertisement code developed to enhance investor protection!

Collective Investment Schemes (CIS)

Consider the three instances of LLP formation and utilisation that we discussed above. They share certain features that make them susceptible to being deemed as ‘collective investment schemes’ - (i) pooling of money for an investment scheme, (ii) pooling for purpose of receiving profits, income, revenue-share, etc., (iii) pooled funds managed on behalf of investor-partners, and (iv) investor-partners having little to no control over the day-to-day management of the scheme. When a scheme with these features crosses an AUM-threshold of INR 100 cr, it is mandatorily required to be registered under the SEBI (Collective Investment Schemes) Regulations, 1999. A failure to do so can result in suo moto regulator intervention, financial penalties and freezing of funds.

Investor Protection

Regulatory Adherence & Redressal Mechanisms

Platforms regulated by SEBI, or RBI, ensure that entities that engage in or facilitate investment activities operate within the contours and restrictions specified in the relevant regulations. For instance, only accredited or ‘angel investors’ can invest in AIFs regulated by SEBI, and even then, the investment thresholds are high enough to curtain retail participation.

These regulations, apart from specifying qualifying criteria and mandating disclosure norms, also provide investors recourse to redressal mechanisms to alleviate their concerns. Take the example of SCORES, SEBI’s Complaints Redressal System, which saw a resolution of 4,239 investor complaints just in the month of April 2024.

Decision-Making & Other Legal Rights

Even though investors are designated as partners in the LLP, they seldom inherit or retain the ability to make decisions that impact their investments. This can be done explicitly, through execution of power of attorneys, or implicitly, when unassuming investors are onboarded to the LLP through seemingly boilerplate agreements. Worryingly, the partners that inherit the decision-making powers are not under any fiduciary duty to take actions that are without prejudice to other partners.

In contrast, regulated schemes, such as the ones under the aegis of the AIF regulations, require the AIF (and the manager, trustee, and sponsor) to follow a Code of Conduct that ensures paramount investor protection, and a strict adherence to the intent and structure of the scheme.

Compliance Burden

The regulations governing registered AIFs, OBPPs, CISs, Real Estate Investment Trusts, and NBFC - P2P Lending Platforms place the burden of compliance on the registered entities, as against individual investors. However, LLPs require the investor-partners to ensure that proper books of accounts are maintained, and (tax and financial) returns are submitted in a timely manner. The annual returns require each investor-partner to disclose names of other companies and LLPs where they hold a similar position. When new investor-partners are onboarded, or there is a change in either the LLP agreement or contribution of any of the partners, the requisite forms need to be filed with the MCA.

Conclusion

Investing through LLPs may seem like a lucrative proposition - the relative ease of setup, ability to onboard newer investor partners, and no minimum thresholds. But if we weigh the risks , it is clear why this route is not sustainable or cost-efficient in the long term. The motive of democratisation of private markets and increasing retail participation is indeed a noble one. But not if regulations are flouted, exposing investors to high risks, which they are often unaware of. The regulations are enacted only after discussions with, and inviting input from, industry experts and even the public at large. So while the regulatory thresholds, entry barriers, and code might seem onerous at first, they are formulated for good reason - to safeguard investors.

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Say you started a new job in a new city – a heady challenge that young age gave you the zeal to take on. You adjusted to the culture, customs and aced your company induction, rising ranks in no time. The experience was truly rewarding, resulting in steady personal and professional growth. And then the growth plateaus (not on paper since you still got promoted and moved to a bigger house) and you stop feeling challenged. You want to move to that new city that promises better quality of life or take up a job in that buzzy sector but find yourself feeling ‘stuck’. Even within the same organization, you find yourself unable to move to a new vertical or experiment and set up new systems. At this point, you think it can’t get any worse, but the comfort and dwindling utility of everyday life even starts distracting you from immediate and routine tasks.

While this feeling may be new to the affected individual, the evolutionary human systems that underly it have existed for millions of years. For long periods of history, humans were content with their (then) newfound ability to repeat patterns and behaviors that had previously resulted in a successful search for food and energy (exploitation). As predators evolved, their ability to set ‘traps’ remarkably enhanced in a very short span. Cognizant of this tendency of humans to repeat rewarding behaviors, predators were able to replace the reward (food) with claws. In response, humans took their next major evolutionary step. They developed the ability to break away from these patterns by considering and choosing alternatives, which allowed them to pursue previously uncharted paths (exploration).

Even today, the only way to stop feeling ‘stuck’ is to readjust the balance of exploration and exploitation.

Numerous studies (such as this one and this one) have defined and explained the two terms. For this article, we will make a reference to a more general definition, consistent with explanations across domains such as management and neuroscience – “Exploration entails disengaging from the current task to enable experimentation, flexibility, discovery, and innovation. Exploitation aims at optimizing the performance of a certain task and is associated with high-level engagement, selection, refinement, choice, production, and efficiency.”

Striking a balance or modulating between these two competing cognitive exercises is key. But before discussing how one can do this, let’s first call out what every exploration-exploitation tradeoff has in common – the element of search. Search in the context of this tradeoff is better understood as first, the act of seeking a goal under uncertainty (exploration). And then, reacting to changes in the environment, and refining our behaviors based on feedback (exploitation). This allows us to readjust our path towards the goal, or the goal itself.

The tradeoff presents itself in various facets of our lives:

1) Routine decisions such as what to eat for lunch, or what movie to watch – do we eat what we love (exploit) or try something new (explore)? Do we watch the big budget movie that our friends watched (exploit) or the new independent movie (explore)?

2) Big decisions such as do we continue living in the same city (exploit) or move to a new one (explore)?

3) At our jobs, do we allocate time to new projects (explore), or expand the old ones (exploit)?

4) Choosing between learning through acquiring more depth (exploit) or width (explore)

5) Do we go back to that beach town we love (exploit) or travel to the mountains (explore)?

The quality of our decisions is dependent on foresight, focus and adaptability. The initial phase of decision-making requires the ability to simulate each path and its end results. The latter phase requires us stay on course while adapting to changes in the environment. A person that has both these abilities in abundance and can effectively switch between and reconcile exploration and exploitation will invariably make better quality decisions!

Role of emotion

James March in his seminal work on the subject of exploration and exploitation described the returns from exploitation as “positive, proximate, and predictable”. This makes sense considering how exploitation entails refinement of existing knowledge and imitating best practices. On the other hand, exploration involves experimentation and a higher risk threshold since its returns are “uncertain, distant, and often negative.” Consequently, switching from exploitation to exploration is extremely hard.

Even when we know that an alternative has potential for a much larger bounty, choosing it still feels tough given the emotional cost and discomfort involved. And that’s the funny thing about emotions; they impair (or sometimes augment) our ability to take decisions based solely on practical considerations and probability assessment. Awareness of this fact can be liberating. Imagine the next time you feel anxious before changing course. You know you have prepared well and considered all possible ramifications. Still, you cannot shake away the anxiousness. At this point, it would be wrong to associate the anxiousness with anything other than the uncertainty involved. Equating it to ill-preparedness and deciding not to pursue the alternative would be a travesty!

This is precisely why people wait for deterioration (beyond repair) of the current situation or path before deciding to consider alternatives. At that point, the emotional cost is much lesser, and hence the choice feels easier.

Role of dopamine

Dopamine is often mislabeled as the ‘pleasure chemical’ and it is easy to see why. When we expect a set of actions to yield success (in our pursuit of pleasure), the release of dopamine helps us stay on course, and undertake and repeat these actions (reinforcement learning in humans). However, the pursuit of something cannot be equated to its enjoyment. And since dopamine is not associated with the actual enjoyment of the reward or pleasure (that is the role of serotonin), it’s characterization as a ‘pleasure chemical’ is not accurate. Simply put, dopamine helps us engage in reward or pleasure-seeking behaviors but does not leave us feeling satiated when we get what we sought.

When unsuccessful in our pursuit, dopamine release is adjusted based on a corresponding adjustment of ‘our expectations’ – more dopamine is released when the probability of reward is higher and less, when probability is adjusted downwards.

What is described above is analogous to reinforcement learning algorithms in AI (more on this here). When learning capabilities of early AI systems were driven by actual rewards (and not the probability of reward), these systems were unable to defeat humans in games such as chess and checkers. In these games, the reward (victory) is only achieved or lost towards the end of the game, by which point a player has already made several moves. If the player wins, were all the moves made by the player good and hence, should be reinforced? Similarly, if the player loses, were all the moves made by the player bad and hence, should not be reinforced? This can almost never be the case! One blunder can undo the goodness of all preceding moves, or one magical move can undo the negative consequences of the previous ones.

Several years later, AI systems were tweaked to reinforce actions based on probabilistic chances of success at and after each move. If a particular move increased the probability of winning, it would be reinforced even if the successive moves resulted in a loss. This simple adjustment made ever learning AI systems invincible against humans (constrained by biological energy cycles).

This disassociation from the actual reward and the modulation of probabilistic expectations is key. In the absence of rewards (when one feels stuck), it lends us the ability to either not abandon a high probabilistic path (continue exploiting) or chart newer paths in our search for rewards (explore alternatives).

Consumption of alcohol, nicotine and drugs triggers a release of dopamine (explaining their addictive qualities). In the long run, this interferes with our dopamine receptors, making it harder for us to break away from these pleasure-seeking behaviors. Not just intoxicants, but even seemingly innocuous impulsive behaviors such as watching reels (cheap dopamine) can have similar effects, thus becoming compulsive over time. In today’s information-heavy world where a new AI model is released every other week, attention and agency must be preserved. So, I’d go as far as to say that dopamine is neither the pleasure chemical, nor the reward chemical, heck, not even the reinforcement chemical, but the ‘agency chemical’.

Role of curiosity

Just like omission of an expected reward decreases dopamine activity, receiving an unexpected reward increases dopamine activity.

This, in part, explains several tacit traits in humans. Take gambling for instance, where the odds are ever so slightly in the favor of the house. If the odds were stacked 50-50, each time you lose, your probability of winning would become higher. But the odds are closer to 55-45, such that even if you play long enough, your winnings will rarely offset the losses, let alone outsize them. Gamblers know this but still choose to indulge not because they are motivated by a high probability of winning, but rather a low probability of huge winnings (noticed how a game that costs 50 cents to play has the jackpot as a new car or a million dollars?). Couple that with a release of adrenaline and endorphins, and you’ll find gamblers continuing their bad streak even when fully aware of the ramifications.

But wait, if we recall our discussion around how dopamine works from earlier in this article, one aspect remains unexplained. Shouldn’t the behavior of continuing to gamble only get reinforced when the probability of winning is readjusted upwards? But that is not the case. And the only way to explain this is by attributing these actions to ‘curiosity’, where the uncertain and variable probability action is in itself rewarding and consequently, reinforced by a release of dopamine.

To be curious is to display ingenuity and to seek new knowledge, without external motivation. When we pursue these novel experiences, we are not always motivated by a positive result. The pursuit itself is rewarding, with reinforcement linked to gaining understanding of a new subject or method. So, the next time you want to pick a new hobby, consider how the pursuit of it makes you feel, and not just how good or successful you are at it.

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Mature is not who just grows,
It is who grows for the right reasons -
Deepening relationships, not just pockets

Knowledgeable is not who just knows,
It is who knows through the right approach –
Living and experiencing, not just consuming

Content is not who is just happy,
It is who finds happiness through the right actions –
Stability and progress, not just pleasure-seeking

Wealthy is not who is just rich,
It is who gets rich through the right method –
Hard work and patience, not just shortcuts

Charismatic is not who is just confident,
It is who derives confidence from the right sources –
Authenticity and effort, not just fame

Calm is not who is just quiet,
It is who finds quiet in the right places –
Mastery over thoughts and control over actions, not just suppression

Successful is not who just achieves,
It is who achieves the right way –
Giving credit and earning respect, not just trampling

Expressive is not who just emotes,
It is who emotes in the right manner –
With consideration and cogitation, not just clamour

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So I started to read and write about the ‘why’ of everything – autoimmune disorders, complex emotions and situations, relationships with parents, friends, etc; the exercise helped me understand and vocalize my thoughts and feelings, and even eased the pain! Here are some of the answers* I found.

*Disclaimer – Most of what you will read below is highly contextual and based on my own lived experiences. The idea is to simplify, not prophesize or codify.

1.	On Perception,

Best way for others’ opinions to not matter is to be certain of yours.

2.	On Pain,

Any feeling that you want to get rid of.

3.	On Choosing a Career,

Most people choose their career based on what they think they are good at and what they might get great at.  Approach it differently - be good at multiple things, figure out which one gives you the most satisfaction, double down on it and greatness will find you.

4.	On Networking,

Skill and network go hand in hand, just like talent and luck. Hone your talents and you will get lucky; hone your skills and you will have a network.

5.	On Happiness,

Happiness is having better problems.

6.	On Materiality,

If you derive your confidence from owning the latest iPhone 15, it will vanish when you meet someone with an iPhone 16. Derive your confidence from your skills and relationships, not money or promotions.

7.	On Friendships,

When young, friends are those who share same hobbies. Once you grow up, nurture friendships with those who share the same core values.

8.	On Grief,

Emptiness and darkness. But why? So many thoughts all at once such that the brain becomes unable to process or distinguish them.

Grief is unexpressed love. You don’t get over losing a child or a parent, but you learn to live with it. 

9.	On Respect,

Respect must be earned. It should be expressed by deferring to another's good judgment and lending a patient ear, not bowing down or touching feet.

10.	On Sports,

Easiest way to be present. Engage and immerse yourself in a sport you like and find yourself not worrying about anything else in that time.

11.	On Distress,

People revert to default state or emotion, whether anger, sadness or reclusiveness. Training your mind to maintain composure and uphold standards during distress is key. “When things are not going your way, you do not rise to the occasion but rather go down to your level of training.”

12.	On Crying,

People don’t cry because of a problem; they cry because they feel helpless and unsupported and lonely when they face problems; not every problem needs to be resolved - sometimes all you need is someone who checks in to see if you’re doing okay.

13.	On Pleasure,

Antidote to long term happiness.

14.	On Parents,

Just like any romantic relationship or friendship, relationship with parents requires constant effort. Don’t distance yourself at 18 and expect your parents to understand who you are at 28.

15.	On Arguments,

An argument usually occurs when two people disagree. But dig deeper and you’ll find one person who feels that their reality does not match their expectations, and that the other person contributes to this less-than-ideal reality. 

16.	On Success,

Have a clear definition of success for yourself, both personally and professionally. What success to someone is at 20 is different than what success is at 30 or 40. So every few years, redefine what success for you is. 

17.	On Risk-Taking,

“Don’t be afraid to give up the good to go for the great.” 

Being overtly attached to the ‘idea of you’ early on in life or career tramples down on growth and almost always reduces the odds of non-linear growth. To be alive, you have to constantly kill the idea of yourself – that is true liberation. Relinquish the part of you that is holding you back and keep re-inventing yourself.

18.	On Referrals,

Surfacy referrals (usually done as favors) waste everyone’s time. Ask someone for a referral only if you’ve worked with them and can count on them to endorse your skills.

When you refer someone, remember that you put your own reputation at risk. Know who you’re referring, know their strengths, know their weaknesses and trust their potential.

19.	On Decision-Making,

Delink the quality of a decision from its outcome. Our minds are tricked into believing that the best decisions were the ones that led to the best outcomes and vice-versa. But this is seldom the case and ignores an important aspect of every decision-outcome cycle: LUCK. 

Focus should be on ensuring that the decision-making process is refined, solid and honest. 

20.	On Religion,

To each his own. For me, religion cannot be found in holy text or places of worship. But what you can find there is a sense of peace and calm and equate this feeling to being in the presence of a higher power.

Don’t impose religion on non-religious folks, but instead stress the importance of education and a strong moral compass.

21.	On Commitment,

Those who commit to nothing, get distracted by everything.

22.	On Addictions,

Addictions are never about what you’re running away from but about what you seek from it, whether less pain or more pleasure. Picking up a bad habit when dealing with a problem is coping, but depending on that habit in your daily life is an addiction.

23.	On Travel,

Bigger your world, smaller your problems. But don’t mistake the open road for freedom; travelling should not be about escaping, but experiencing – new foods, new cultures, new landscapes.

24.	On Laziness,

If it does not affect anything or anyone, you’re laidback. But if it does, you’re lazy. Ironically, to be truly laidback, you need to be very active.

25.	On Ideas,

The best one is usually the one in your head – the rawest one. But ideas do need to be fleshed out, so the goal should be to ruin it as less as possible.

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While Paul did play a significant role in making YC what it is today, the contribution of one of the other three co-founders tends to go unnoticed – that of his wife, Jessica Livingston. Known as ‘the social radar’, Jessica’s contributions underpin a very important aspect of early-stage investing – the ability to judge character. While many highlight how crucial the pedigree, network, past experiences, and communication skills of the founding team are, their character is often less discussed.

With this in mind, I set out to see how successful venture capitalists (VCs) assess character. To my absolute surprise, very little has been written on the subject. A quick change of keyword from ‘character’ to ‘personality’ and suddenly you’ll find thousands of articles and takes on personality traits of successful founders. A 2024 Columbia Business School study concluded that conscientiousness and neuroticism were the two personality traits that had the largest impact on startup success, highlighting the importance of planning, resilience, and emotional stability.

Echoing similar thoughts, Marc Andreessen included a somewhat less discussed trait when asked about the psychology of successful innovators – ‘high in disagreeableness’, arguing that those who could be easily dissuaded tend not to be able to stand firmly behind their ideas. “If they’re not ornery, they’ll be talked out of their ideas”, he says. Flexibility, grit, and confidence are some of the other personality traits that find a mention in other material on the subject.

Why is assessing personality traits not enough?

A common thread in most writings on the subject is the archetype portrayal and projection of a successful founder as an out-of-the-box thinker, a person brimming with confidence who sets out on a mission to change the world and does not take no for an answer. A look at the most popular tech leaders of our generation (think Elon Musk, Steve Jobs, Sam Altman) reinforces this image and characterization. But recent times have shown that the search for tech demi-gods with a cult-like following can also yield personalities such as Travis Kalanick, Sam Bankman-Fried, Adam Neumann, Do Kwon, and Elizabeth Holmes.

One could argue that these instances point more to the rudimentary diligence by venture firms than to out-of-control personality types. Even then, when it comes to replacing founders or stewarding sinking ships, venture firms no longer enjoy the absolute power that they used to till a decade ago.1 Reduced legal rights, retention of control by founders, and diversified funding sources mean that unless there are massive breaches and a complete breakdown of trust, venture firms are unlikely to step in or garner the support needed for a coup. The potential for long-drawn-out legal battles is another strong deterrent.

A more reasonable argument would be that VCs, who play a key role in defining the controls and culture of early-stage companies, are disincentivized to put guardrails on hypergrowth. When late-stage investors decide to enter this party, they are essentially buying into the growth story, worrying less about the company’s governance module, and more about the potential for sustained growth. These misaligned industry incentive structures only serve to reinforce the outsized role that founder selection plays in the growth (or fall) of a startup.

In every successful startup founder’s journey, there comes an inflection point. Different periods in business history would point to a different stage when this transfiguration occurs – achieving profitability, ‘unicorn’ status, IPO or even the passing of reigns to non-founders. Simplistically put, a startup becomes a company. And the CXOs who steer the company through this monumental phase must position themselves as ‘leaders’. This is when it starts to get interesting. Search for traits of great leaders and you’ll find words such as empathy, empowerment, humility, cooperative, transparent, and trustworthy – representative of one’s character, and not personality.

So, if a strong character is a sine qua non to become a great leader and ensure the sustained success of a venture, why does the assessment of character traits only become relevant at a later stage? Would an equal emphasis on assessing the character of an early-stage founder not serve to better filter startups for a venture investor, resulting in fewer instances of bust-ups, frauds, and shutdowns?

Intuitively, the answer should be a yes but in practice, this is rarely the case. Perhaps the volume of applications and aggressive deployment targets (most venture funds deploy ~75% of the raised capital within the first 15-18 months of a fund cycle) make assessing character, in addition to personality, just purely impractical. Especially since character needs to be gauged in out-of-process interactions – for instance, how founders conduct themselves before and after a pitch presentation, or how they treat their salesforce (think, Byju’s), and not just how they grow revenue.

How to assess character?

Understanding the importance of character assessment is just the first step, then comes the big question – how does one assess character? And what are some character traits that can and should be assessed while evaluating early-stage founders?

“Personality is what we wear to the gym and character is how hard we work out.” Decoding this commonly used phrase gives us important clues – your personality (read, tenacity) might help you reach the gym, but it is your character (read, work ethic) that will help you achieve your daily fitness goals. Long-term, adjudging that one is more important than the other defeats the point – you need the tenacity every day – to get out of bed and hit the gym. Once there, it is your dedication and hard work that will inch you closer to your goals. One without the other is futile.

When I started my venture career, the lesson that hit me the hardest was that there was so much beyond the numbers that one had to gauge find investable companies. I once heard a partner say, “the founder is the custodian of your money – give it to someone who will use it responsibly.” It’s not just about picking founders who can be successful, it’s also about picking the ones who are good people – these are the folks who wear your badge in their network and among other founders.

A 2017 Harvard Business Review article made some important observations – first, more than it is let on, perceptions about character and trustworthiness outranked judgments on a founder’s competency while evaluating interest in a start-up. While skills can be acquired by learning or hiring, character is more permanent, whether good or bad. What this shows is that a founder’s reaction to being put on the spot (whether they get defensive or are receptive and smiling) is probably more important than their ability to provide correct answers.

Different stages of venture investing call for enforcing different parameters and standards to gauge character. At an early stage, when very little objective performance data is available, subtle cues such as conduct during interviews (is the founder open-minded or defensive when put under the spot), earnestness, resilience, and adaptability can be extremely useful. At a later stage, a founder’s ability to steer and motivate people, and strong corporate governance and ethics (do they say that a partnership or customer is under contract when it is in fact still in negotiation) can evidence a strong character. In India, there has been an emerging trend where companies report ‘Adjusted EBITDA’ or suspiciously conflate GMV and revenue. On the face of it, there is nothing wrong with either, but when you see these same firms manipulate their marketing and fundraising efforts using such numbers, it can be strong evidence of a house of cards.

Regardless of stage, a nuance that always lends useful clues is the relationship between co-founders. Some common follies are lopsided equity allocation, one co-founder dominating and overshadowing the other during investor presentations, and an unclear division of responsibilities.

All-in-all

The criticism against VCs that they care too much about financial returns is unfair (would you invest in a firm that did not generate attractive financial returns?) but their criticism for not doing enough to prevent instances of fraud and misrepresentation is just and warranted.

It was not long ago when India was wrought with stories of financial irregularities in startups such as Trell, Zilingo, BharatPe, GoMechanic and Broker Network and every Paul in our industry was advocating for better corporate governance without reflecting on their own evaluation practices. As we enter an era of responsible investing, it is not enough to say, ‘how could we have known?’ and absolve ourselves. We must recognize what each of us can do better. Until then, let’s appreciate and learn from the Jessicas around us.

Bonus

I asked some of the leading AI models “what is more important while evaluating venture founders, their character or personality?” and the answers are the least bit surprising!

• Claude: “While both character and personality play important roles, I believe character is ultimately more crucial when evaluating venture founders.”

• Meta AI: “For a founder, character matters more.”

• ChatGPT: “If forced to choose between character and personality for a founder, character might be considered more crucial.”

• Gemini: “For a founder, both character and personality are crucial, but character often takes precedence.”

Don’t teach your children to be astute
before teaching them to be generous, 
they will be misers.

Don’t teach your children to be religious 
before teaching them about morality, 
they will be blinded by faith.

Don’t teach your children to be street-smart 
before teaching them to be considerate, 
they will be cheats.

Don’t teach your children to be expressive 
before teaching them to regulate their emotions, 
they will be overbearing.

Don’t teach your children to be goal-oriented
before teaching them about purpose,
they will be directionless.

Don’t teach your children to love
before teaching them self-care,
they will be angry.

Don’t teach your children to obey
before teaching them how to disagree,
they will be insubordinate.

Don’t teach your children
before teaching yourself,
they will not listen.