Venture Capital exists because entrepreneurship does. At least, primarily. A report by consulting firm HexGn states that Indian startups got nearly $10.14 Billion in funding last year. All thanks to the rising culture of starting up and entrepreneurship.
However, how do venture capitals help entrepreneurs? Of course, capital is key but with the rising trend in entrepreneurship, there is also a rising trend in investors. Founders have more options and money isn’t the only important variable. There are enough investors in the industry, but what is that one USP that makes them stand out from the others?
Akul Jindal, a Kalaari Capital Fellow says, “Venture capital funds try to do the best within their abilities to help their portfolio companies. A fund’s best set of resources lies beyond the capital it offers. Some founders prefer partnering with a VC to seek access to a high-quality network to help them scale. Others might seek strategic advisory/subject matter expertise from the partner joining the board. All VCs offer a similar breadth but it is the depth or the quality that differentiates them.”
However, the relationship between an entrepreneur and the VC dates way back; right from the VCs sourcing the right entrepreneurs and entrepreneurs doing the same. Since VCs invest in the startup, they try to do their best in helping the company – getting the right referrals, institutional clients, marketing, and hiring. However, the list doesn’t end here. There is more to this than just for monetary purposes. Of course, the return on investment is a great incentive but it’s the mission and the drive that make a difference too.
Value Proposition of a VC Firm
When the employees at the VC Firm are driven and in sync with what their portfolio company stands for, that is their biggest motivation to work closely and to remove roadblocks for the company. Moreover, the VCs offer great advisory that the startups can incorporate into their work. The partners at a VC have usually gone through the grind of being an entrepreneur with several years of professional experience. The scar tissue helps the portfolio companies because they can benefit from the VC’s experience.
Whether it is legal advisory or helping the portfolio company in the go-to market strategy, VC firms can greatly help. They could even be helping in recruiting, marketing, and operations.
At other instances, a partner in the firm can bring immense networking value. An experienced VC, who has been in the game for long will know most of the people in the industry. It is relatively easier for them to reach out and thus, get better referrals.
Lastly, one of the biggest variables that a founder looks at is how to grow their company. The VC should add value proposition in terms of expansion and growth. They need to help the portfolio company, which when done well, can accelerate the growth.
It is usually entrepreneurs who go on to run Venture Capital firms. Since they have been in those shoes, it gives them a better domain experience. Starting out in a VC is almost always better than starting afresh. They can solve functional problems, right from the grassroots levels. In addition, they will be empathetic towards the cause of a founder, having gone through it themselves.
However, there are a few downsides to being an ex-entrepreneur in a VC firm too. There may be little to no knowledge of industries besides one’s own field. It may also be difficult to make independent decisions and detachment from the project may become challenging. Even though they make the jack of all trades, they may not be a great analyst, as is required in the job. But, a few ex-entrepreneurs have founded and invested in VCs in the country – Vani Kola from Kalaari Capital, Avnish Bajaj from Matrix Partners, and Binny Bansal from Flipkart.
The relationship between a VC and an entrepreneur is more about trust than the money. It is the drive and passion for a cause that unites them and makes them great partners in a motive to disrupt the conventional industry.
Categories: Venture Capital