The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

February - 2005 - issue > Entrepreneurship

Entrepreneurs & VCs: Evolving a partnership

Raja Kumar
Tuesday, February 1, 2005
Raja Kumar
Having experienced the VC game during testing times, I constantly wondered the criterion that encompasses becoming a VC or an entrepreneur. Regressing, VCs in India have no lengthy history. It effectively began during 2002’s technology period, and since then every day is new for the VCs. Earlier Indian VC communities had limited themselves to defensive investments. Breaking categories, early VCs primarily invested similar to conventional financial institutions. They effectively structured the product equity to have several characteristics of debt instruments. Also, their portfolio size previously ranged from 80-150 companies. Unsurprisingly, they couldn’t add much value to such a diverse portfolio. In their defense, the capital markets were nowhere as dynamic current ones, nor was the entrepreneurial climate very conducive.

A common refrain follows- do VCs really add value to the enterprise? Many VCs obviously claim they add enormous value, and entrepreneurs mock them. Many entrepreneurs have dealt with VCs and have had bad experiences are. But that is where the important factor of mutual understanding comes to play. For this, each Indian VC and entrepreneur should evaluate and learn from their mistakes.

The atmosphere was also vitiated by external forces like the tech meltdown, under-developed technology understanding of VC community and an immature entrepreneurial attitude. Nevertheless, there are a few bilateral understanding and attitude shifts that both the communities should partake, as I will elaborate.

Entrepreneurs: Not owners but managers
The recent developments in the Indian VC industry have helped the ambiguity. Although instances of entrepreneurs’ misconducts abound, I confess that often times it’s the conduct of the entrepreneur and VC and lack of mutual understanding of each other’s business that hinders venture growth. It is essential for entrepreneurs to also think as managers and not just owners.

First, Indian entrepreneurs are often not receptive to advice. When VCs advise them about certain issues, entrepreneurs dismiss them without considering the advisor is a man who has invested in the company. One good example is the numerous underdeveloped product companies in India. Despite a VCs’ advice on how a product company should be built entrepreneurs disdainfully designed their own products with a blind hope of the markets accepting and adjusting to these products. Entrepreneurs thought that market would adapt to their products, which never happened.

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