VCs need to rethink to invest in startups
By siliconindia   |   Tuesday, 07 July 2009, 01:35 IST   |    3 Comments
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VCs need to rethink to invest in startups
Bangalore: Venture capitalists (VCs) are putting on a new look to invest in the early stage companies. They should fund the companies early and then sell to a secondary firm after a few years. The venture capitalists or investors are banking on this approach because currently many investors buy stakes early and then add to those investments in later years. For instance, an early-stage company may invest $3 million to $5 million. Then in the entire span of the startup, the investors or VCs will put in another $3 million to $5 million to maintain their share of ownership along with the rights that come in. And, this model is considered sacrosanct for the past 30 years. Companies like YouTube, purchased by Google for $1.65 billion in about less than two years after it was funded. Not only the longer waits hamper VCs to calculate the return on investments (ROI), but also the limited partners such as university endowments investing in the venture firms. It is also discouraging for individual venture capitalists. Some venture capitalists are leaving the profession and some VC firms are shrinking. So then the secondary VC firms come into picture in buying stakes in private companies from the VC firms. These secondary VC firms account for three percent of the VC market. There is an increased influence of secondary firms in the market as they do mire deals. San Francisco-based Saints now has more A-list portfolio companies than most traditional VC firms.

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