Entrepreneurs And VCs: Evolving A Partnership

Raja Kumar
Raja Kumar
CEO & MD, 
UTI Venture Funds
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.

Individually, each entrepreneur is often a powerhouse of talent with an amazing sense of knowledge, and experience with high-level positions in MNCs but in a group most of them falter. They often fail to play the role that is assigned to them and their typical India mindset causes each of them behave like the owners of the company. Vainly, their private advisors disillusion them with poor suggestions, like aiming for higher percentage of control. VCs demand MIS and the entrepreneurs have nothing to report because there are hardly any customers or pipelines. More importantly, when things are difficult, VCs surely ask for reducing the burn and taking a salary cut, something entrepreneurs are averse to. As a result, they blame those far from their affections: VCs!

Typically, tech entrepreneurs are domain experts in a particular niche space but are not flexible enough to adapt and learn other aspects of the same business. Entrepreneurs hardly monitor cash position, because VCs do that for them and obviously force them to act accordingly. The most important part of business is converting pipelines into a customer base so when entrepreneurs cannot close neighborly transaction due to the lack of business accruement it’s intolerable for VCs. It is not that these entrepreneurs have not made attempts at customer traction to develop the pipeline, but the closing of the deal is different where entrepreneurs stumble.

Something else the entrepreneur needs to appreciate is that his VC backed venture needs to continuously scale up within a given time frame. After all, VCs are financial investors who need to realize returns in a particular time period because they are measured in IRR terms by their investors.

Also, it is very important for the entrepreneur to be transparent about important issues like the financial health, pipeline, and relationships with key personnel since the VC will become aware by virtue of being involved in the market. The danger is that such lack of transparency will create doubts in the minds of VCs about other issues as well.
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Reader's comments(5)
1: Sameer,
trusting a VC is hard.In silicon Valley as well secrets are frequently traded. Read the book The Google story by David Vise. Throws somelight on VC problems.
Sanajy Doshi
Posted by:Sanjay Doshi - 29 Jun, 2009
2: Sir, I have completed my B.E in computer science few days ago and have a very great idea of a business and I'm very optimistic in terms of the success of that business very rapidly.
But the problem is the capital required for that and I want a VC to fund this project and in this regard, i have some questions following below:
1. How can i trust a VC that after seeing my business plan, he won't invest in that project on his own and reject my proposal because for him, I have nothing but a great idea and great enthusiam to be successful in that.

2. I have seen many articles saying about the contents of the good business plan but no one has the detailed description of the contents of the business plan. So, how can I get the detailed list of the contents of a business plan.

3. How to find which VC would be my true business partner and on which parameters I should choose them. Can you provide me some references of VCs interested in investing initially 1-2 crore in a business in IT field.

4. Since I am not from a business family and havn't done MBA, Would it be better to enter in business field right now or to first do MBA and then get some experience in any company and then start my own company. I don't want to wait for 5-6 years because I have threat in my mind that if someone would start that kind of business before me, then I will loose the competitive edge i would get otherwise.
Posted by:Sameer Goel - 04 Jun, 2009
3: Dear Mr.Raja Kumar
Very informative and provided great clarity on VC-Entrepreneur relationship. But the problems are very more deep-rooted, we Indians right from our birth are told what we are capable of doing and what we should do and so on and so forth.We are entrepreneurs at heart but fail to translate that on ground. I feel we need to have a more evolved ecosystem to make more success stories!
Posted by:Sharad Tekalkote - 04 Jun, 2009
4: Thanks Mr Raja Kumar for your column is very informative & helping.
Posted by:Ravi Janardhan - 28 May, 2009
5: Thanks raja for giving most honest of opinion on entrepreneurs experience and relationships in Indian context. We have always heard that oh! India does not have enough home grown high tech companies because end user market is not here, funding is not here and many such reason, but may be one of most important factor may be dearth of hard core entrepreneurs in India. We get to interact with lots of Indian entrepreneurs in both US and India. One difference which really stands out is concern of India based entrepreneur that oh! how much VC will take, how much control he will have. You almost never ever hear that concern from U.S. based Indian entrepreneurs. Its something for Indian entreprenuers to think about ??
Posted by:Harvi Sachar - 14 Nov, 2008

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