Entrepreneurs And VCs: Evolving A Partnership
Raja Kumar
CEO & MD,
UTI Venture Funds
UTI Venture Funds
One thing that concerns me the most as a VC is: the spirit of entrepreneurs. If an entrepreneur approaches a challenge head on, he is a true treasure for VCs. However, most of starting entrepreneurs in India are ex-employees of big MNCs and their risk taking ability is sometimes juxtaposed with the experience of comforts of MNCs. Meaning entrepreneurs from such a background are conditioned with overlooking small jobs like business charter preparation, and maintenance of company records because such things automatically fall into place in an MNC with minimal contribution from them. But when starting your own company all such issues arise and smaller issues become large concerns. Finding such pressures abandoned, the honeymoon of VCs and entrepreneurs ends abruptly.
Do VCs really contribute?
All VCs are not mere braggarts, although some exaggerate claims while chasing hot deals and end up with no contribution and as a whole they do value add for any company seeking brighter prospects. It’s universally accepted that VCs have bandwidth and domain strengths because they do help in taking the end company to the market successfully. In that way, few VCs live up to their predecessor’s stature. VCs also aid companies in restructuring, providing debt and HR support, as well as taking a company public. Also, some of value addition from VCs cannot be denied however poor the VC may be. First, venture backed companies receive instant recognition and also gain immediate credibility in the marketplace. Your banker and customers will regard you with more comfort. Similarly, your ability to attract, hire and recruit talent will become superior because the VC happens to be your business partner.
VCs are the brand ambassadors to the world. Inside the company they may not be satisfied with the company traction but outside they have no choice but to speak well of the company. They praise their portfolio company, and offer networks as well.
One thing that any entrepreneur ought to remember is the fact that VCs could be more experienced than they are themselves in their business. The statement ‘VCs have failed more times than entrepreneurs”’ is not exaggerated but an account of industry experience. The aggressive VCs in the year 2000-01 failed in every venture they invested, so they wisely commenced another fund. This gives VCs shrewd knowledge in pinpointing weaknesses in a company. They always observe cash position and suggest measures for checking the burn because once the cash position falters, the professionals will rightfully abandon. VCs;’ advice is worth considering for one reason: - a VC firm is typically manned by experienced and skilled people with diverse backgrounds.
My advice to entrepreneurs is to never take the venture capital if you cannot foresee VCs as true business partners and never acquire new venture capital if you are not receptive and accommodating to new ideas. An ideal entrepreneur has a goal and urges to succeed while being determined to create personal wealth. He dreams large and uses venture capital as just a means to achieve his goal. In that process, VCs are incidental beneficiaries, never the primary and sole beneficiaries!
In summary, perfect understanding and appreciation of each other's roles is essential for a successful relationship to develop between an entrepreneur and a VC. This has assumed greater importance as venture capital and private equity is poised to launch in India.
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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
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.
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!
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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