VC Firms Bring More Than Just Money To The Table

vc firms bring more than just money

As a first-time entrepreneur, you may ask yourself, “What help could my startup possibly require from investors other than money?” But, if funding is the only deciding factor for a startup’s success, then companies like PepperTap, Stayzilla, Zostel and TinyOwl, who had raised large amounts of funding should not have shut down over the past few years.

India witnessed around $4 billion in investments spread across 650 companies in 2016 but still the mortality rate was around 18-22%, as per a Nasscom report.

Entrepreneurs need to understand that raising funds is only a means to an end to help accelerate their growth metrics and move things forward. However, in order to succeed, founders need support, mentoring and proper guidance to help them to achieve their vision.

This is where the experience and expertise of quality investors comes in, who can help founders navigate roadblocks and avoid disasters.

Financial investors such as venture capital and private equity funds have a larger role to play in the success of a startup, other than just putting money on the table. This support can be even more critical, the earlier the startup is in the life cycle of its journey, when there are many moving parts to be controlled.

The relationship between a financial investor and the entrepreneur cannot merely be transactional in nature, it is a long-term partnership and it has to be treated that way.

So for example, if fundraising is going to be crucial for the startup to keep its lights on, then the investor can guide the founder on critical metrics that need to be achieved to close the next round of funding and the entrepreneur needs to focus on then achieving those KPI metrics.

To give you an example, Y Combinator, which is regarded as one of the best accelerator programs in the global startup ecosystem has a whole range of support offerings for their entrepreneurs.

Apart from their investments, companies get access to their expert alumni network for advice, hiring talents, first round of customer introductions and even help with raising follow-on funds.

Given the offering and final output of startups graduating from YC, it is evident that investors need to help startups with their industry experience, operational insights and network to grow their startups.

Fans of the show Shark Tank would have observed that each of the Sharks not only offer funding, but also state how they can help the company to grow with their existing network of connections and how they can build the company together.

Very often, the fact that founders select their preferred Shark on factors other than valuation, shows the importance of these other factors.

As Silicon Valley veteran Steve Blank puts it, any experienced VC would be on the board of approximately 10 companies at any given time and would’ve gone through at least 4 or 5 such cycles in their life.

So, an investor that has experienced so many startup lifecycles can add immense value to a startup via founder-investor interactions. Further, some of the investors would have been entrepreneurs themselves and truly understand the challenges a founder might have to go through in their startup journey.

Apart from the boardroom experience, when investors turn into long-term partners will also become salespeople for your product/service.

Further, many VC firms extend support to their portfolio with their in-house accounting, legal, marketing, PR, HR teams and ensure that the right foundations are built to scale a company, especially when the startup themselves have small, lean teams with limited budgets.

India has also witnessed many examples of investors helping entrepreneurs. An interesting example of investors bringing added advantage to the table is the case of India’s leading early stage VC firm, AdvantEdge, led by serial entrepreneur turned investor Kunal Khattar and the significant value they have added to Rapido one of their portfolio companies. Rapido is India’s largest platform for two-wheeler ride sharing. AdvantEdge is the lead investor in Rapido and Kunal sits on the Board.

Besides capital infusion, the team at Rapido leveraged AdvantEdge’s deep domain knowledge in the transportation and mobility space. AdvantEdge helped Rapido in bringing various key strategic investors onto the cap table, along with relevant mentors from the ecosystem allowing them to better understand market dynamics.

AdvantEdge also assisted in connecting Rapido founders with their Limited Partner’s network allowing them to gain deep customer insights into two-wheeler bike owner behavior and mindsets.

Once entrepreneurs, investors, government agencies and other players in the startup ecosystem start actively enabling each other, then India will be well placed to start witnessing an increase in its startup success rates and meaningful transactions.

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