Loading ...There has been multiple studies suggesting that more and more businesses are relying on bootstrapping / angel money to start their business and are not too keen on the venture capital, at least in the initial days. A part of this is because of the decreased cost of starting a company and lower development costs because of the open source tools AND the other part is because of the keenness of entrepreneurs to have more control of the company - for as long as possible.
The question to be asked here is: Why are entrepreneurs worried about VC investments, when the VCs truly bring in much more value than just the money?
Guy Kawasaki has a great post on The Venture Capital Aptitude Test (VCAT) that created quite a buzz in the blogosphere. He writes his thoughts on the right time for a person to become a venture capitalist and points to a test that can help you figure out your VCAT. He stresses on the fact that one should become a venture capitalist after they have had the shiitake kicked out of them.
I agree. It is very hard for an entrepreneur to trust a VC who doesn’t have the necessary background in the activities that the entrepreneur is carrying out and the experience in having run (or be a part of) a startup. Somebody who has never answered the board from a management team’s position almost always never understand how is it to run a company. So, while it is important to have people in your board who are independent Directors and aren’t involved in the day-to-day running of company, it is also important for the management team to be able to respect them. The respect comes automatically when the entrepreneur knows that the board member can (and does) empathize with the issues / challenges faced in a company and yet can give open and critical feedback.
Generally speaking - I am quite neutral about my impressions about Venture Capitalists. In fact, it’s been much more on the positive side than the negative side, based on my interaction. But it’s baffling to know that most companies (funded and not-funded) I have talked to have not-so-good things to say about the VCs. On the other hand - everybody have good things to say about angel investors.
Am I just plain lucky (and I have interacted with VCs who would clearly fail the VCAT)? Or is it that Guy Kawasaki has over-generalized his test? India has its own unique problems. On one hand - we need serial entrepreneurs who have been ’successful’ in the past and not just the 1st generation entrepreneurs AND on the other hand, we need Venture Capitalists who have been entrepreneurs before.
Unfortunately, I can not think of more than just a few names when it comes to people who have successfully build even a USD 50 million plus business in the last many years. There are people who have successfully exited on a valuation of less than USD 10 million dollar business but I am not sure if I can term them as being ‘really successful’ or not. But this is a never-ending process where more entrepreneurs will exit out of their venture in case of acquisition - what will be interesting is how many of them chooses to start again and how many becomes VCs? Of course - there are other options as well, based upon the interest and the exit valuation.
Hi !! Everyone
Really interesting piece of inforation in this blog !!
We are first generation entrepreneurs and started HINODE Technologies in ther year 2002 providing engineering services. We have been profitable through out but would like to see some sharp jump in both revenue/profits. We are pretty clear about the market and opprtuities but lack resources / access to big customers. As such we are ot looking for funding but “contacts” . We are wondering how VC can help us? any insight will be appreciated.
with regards
Ambuj
curious_minds: pls feel free to meet alok if you want to find more about him
as per canaan, all our partner bios are on our website, as also all companies we have ever invested in (successes and failures), and they are categorized so you can see if there is relevance. Of course, at a stage that we get serious about investing in a company, we ourselves pick out what we think is relevant and talk about it.
Hi VC Enthusiasts:
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The course details can be found at www.isb.edu – under forth coming executive education programs.
incase you have some queries - feel free to contact me at 09394568008
Dear Deepak Shenoy:
Very well said. You have captured the mindset.
We need more examples. For that we need more VC backed ventures getting successful. Of course, its a chicken-and-egg problem.
Thanks a lot Deepak.
curious_mind: Google is your friend. Search people on names - for instance if you search for my name you will find a lot of details about me, stuff that I perhaps will not even be able to assimilate on my blog or my home page or wherever.
Secondly find people who’ve worked with your VC earlier. Call them up or send them a mail asking how it was.
Thirdly, ask the VC questions. What’s your best investment? And worst? ANd then go ask people in those companies how it was.
As for Alok: A simple search on the internet reveals:
- He’s IITD + UC Berkeley graduate.
- Worked with Hughes Software
- Started “Zipahead” (later changed to Jobsahead) with Puneet Dalmia in June 99.
- Got VC funding in 2000 or thereabouts, three rounds total ($X, 14 cr. 11 cr.)
- Sold Jobsahead to Monster.com in Jun 04 for 40 cr.
- Currently works with Canaan Partners
And so on. You can find out where he’s investing, how he views cash break-even, the other places he’s a member of (BoA India) etc.
It’s all a matter of smart searching. In fact, if you’re not able to do that, chances are that funding is going to be a huge problem.
Coincidentally, from an article I read earlier this morning,
Venture Capitalists switch to startups - MercuryNews
Conrad, who has raised $4 million for Sphere and whose investors include Kevin Compton and Doug MacKenzie of Kleiner Perkins, said he’ll be more sensitive.
“I think they’re will be a place and time when I’ll be a VC again, and I’ll remember the clueless things I did before,” including asking a struggling entrepreneur to meet him at his expensive hotel during a cross-country trip, rather than drive to the startup.
“You don’t have to be in the trenches with them, but a lot of entrepreneurs resent VCs because they think they’re disconnected from reality. Now, I see why.”