Unlikely keys to success for VC-backed companies

“It’s the chemistry,” explains Balaji Srinivas of Aureos Capital, trying to pin down the key to investment decision making. VCs repeatedly emphasize the importance of their relationships with the entrepreneurs they back. Indeed, one could almost imagine them using a personal ad to source deals. Especially since a leading venture firm, Canaan Partners, has joined with Bharat Matrimony.

It’s generally understood that venture capitalists invest money in young or expanding companies. But how many know about the large role the VCs promise to play in building the companies? Or the importance of their contributions?

So, when one looks at the more-than-money role of the VC, it’s perhaps not a surprise that ‘chemistry’ between the VC and the entrepreneur is an unlikely key to success.

The vows VC’s make
Talk to the new breed of Venture Capitalists, and you’ll discover that they promise far more involvement than your regular financier would provide.

Says Alok Mittal of Canaan Partners, “We tend to be active investors, we involve ourselves in Board-level issues including strategy, recruitment and fund raising.”

“You have these Ministers in the King’s Cabinet,” Balaji Srinivas of Aureos Capital explained, “My style is more about sitting in the back-ground and enabling people to achieve their dreams.”

The experience a Venture Capitalist brings to the table, combined with his understanding of the industry, his network and solid funding can act as rocket fuel for a young organization.

Asked if she would ever give entrepreneurs the money, walk away and tell them to come back with the cash, Bharati Jacob of Seedfund laughed, “There isn’t a VC who will say that to you! I will agree in print to that. Everybody claims to be a value added investor – more than capital, more than money.”

Promises kept?
From the VC perspective things seem to be working, as Avnish Bajaj outlines Matrix’ involvement in one of their portfolio companies:

“In Four Interactive we invested in two guys and the business plan. And we engaged right from product strategy, hiring and building the team, when do you raise more money and all of that stuff.”

Moving to the other side of the equation, several recently-funded entrepreneurs confirm that their VCs keep fairly close tabs on their companies, either through informal chats, emails or regular meetings. Some, like Phani, co-founder of RedBus, an integrated bus ticketing website, interact with their VCs on a daily basis. RedBus recently received an investment from Bharati’s Seedfund.

All in all, these entrepreneurs agree that VCs live up to their promise of ‘more than money.’ “They see the market differently, and lot of the business issues we discuss are fundamentally about building a company,” claims Sanjay Swamy, CEO, mChek, a company with an innovative mobile payment solution. “We appreciate their perspective.”

Experience Matters
This kind of engagement by VCs marks an evolution in the practice of venture investing in India. Over the past 18 months, a number of top tier overseas firms have entered India, including Matrix Partners, Canaan Partners and Sequoia Capital, bringing talent and a lot more money to the table. These new players join a group of home-grown VCs who have built significant experience over the past 7 – 10 years.

Bharati, formerly at Infinity, has some 10-12 deals under her belt, having evaluated perhaps thousands of companies. Balaji, who was at Carlyle Group before launching Aureos’s India presence, has done 25 – 30 deals in the past 10 years.

Adding a different perspective to the pool, recently more entrepreneurs have turned VC. They bring credibility gained through hands-on experience. Both Alok Mittal of Canaan, co-founder of Jobs Ahead, and Avnish Bajaj of Matrix, founder of Baazee.com, fall into this category.

Kanwaljit Singh emphasized Helion partners’ strong entrepreneurial operating backgrounds. He is very clear about preferring to invest in the spaces where he has experience. “We have the contacts and understanding of those industries,” he says.

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rubik's cube
written by rubik's cube, June 18, 2010

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VCs - smart money vs dumb money
written by Bindu Rao, December 09, 2008

It appears that the VCs in this article plan on being involved with the comapnies where they invest. Such involvement can be of marginal value if it does not add to:
a) new customers b) new partnerships. I have worked in startups where the VC failed to make a difference in terms of new customers and new partnerships. Their investments were not more than help in paying the bills, and did not make a big difference to the growth of the company.

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