The world of entrepreneurship and venture capital (VC) has become a crowded space. As investment opportunities the world over dry up, VC firms have gone global in their search for promising, differentiated, and sustainable businesses in which to park their money. And while this influx of easy money and eager investors might have many startup founders rubbing their hands in glee, the long-term effects of these changing dynamics have yet to be fully realised by the wider ecosystem.
In the early days of the startup scene, the ball was always in the investors’ court. He who holds the money has the power. Startup founders would scramble and scrounge to secure a meeting with potential investors, accepting unfavourable terms and unreasonable conditions, all for the promise of that cheque at the end of the rainbow.
But slowly, the balance of power has shifted. With money suddenly plentiful, startup founders are suddenly waked to the power they wield. Now, the onus is on VCs to differentiate themselves if they hope to ever deploy their capital. And this sudden shift in power dynamics has left a lot of companies’ wrong-footed.
And to be fair, who can blame them? After all, who could ever have imagined an entrepreneur saying no to the promise of easy money? Be that as it may, the times have changed, and VC firms need to change with them if they’re to prosper.
Today, the key questions to be considered are these – what would make an entrepreneur want to approach my firm for funding? What makes them think we’re the right partner to raise capital from? What draws them to us?
When considering these questions, it’s vital to remember that the vast majority of entrepreneurs fall under two categories, each of which requires their own specific approach to woo. On the one hand, we have first-time entrepreneurs. Smart, motivated, and passionate, these new entrants to the startup scene can be relied on to do their due diligence. They’ll look at your firm’s website, examine the investments you’ve made, scour the internet for insights into your approach, and try and determine whether you fit into their vision for the future.
Experienced entrepreneurs will also do the above. But what sets them apart are the hard questions they’re likely to pose, and the intangible factors they’ll use to come to a decision. They’ll dig into your background to try and get an idea of your ethics, work style and behaviour, and in so doing try and determine a key set of factors.
How supportive are you of experimentation? Are you likely to stand firm during tough times? How well do you really understand the space? How fast do you move? And how fast does the money move?
The first category is one most VCs are used to dealing with. The promise of PR, a few events, and the guarantee of a large cheque are generally enough to sway them. But if you’re keen on landing a larger prize, and working with an old industry hand, you’ve got to do a little more…
What is that? What does it take?
Extending your arms beyond the Portfolio…
The Power Of Community!
Building a community is a tough task. The first and most important, thing you need when it comes to building a good community is the right ‘intent’. Remember, the most essential aspect of any community’s existence isn’t marketing itself, but bringing forth its inherent value.
The startup sector is small, and word-of-mouth marketing is your best bet when it comes to creating value for a company’s founders. In the end, nothing beats words of praise from your target audience.
What are the key elements of VC communities?
All VC firms have a sector in which they specialise. They drill down into problems worth solving, their prospective solutions, the potential market size, and much more. But once they’ve done their research, this accumulated knowledge needs to be shared with the wider community for everyone’s benefit.
Some firms are becoming more and more ambitious, and have made it a point to compile and publish their thoughts from time to time. That tends to attract entrepreneurs working in the space to reach out to those firms. Some firms even have podcasts, which is yet another fantastic way of sharing insights.
Hosting the occasional event is also crucial. While we live in a digital world and can read and listen to just about anything digitally, meeting people in the flesh is important and goes a long way towards building trust and relationships.
A lot of things simply can’t be explained in an e-mail or a blog. From portfolio specific dinners and all founder mixers to annual days, hiring hackathons, and more, all have a role to play in bringing people together and helping each other.
The same philosophy goes deeper when it comes to having physical spaces. Not only does it bring founders, techies, and product guys together, but through letting different teams interact in person it goes a long way in building a solid, long-lasting community.
One of the most important things every VC has is the portfolio WhatsApp groups. They’ve become a lifeline for tons of advice, help, hiring, connects and more. Some VCs have gone further and created sector-specific communities on Telegram and Slack that allows founders from specific sectors deep-dive and exchange learnings.
How did it start and why should VC be serious about it?
The beginnings of a concerted effort at building a community go back decades, to firms like First Round Capital and Andreessen Horowitz in the US. Today we see a smaller reflection of the same trend here in India.
Firms like Sequoia Capital’s India division have a ‘Strategic Development’ team, while Accel calls it ‘venture development’, Times Internet/ TVentures ‘Business Services’, and Blume the fancifully named ‘Constellation’. And although the job titles may be different, ranging from Platform Manager and Director of Community to Strategic Development, the end goal always remains the same, i.e.
To create opportunities for collaboration, within and without the portfolio, and allow businesses to scale faster through the provision of introductions, guidance, knowledge, hiring, and access to the inaccessible.
What could these community efforts bring to the table for you? (these could also act as metrics to measure your efforts)
- First and foremost for any VC is attracting top entrepreneurs to reach out to them and yes this happens!
- Fun part, you don’t end up attracting top entrepreneurs only but top talent that wants to work with you/portfolio
- Finding co-investors in new deals/ for existing portfolio becomes easier
- You get to hear different opinions, learn from others’ experiences, get fresh perspectives & best practices
- Connect with potential clients for portfolio
- Access to specific knowledge that people feel comfortable sharing only in closed-door communities as there’s a sense of belongingness
Anytime x Anywhere x Anything for the entrepreneurs is what I truly call a community effort!
Community is a serious service that only comes from the heart…