By Rohit Chokhani, Principal Founder, White Unicorn Ventures
Headquartered in Mumbai, White Unicorn Ventures specializes in seed funding and early stage funding for startups and value addition & advisory services for categories ranging from IoT, Real Estate, Manufacturing, Restaurants, ITeS, Services, Fintech, SaaS, Mass Rapid Transport Solutions, Water Management, Governmental Services, Education.
1. You Need an Introduction to Approach a VC: Although many VCs do not appreciate cold calling or cold emails, but all of them are fairly straightforward to approach to, you need to remember two key things, choose the investors that you are reaching out to, you shouldn’t send mass emails to a hundred of them, it just shows that you have not researched about whom you want the funding from, and are just trying your luck. The second important pointer is remember to keep your deck crisp and short, as if a total stranger needs to understand your entire idea and business within two minutes. Decks that are long, and all over the place, are likely to go into the pile.
2. Bigger the Fund Size, Better the VC: One of the most common myths is that the bigger funds are better funds, what entrepreneurs need to keep in mind is a bigger fund could participate in future rounds and in some cases also propel your business image due to their own previous performance records, but smaller funds carve themselves sector niches, which could be essential for some business’ which require a more hands down approach. Smaller firms could be more flexible in terms of deals, while bigger VCs are more stringent on deal terms.
3. VCs Only Add Cash; No Value: A lot of budding entrepreneurs approach multiple Venture capital firms, private equity firms and angels, with the only one aim in mind of closing a certain amount in the round of capital that they are raising. Professional investors have sufficient knowledge with operating problems. Investors will rarely micromanage portfolio companies; they will often help the management to guide with the ‘out of the box ideas’ and an outsiders perspective. Entrepreneurs should also keep in mind that most VCs have seen companies at various stages of growth so they have a fair bit of an idea of trouble shooting problems, which might the company management might not foresee. Investors have large networks and relationships, which can be leveraged by the portfolio companies to form alliances, partnerships and grow their businesses.
4. They Want to Copy Your Idea: A common misconception is that VCs want to steal your idea and hire a team and get it done. Execution is the main criteria why any VC will want to see within operations of your business. Ideas are dime a dozen but a VC will rarely think of copying your idea or even giving that idea to some other business which could be similar to your idea. VC’s know that it’s the team, idea and execution all three that matter.
5. VCs are Only Looking for the Next Facebook or Google: Most VC’s are looking for a good team, a great execution strategy and a passion to actually solve a problem, and the compassion behind the idea. No investor invests in a company considering it to be the next Google or Facebook. They all want it to be the next original business which does it better than the existing ones.
6. VCs are Only Interested in Exit Strategies: Another Myth is that VC’s are only interested in exits. When a VC invests in your business they do not expect an exit within a minimum of three to seven years of the investment. A sometimes fund comes to a lifecycle end, and they need to liquidate their positions, but this does not mean they will force an exit. There are strategies such as bank debt, investment from other funds or even raising capital from strategic companies. Their end goal is always the same as yours, which is a growing business, means growing capital.
7. If You Can’t Raise Venture Capital Money, Doesn’t Mean You Have Failed: A lot of entrepreneurs think that if you can’t raise venture capital means your idea is not worth it. There are several factors, such as the business just being a part time venture, or it being too nascent with no market-proving thesis, and in some cases also the entrepreneur does not understand the business economics. One should learn, and explore within ones business, and iron out all the flaws, and return to the VC after proving the business.
8. VCs are Just Investors: VCs are just not investors, in an earlier myth it has already been mentioned how they add value to your business, but consider choosing a VC as important as choosing your spouse, as you will need to closely work with the VC for a number of years to scale up your business. VCs will want some say in the management but will rarely want to take control over your business. Accepting money from a VC, which is not as passionate as you about your business, could lead to friction.
9. VCs Only Want to Make Exorbitant Returns: VCs does want to earn money, and make good returns on their investments, but they never invest in any business, thinking about making a 10x return on their investment. Most VCs have their investment mantras chalked out. It also largely depends on the operating partners and members of the VC, as it’s their own passion for solving problems coupled with a sense of making sound investments, which makes them generate returns.
10. VCs/PE/Angel Funds All are the Same Thing: Private Equities usually back established businesses, so one will find Private Equity players participating in later rounds after Series A and so on. Contrasting to this strategy venture capital provides funding to early stage companies for growth; mostly venture capital is also more skewed towards technology-enabled businesses. Whereas, angel funds or micro VC funds provide capital at absolute seed stage or the ideation stage in most of the cases. The private equity industry is the most matured and has the best historical returns out of the three.