Vijay Anand | The Startup Guy.

VC Firms, a wake up call.

Posted on: December 21, 2007

I am observing a trend from what i am experiencing first hand and of what I am hearing from the startups I interact with. Well, this is how a typical VC firm is setup.

They hire a well-to-do investment banker out of a large and well established investment group and ask him to put together the structure of the firm and manage the fund. The situation goes on for sometime, when one of the senior partners is flown down from the US to get on a bit more agressive stance and tap into the market. Most of the time, this senior partner is a seasoned entrepreneur and he knows what he is doing, except that there is a glitch – there seem to be two people at the helm.

I wish I could write this fact on the skies and ask all of humanity to read it: An entrepreneur and an investment banker could never get along.

Quite true to that statement, these two at the helm never seem to agree or get along. The sad fact is when its obvious and its the startups that they deal with which are losing precious time and getting pushed and shoved here and there.

I just experienced a situation a couple of minutes ago where the senior partner from the US is seriously looking at getting involved with startups on the base level and the “I.B” Partner shoots me a mail asking how his firm is involved with me. I am puzzled wondering if this is the best way to deal with internal traction – as if I needed to know that there was an unhealthy relationship brewing within their walls.

Unfortunately, this seems to be the scenario with quite a few firms. I could name them, but it would be pointless. And these are also the firms which aren’t so very active in the ecosystem – I wonder why. No prize for guessing that one!

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7 Responses to "VC Firms, a wake up call."

“An entrepreneur and an investment banker could never get along.” well said, this statement carries lot of value addition, if anyone else is doing the same…..pls take a note!

lets starts with Basic, when a senior partner is hired from US to help there Indian counterpart, he got to have a futuristic view of his entry point into a Developing Nation and unlike they work in valley, Indian Entrepreneur needs to be nurtured, thought and guided well, which counts for Mentorship and which many aren’t prepared to follow.

I have had this bitter experience with a top investment firm few months back, we met the person of the firm at his office and started to explain him the plan, after a patient hearing for over 45 minutes he comes up saying “INDIA doesn’t have any growth in Internet Industry and it doesn’t suit Indians well, so no reason to build Internet apps.”, I was bit amused at his statement and was rather fuming,Now after few months I see him lecturing about Internet growth and Indian Internet standards at many happening events & summits, well this happens only here and we are bound to accept this.

who’s active in the ecosystem?

Rajiv, 🙂

Well in all due honesty though, there are about five or six firms which are quite actively engaged, and do try their level best from their side to be on the entrepreneur’s level of interaction and with the mindset to really make it happen. I think there is due credit for them.

I don’t think investment bankers should be involved with startups. They don’t understand the new products which are being developed

Munim,

We all seem to be on agreement on that part 🙂

Vijay,

Are you sure the entrepreneur VC is not using the I-Banker’s shoulder to fire his gun…?

I regularly deal with VC firms and what you say flies in the face of the logic of their very existence. IMO, there’s something fundamentally wrong with the firm you’ve dealt with if a venture selected by the VC is shot down by the I-banker. Investors in such firms (LPs) will hold the portfolio manager accountable for their RoI at the end of the cycle. No way, the I-banker could screw it up.

Normally in VC firms there are clear division of responsibilities between portfolio managers and investment managers. While the portfolio manager is empowered to screen and select ventures worthy of funding, the investment manager can’t veto him unless there is some glaring flaw in the protocol that he followed. The investment manager is concerned only with structuring the investment (choice of funding instrument, terms of debt or equity, liquidity preference, anti-dilution etc.)

Krish,

I hope it is understood that both the gentlemen are from the same firm. One has the mentality of an entrepreneur, and the other the mentality of an I-Banker.

I don’t think they broke any protocols. The issue seems to be that there is a lot of friction – atleast in two or three firms that I can think off the top of my head, where the partner from the valley and the lead manager hired from India don’t see eye to eye, and that affects everyone they get in touch with.

Ego, and control issues I guess. I doubt that there are rules to govern that one. I am not pointing fingers at anyone, just a warning shot that firms are gonna need to get cooperative and effective if they wanna be around for the long run.

And oh, that firm (which got me to write this post) has yet to make any investment on any startup yet. I doubt they ever will.

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