The Perfect Relationship Between a VC and an Entrepreneur

 

“Being a successful VC boils down to the ability to make good investment, which comes from good judgment. Good judgment comes from experience and this comes after making bad investments.”

VCs come from different backgrounds, some have operating experience, while others have investment banking and / or a MBA. Just like there is no secret recipe for success, there is no set template on what makes a good VC. However, here are a few things to look for…

1. Vision

VCs like to invest in businesses that are globally scalable. An Entrepreneur might have a great idea but a VC will give him/er the vision to take the product to market, which requires a VC to be a dynamic thinker with business acumen and great conviction.

2. Mutual Trust and Respect

Venture Capital is a long term game and in order for you to survive the challenges that come along the way, there needs to be mutual trust and respect between VC and the Entrepreneur. It is said that opposites attract, find a VC that balances the scale when it comes to achieving common goals of progress for all parties involved.

3. Personality Traits

A relationship between a VC and a Company is parental, so make sure that the VC you pick is patient yet persistent. S/he is creative and a problem solver and also inspiring / motivating at the same time.

4. Resourceful

It is important that your VC has a network you can leverage while you embark on your journey towards growth, but more important to check if the VC is willing to invest the time and attention needed for your startup to succeed. One way to measure this is how many board seats does the VC hold, will they have enough time on their agenda to provide you the guidance needed for your startup.

5. Emotional Regulation

Being a VC is a tough job, which often makes a VC come across as cold hearted. However, the best VCs have emotional connections as well as positive relationships with their portfolio companies. They don’t let this affect their decision making when it comes to crunch time. The hardest part of being a VC is deciding whether to let your underperforming companies die gracefully, die-hard, or to put in the effort to help find a safe home for the company. Being too quick to let companies die leads to underperformance as a VC, but investing good money after bad can also quickly lead to little or no return. How you manage your follow-on investments, and how you help your worst companies without investing more capital, is a huge part of being a great VC.

Lessons Learned Along the Way...

 

As rightly said, launching a venture is about having a vision, turning that idea into reality, and then pursuing that dream. While the concept is simple and can be condensed in a line, the startup journey is long and there are many lessons to be learned along the way. Here are a few I encountered at NIN Ventures (or NIN.VC):

 

01. Remove your emotions

While it is hard to pursue a dream when you don’t have emotions attached to it. Stop thinking about your start up emotionally. Why? The startup world moves fast and requires you to fail faster and pivot into a better direction. Your emotions crowd your judgment when you get too attached to your dreams. Let loose and let the market guide you towards success. 

 

02. Sign better contracts

We have all heard of spit handshakes or stories of how a business plan was drafted on a paper napkin during a coffee conversation. While it might have worked in the past, beware and draft a legal agreement for all your partnerships. 

 

03. Premature scaling

Every startup dreams of becoming a Unicorn but, I have experienced, achieving too much success in the beginning may become a hindrance for future growth. 

 

04. Design a culture of winning

It is important to win in life, but build a culture of winning where you appreciate a team winning over individual wins. Make it your mantra to “always give advice in the best interest of the team over yourself”.

 

05. Consider how much you will need to educate the target market about your product before starting your business

It is not easy to take your idea to market even when there is a need for disruption in the industry. Make sure you are educating people about the problem you are solving and the time you will need before you take your product to market.

 

06. Don’t underestimate the power of marketing

Just don’t. 

 

07. Build you technology in-house

Outsourcing is an attractive cost saving option when you are building the framework for your technology, but it will cost you more time and money in the long run. Instead opt for a partner or hire someone full time that can better understand or has expertise in the area. 

 

08. Running out of money is game over

Don’t die. 

 

09. The blame game

Some businesses fail because they could not find a product market fit, while others made poor strategic decisions that ultimately led to their demise. Regardless, confront brutal facts and don’t burn bridges with your partners, customers, or anyone you might have encountered during your journey. If they were not the answer, they were a lesson or part of the lesson. 

 

10. Pick your mentors wisely

Who you look up to in life determines where you end up. Find people that genuinely want you to succeed in life and care for your venture. 

 

Having said all of this - “Will I spend my last dollar and all my hours to have this opportunity again?”. Yes - IT'S WORTH IT! Why? Life is not about what you want - it's about what you deserve. And if you don’t like what you deserve, keep your head down and work harder!!!

 

PS: This blog is still Work In Progress. I will update it as and when I have more to say. Thank you for reading!

 

For latest and greatest about me, visit www.nindesai.com

Rise and Fall of an Industry - How good ideas fail?

We have all heard of the magic mantra, “Failure is the stepping stone to success”. Such is the story of the Crowdfunding industry and NIN Ventures (or NIN.VC). 

Crowdfunding is a practice of funding a project or venture by raising contributions from a large number of people, typically via the Internet. The 2008 Financial meltdown led to a liquidity crises for entrepreneurs, companies, LPs and VCs. Fewer IPOs in the market means no exit for VCs, no returns for LPs, and as a result venture funds were on a decline. No new funds means less startup funding, higher unemployment, and slower economic growth. Thus, on April 5, 2012, the Jumpstart Our Business Startup Act (the JOBS Act) was introduced, enabling crowdfunding for “accredited” Americans. 

There are various types of Crowdfunding options; like donation, reward, lending, equity, royalty, and even hybrid versions. However, the two most popular types of Crowdfunding methods are Reward and Equity. For Reward based Crowdfunding, entrepreneurs pre-sell a product or service to launch a business, and some times even in return for gifts or thank you notes. For Equity Crowdfunding, the backer receives share of a company, usually in exchange of the money pledged. For NIN Ventures, it would be a limited partner interest in the NIN Ventures Technology (QP) Fund. This offering was made available online (www.nin.vc) via general solicitation and general advertising, which is permitted by Rule 506(c) as contemplated by Title II of the JOBS Act. 

Since its beginning, Venture Capital has been the domain of wealthy individuals and families. A typical LP base in a venture fund would be institutions, pension funds, endowments, family offices, etc. We are all indirectly invested in Venture Funds, but Crowdfunding is an attempt to bring Venture Capital directly to the retail investor by eliminating the middleman. If all other businesses that follow this route have succeeded, why and where did Crowdfunding fail? 

Since 2014, the Crowdfunding industry had grown from $16 billion to $34 billion (with roughly $8 billion in Reward and Equity) in 2015; and was doubling or more every year, and according to the World Bank estimates, Crowdfunding was predicted to have a global market of $96 billion by 2025 – 1.8 times the global Venture Capital industry. However, recent studies showed that while the Crowdfunding industry has managed to grow, the Venture industry has outgrown the Crowdfunding industry. As of 2022, the Crowdfunding industry was estimated to be $125 billion (with $19.79 billion in Reward and Equity) vs. $234 billion for the Venture industry. 

Here are a few reasons why I think Crowdfunding and / or NIN Ventures failed: 

01. Awareness 

Any new industry needs to be promoted and positive marketing generally adds fuel to that fire in order to gather public interest. The Government was quick to make changes in order to save the Economy but did not follow through when it came to properly marketing the concept. The Crowdfunding Companies fell short when they tried self-promotion. We are all aware of Environment or Unemployment issues but how many people have actually heard about the JOBS Act? 

 

02. Education 

Venture Capital provides financing to early stage emerging companies with high growth potential in exchange for equity / an ownership stake. The risks VCs take investing in disruptive technologies or business models yield higher returns to their limited partners (or investors). Since the beginning of the 20th century, venture capital has been the domain of wealthy individuals, families, and institutional investors. While many of us are indirectly invested in venture funds via our pension funds, etc., most people have knowledge or a portfolio that is limited to stocks, bonds, mutual funds, money market instruments among others. While there are multiple resources available on how to make a good judgment when making a venture capital investment, it is likely that 99% of the times the individual might be proven wrong. Blind pools of money or venture funds are not encouraged by the SEC as they are prone to fraud, when it comes to Crowdfunding. Many are also not aware of redemption and other liquidity issues including lack of interest in the secondary market. 

 

03. Media Interest 

This lack of knowledge is further fueled by limited interest in the Media for Crowdfunding portals and companies. Speaking from personal experience, general solicitation and general marketing for Venture Funds had never been attempted before NIN.VC, so the questions and awareness that a journalist had were limited to his / her past experience rather than focusing on Crowdfunding as a business or industry. 

 

04. Governance 

Entrepreneurs are brave and courageous bunch that are determined to change the way an existing industry functions. On that journey, they need a lot more than just financing. They need guidance or domain expertise, help with PR/marketing, recruiting, viable exit strategy, more often follow up financing, etc., which Crowdfunding portals are not able to support given they don’t get a say or board seat for their investments. 

 

05. Trust 

Given the majority of Crowdfunding companies or start ups don’t make it, most people are now focused on failures and a few highlighted fraud cases glorified by the media, which raises trust issues in an already heighted risky environment. 

The SEC has now approved Title III JOBS Act, Equity Crowdfunding for non-accredited investors, which allows any U.S. citizen, regardless of income, to make direct investments via a Crowdfunding portal. However, investment in venture funds is still limited to accredited investors. Given funds are a less riskier asset class compared to Crowdfunding in companies, perhaps it’s time to revisit their investor eligibility, alter the definition of an accredited investor, and make Crowdfunding available for everyone. Until then, are American people given the wrong kind of freedom when it comes to their investment decisions? What is your freedom of choice worth here?  

PS: Given the current circumstances, we would like to inform everyone that we have closed doors on our beloved NIN Ventures (or NIN.VC). However, we will be sure to follow up this article with the lessons learned during our journey and what is next in store for us? Thank you for your time and continued interest! 

Source: 

Masssolution 2015CF 

Vantage Market Research and Precedence Research 

Crunchbase