Ideas|Products|Startups|VCs

Wishing all the readers a very happy friendship day.This week is marked as friendship week, so this post is all about analyzing VC and entrepreneur relationship. Can VC and entreprenur be friends? it’s a little tricky question and don’t have straight answer for it.

Let’s investigate few scenarios -

a) There is no guarantee that VC will invest in company which is run by his/her entrepreneur friend. One instance its worth mentioning here is a prominent VC based out of Bangalore had long discussion with entrepreneur friend who runs a prominent F&B chain. VC didn’t find the value in that deal and was convinced exit won’t be easy with 7x-10x kind of returns. Running a 8-10 fast food chain has different kind of problems than running 80-100 fast food centers.

b) There are instances where entreprenuers have become good friends with on boards VCs just be their sheer execution capability, and entrepreneur have become Partner in the same VC firm after successful exit. Mark Suster became general partner at GRP partners after successful exit of his venture backed by GRP partners.

c) Sometimes founder can be displaced out of the company day today’s operation if VCs perceive founder is thinking VC money as his/her own money and performance of the company is quite mediocre. Entrepreneur founder is always in a impression that they are indispensable which is a big mistake they commit.

-Hitesh, vcBytes.com

I have failed to understand why startup guys and entrepreneur think its pretty easy to raise venture capital, may be they get to read lot of investing news at TC.

Lot of people have approached me asking to help them in raising venture capital and most of those people are working in big MNC software companies. They have a simple idea and would want VC backing in developing their product. Their dreams are shattered when i bluntly tell them it won’t happen, you need to pump in your money during the development.

There is a clear misconception in the market about the funds and type of funds, lets try to make it simple by defining different types of funding -

a) Seed Funding - Seed funding is the very first investment an entrepreneur receives and mostly its raised from family and friends (F&F) and also sometimes referred as FFF - friends, family and fools. Generally seed fund ranges from $10-25k.

F&F is a risky venture for those with the money because the project that they are funding may not be more than just functional specs or drawings, not sure of product can be out in the market.

b) Angel Investors - Angel Investors are individuals who invest their own personal funds in an idea or a company that they feel strongly about. Most of the angels are seasoned entrepreneurs, company executives, HNI’s. Generally the fund angle investors lend is in the range of $100-$500k.

c) Venture Capital - In simple words they are biggest money lenders for startups and growth stage companies. Venture Capitalists are generally small teams of investors with sufficient backgrounds in the fields in which they are investing. New ventures will seek to raise funds in rounds of funding called “series.” Often times when researching companies you will see that Company X received $4M in Series A funding and $5M in Series B funding. Generally, the more series of investments, the more promise VCs, Angels or other investors see in the company. Generally they invest above $1M.

-Hitesh, vcBytes.com