The New VC – Investor plus Platform builder?
This piece stems from a trip to Silicon Valley that Sanjay Nath and Karthik Reddy, Co-founders at Blume Ventures made recently. The travel was anchored around the Pre Money conference organized by 500Startups (presentation at the end of the article) late June in San Francisco. While there, they also connected with the Indian ecosystem and attended a few other tech startup-oriented events, including SFStart. Sanjay Nath shares his experiences...
I wanted to share some of the new insights we learnt and key themes that were reinforced. It also taught me that we, as VCs, also need to keep up our own learning curve and re-invent ourselves.
The insights and lessons below are drawn from my own observations and also directly from well known VCs, angels and entrepreneurs (like Paul Graham, Dave McClure, Josh Koppelman, Mark Suster, Fred Wilson, Aydin Senkut and Marc Andreessen).
For specific tweets and quotes, please search for the #premoney hashtag on Twitter (dated on and just after June 27, 2013).
Here are some broad lessons that I took away:
1. The importance of platform building
It was notable that, even at this Investor invite-only conference (infact, only LPs and GPs were invited - no entrepreneurs), the two most popular words were Community and Platform, (more than LP and GP). VCs pushing the envelope like First Round Capital (FRC) even have their own magazine! Instead of focused solely on returning money to our LPs (noting though, that Fund Returns will be THE yard stick we will all be measured on in the end). If we as VCs also build a platform, that will in turn attract the best startups, deliver value to them, with the platform itself enabling business development and sales connects, technical and product related advice - and eventually, superior exits (and thus superior returns to LPs). Simply put, the platform is much greater than the individual portfolio companies - with each portfolio company benefiting from the network effects of the overarching platform.
An example of a platform from the tech world? Apple probably the best - its app ecosystem alone is worth $25 billion today.
So, the key question posed to us was "Tell me more about your platform”?
2. Venture is a local sport
While terms like "cross-border" and "global play" are often found interspersed in many pitches we see today, the fact is it’s not easy for an India-only company to target and/or move to say Palo Alto or New York and take it all on. Or the other way around. Hence, big opportunities for collaboration lie between Indian and Valley VCs.
Another good example of the value VCs can add locally (overseas, in this case) is when a startup with a so-far India only base seeks to make a push into the US - after the "first 5-10 sales made by the founder-living-out-of-a-suitcase", the quality of the first local sales/BD senior resource she/he and the board chooses, can make or break success. An entrenched local VC partner and advisors (curated carefully, and only a few, mind you!) can be very helpful in finding the right fit.
So Venture remains a local sport, and investors must understand local nuances (see slide 15 on “India Nuances” in the same Blume @Premoney presentation at the end of the article).
3. Fundraising has to be part of a startup's DNA
We heard that fundraising is like breathing. It has to be perpetual and not a one-time activity. The founders have to be in story-telling mode (of course, his/her team has to deliver what the story promises) - to customers, partners, and most importantly, to fellow employees and future hires.
Unless we're Zen monks, it’s like breathing - so think of fundraising as a mindset that’s part of your startup’s DNA and core fabric.Its fine to work with bankers to increase efficiency and maximize the probability of success, but this should be a supplemental resource - and cannot replace the founders getting on the road themselves.
4. Are we as VCs disrupting ourselves?
If VCs are seeking disruptive companies, are we also disrupting ourselves?
This was a provocative question - how much has the VC industry itself moved from its inception. The answer – not much. However, new paradigms like platform, community and peer network are welcome and much needed changes. Some even suggested a transformation especially for later stage commoditized deals, where traditional investors may get supplemented by crowd-funding clusters, "democratizing the VC space".
In addition to these four broad learnings, here are some further nuggets (captured in #premoney tweets, if interested – and credit duly goes to those named earlier in this article, plus more, and hence not naming each one separately here):
- All businesses at their core now will become software driven businesses
- To win, you need to hit the market with force (ideally with lots of dollars, but with stellar product backed by great marketing also possible)
- Better to run and fail at your own startup - than to read about others’ successes and think you can do it
- We get brownie points for “serving users”, not “using servers”
- The next big startup community is likely to come from outside the US from Berlin Shanghai and Singapore
- Investors must support a community, not just build a portfolio
The VC of tomorrow is no longer just an investor in a portfolio of companies - we are now becoming curators of a community.
About the author:
This article is by Sanjay Nath of Blume Ventures. He thanks Dave McClure and the 500 Startups team for organizing this open conference and inviting such a wealth of experts for their viewpoints.