What do VCs typically do?

Well, they make money – serious money

The job of a VC is really weird. Imagine convincing someone to part with his money that you would sink into something that is almost certain to bomb (80%-90% of cases). Then imagine sifting through 100s of half baked-wild ideas to find those very few, typically 1%, that you feel (yes feel – there is no formula or model to make your life easier) are worth investing. Then imagine praying patiently 4-6 years for those ideas to hatch that would get your money back, may be with some return. So every time you are going to raise money, every investment that you are making, basically, you are putting your credibility at stake – past performance is not indicative of future results. How would you feel when one after other your investees are vanishing in thin air?

Is this job envious? Well may not be for most. But it certainly is for some, including me. There is this thrill of identifying something that is going to change the world (various degrees of changes from Google and Facebook at one end and 100s of unnamed ventures on other end). There is this urge to connect the dots, see the pattern and figure out the changes that are going to happen couple of years ahead in future. You know how it feels when you realize a dream? When you make this your job to realize dreams of others? Well, a VC’s job feels something like that. Never mind that there is a little chance of you getting wildly rich.

At a more worldly level, VCs usually work in a team. They invest someone else’s money and, thus, have fiduciary responsibility towards those investors. Since they don’t know which 1% of the 100s of business plans landing into their inboxes are going to click, they have to go through any and all that come through. Once they evaluate a plan (I would be writing later on this), they talk to entrepreneurs and their clients and potential clients. They rationalize the assumptions that entrepreneurs usually make, run the numbers themselves and analyse to assess the size of the opportunity, market growth and competitive intensity. Once they invest, they provide the mentorship and support to the entrepreneurs.

Mentoring and support is an important element that a VC investment brings on the table, unlike other flavours of investments. VCs bring with them a huge network and rich operational experience. Especially for technology ventures, may be because of the tech background of the entrepreneurs, there is this need to fill the gap for sales and marketing expertise. VC can assist in providing such strategic directions. They can introduce the entrepreneurs with potential clients, vendors and partners.

VC s do monitor whether product development cycles are on track, how the initial customers are responding to the product or service, how the competitive landscape is shaping up etc.

Entrepreneurship is a journey that has highest of high and lowest of low in rapid succession. If you are an entrepreneur, you would immediately understand the need for a shoulder to cry on once the tide turns against you. Well, VCs do provide the shoulders to cry on. In fact VCs who are an entrepreneur themselves are better able to relate to the situation of an entrepreneur and are able to empathise with them.

With their huge experience, VCs are able to advise entrepreneurs in deciding when to go for funding and how much fund do they require. They also help entrepreneurs in deciding when to go for IPO or accept an M&A offer.

At the same time, it’s worth mentioning that a VC, especially a good one, understands that it’s the entrepreneurs who are creating value and not them. Hence it’s the entrepreneurs who would take the final decision on any matter of the venture and not the VC. The VC is only there to provide support and advice and not to take any decision on behalf of the entrepreneurs. A VC who starts forgetting this role-division would not be a successful one in the long run.