What’s that VC (venture capital) all about? Now ‘cause you’re reading this text on Tahko SLP event page, I’m sure most of you know at least one thing the venture capitalists do. They are the ones in financing sector who pick the most promising startups and after all the analysing and documentation processes they pay a nice sum of money to the startup’s bank account and become owners of the company. Then it’s time for a startup to keep their promises, do the hard work to make the company grow -and by doing that, to raise the company value.
But what else venture capitalists do besides give away money? How can the VC’s affect the growth speed of the company? This is kind of a piece of art! Many researchs show that the venture backed companies are more successful than companies that haven’t received VC-money -their turnover and personnel grow faster. Why is that -what do the VC’s do? What does the “Smart Money” mean?
Typically, VC brings in a systematic way of doing things. This means different things in the operative level and in the board level. Since the VC wants to have certain kind of data on a regular basis, this forces the CEO to prepare for reports for every board meeting -and to be able to do that, KPI’s should be eventually easily measured and driven from the systems. When a startup is well organized, potential problems are more easily seen and thus faster to fix. An experienced venture capitalist recognizes both its own and the company’s capabilities -as well as the lack of them. Because of this, it often becomes easier and quicker to recruit the right professionals with relevant know-how -either to the management team or to the board.
When speaking about a young startup with inexperienced entrepreneurs, VC’s hands-on advice, perhaps a little bit of help on a substance matter, an opinion on the strategy or simply some do’s and don’ts can have a major impact on the company. VC’s often have a large network, and making intros, i.e. opening the doors for the startup to potential customers, partners, other investors etc. can speed up the growing process remarkably. Having a valued VC onboard is often a kind of a quality label for a startup -but it’s not a free ticket anywhere if the entrepreneurs and the management don’t perform as planned.
It’s natural that compared to challenges in i.e. seed stage, different kind of problems occur when the company starts to grow fast. A startup with ten people can suddenly be a startup with 50 people, and as the growth continues, entrepreneurs will definitely see that running the company changes. Startup life is about constant change, and the VC would like to see people growing along with the company -which doesn’t always happen. This may lead changing people’s roles, sometimes significantly, but it’s a fact that the company needs versatile capabilities in different stages. Also in this process VC’s network might become useful. When preparing for e.g. internationalization, a VC can be a help in searching for a person with relevant skillset. VC can bring Smart Money, but it’s definitely not only the VC -it’s the people that do it together, with the Smart Money, who can make a startup story a real success.
The article is written by SLP Growth Community Strategic Partner -a venture capital company Nostetta Ventures Oy