Root the Fruit?
Venture Capital by definition is money invested in growth with Intelligence to shape the new. And growth starts at the root, not the fruit, isn’t it?
The e-commerce sector has become one of the predominant sectors for PE/VC investments in 2021 recording US$15.9 billion, accounting for 21% of the total PE/VC investments in 2021 and more than five times the investments received in 2020. Source: Economic Times, March 09, 2022
The myth is that venture capitalists invest in good people and good ideas. The reality is that they invest in good industries. Is there anything wrong with it? Obviously not. But we are at a pivotal point in the history of our planet when we cannot continue industries the way they started and have shaped so far. And this is the Point of Arrival (POA) that the VC’s are largely missing despite all their propaganda.
For those who want a quick history of Venture Capital, here is a link https://bit.ly/3JPngL3 to a story published by Mark Kleyener on February 09, 2021. My story is more about the role of Venture Capital in the world we live today!
Quality parent seeds are created by inbreeding parent seed lines, sometimes up to seven or eight generations, to create a parent seed that is uniform and perfect. Once there are two parent seeds lines that both display ideal genetic characteristics, the parents are cross-bred to produce a hybrid seed.
Though the Venture Capital Industry uses these terms that are nature oriented, do they really do justice to Pre-Seed and Seed Stages of Investment?
Globally the signs are good for increased investments in early stages as long as the right Frame Of Reference (F.O.R.) has been established between the investing team and the founders. Speaking from a personal experience, there is a general lack of understanding of Business Models and Technology; two most critical elements that needs deep understanding to make sound investments in the current environment.
In India, this problem is exacerbated to a large extent by the gatekeepers who are low in the hierarchy of decision making who actually good models to percolate upwards. And the decision makers are too busy making deals that are aplenty to go by; given the demand.
Even though the amount invested shows an upward trend, there is a decrease in the number of deals. While there is little that is emerging from governments and large corporations with respect to solutions that can fundamentally alter the course of disaster on the planet, there must be a lot of promise in the startups that look at the planet and its sustainability differently. These are the ones that need to contribute to both increased deal size as well as increased number of deals.
There are many VC’s generally across the world but more specifically in India who have taken the form of Incubators and First Check Writers with a Lottery System approach rather than a Parent Seed approach. This is a very unhealthy trend for both the investee as well as investors; as any form of gambling is, anywhere in the world.
How can any founding team demonstrate a product at an early stage; especially ones working on evolving disruptive technologies that have not been imagined by most in our societies?
It is not lost on me that VC’s are in the business to make money. But the approach has to funding needs renewing. The investment thesis of the VC’s must mesh with the hypothesis of the Founders.
Step №1: Would it possible for VC’s to take some time off and honestly assess their Capabilities (Capacity to Transform + Ability to Perform)?
Step №2: Can the decision makers engage more in early dialog with founders to understand the hypothesis?
Step №3: Even though it may be difficult, can the net be cast wider than the conventional Alumnus Association and Mutual Reference Societies to harvest parent seeds?
More than 50 growth equity investors have invested more than $1 billion in deals they have led or co-led so far in 2021, Crunchbase figures show.
Everyone is expecting an investment slowdown and it would be a good move with Series B and C rounds; where investments should be focused strictly on digital transformation projects alone. However, this may be an excellent time for VC’s to think and act cross-border hedging currencies for making a killing with promising early stage startups who can scale with agility Involving and Immersing a Societal Network that the VC’s can animate for their Investee Founders. This is the true Value that a VC can bring to the table for Founders with disruptive ideas.
There are four stages of an IP Development and VC’s involvement with the Conceptualization and Engineering must grow; more than the conventional Industrialization and Commercialization stages.