I read a very nice article other day in live mint written by Sanjeev Bikhchandani, co-founder of Naukri.com. He talks about his experience with VC community. He says they had hard time convincing VC that they don’t have an intention for exit any time sooner. They are in it for a long run. How ever for a VC it is not so as he has a stipulated timeline to exit. He will always have an End Game in his mind.
In real life I have been also asked similar questions from VC. It took me some time to understand the rational behind the question. Basically we need to understand how does a VC makes money. Most of the VC will choose a market or technology to invest. They invest in some 10 companies thinking at least 4 of them will do well. And most of the time they will. Thus these 4 investments will makeup for the rest of the 6 investment losses. This is just a thumb rule. This may vary from VC to VC.
VC will take a stake (shares) from your company. Now there is no standard theory which says how much stake will he take. It all depends on your Business Plan, market strategy and things like that. They would typically evaluate the idea and invest. Now most of the time he will tell you that he would exit by 3 to 5 years. If he hasn’t then you should understand that. I feel there is nothing wrong in his exit plans as there would be newer investors who would be willing to invest as and how you grow, based on how much value you have created. Most of the time VC himself will find newer investors to invest. Now this is where he makes money by selling his shares to a newer VC.
VC can make or break your company. What is important is you need to safeguard your company. Because they are in it for their interest. This is their game and they would like to end the game as early as possible. You need to figure out how long would you would like to be in it.
In real life I have been also asked similar questions from VC. It took me some time to understand the rational behind the question. Basically we need to understand how does a VC makes money. Most of the VC will choose a market or technology to invest. They invest in some 10 companies thinking at least 4 of them will do well. And most of the time they will. Thus these 4 investments will makeup for the rest of the 6 investment losses. This is just a thumb rule. This may vary from VC to VC.
VC will take a stake (shares) from your company. Now there is no standard theory which says how much stake will he take. It all depends on your Business Plan, market strategy and things like that. They would typically evaluate the idea and invest. Now most of the time he will tell you that he would exit by 3 to 5 years. If he hasn’t then you should understand that. I feel there is nothing wrong in his exit plans as there would be newer investors who would be willing to invest as and how you grow, based on how much value you have created. Most of the time VC himself will find newer investors to invest. Now this is where he makes money by selling his shares to a newer VC.
VC can make or break your company. What is important is you need to safeguard your company. Because they are in it for their interest. This is their game and they would like to end the game as early as possible. You need to figure out how long would you would like to be in it.
