I suspect that when most people think about venture capitalists (VCs), they imagine a purely transactional relationship with large sums invested into start-ups in exchange for equity which later generate profit. However, it is far more than that and the real value that VCs bring to the table greatly exceeds just the money element.
What do I mean by this? Let me start with what I believe is one of the most significant ways a VC can add value – strategic guidance and mentoring. Having built, scaled and sold businesses, VCs van offer a vast amount of experience and wisdom that many other types of investors simply do not have. Albert Einstein’s quip: “The only source of knowledge is experience”, perfectly summarises the importance of VC experience.
It is particularly relevant in the early-stages when start-up founders need support and strategic thinking to navigate an often treacherous business landscape – this is an invaluable tool that VCs provide. With the experience seasoned VCs have gained over the years, it enables those businesses to receive informed advice and guidance to make the right important business decisions.
Like any sector, networking and relationships are core to growth. As a VC, creating a wide network of contacts is crucial to our own success.
This is another benefit that we can bring to the companies we invest in. It’s not uncommon for start-ups to struggle to connect with potential customers, partners and future investors. As I mentioned before, it’s an intensely competitive space. VCs can open up those opportunities and help facilitate introductions. These introductions could just be the catalyst a start-up needs.
Beyond strategic advice and networking, VCs can also support start-ups with operational expertise. Our job is to ensure that the dedicated teams we integrate to support those businesses can optimise processes – such as refining their supply chain and enhancing their financial planning. We can also support with governance and VCs, quite often, take on board roles.
It’s important to us that we have oversight to ensure alignment with the long-term strategic goals of the business. This involvement should be seen as a benefit. The consensus is that the governance role is important in maintaining the start-ups focus on meeting crucial milestones and objectives. VCs want to help the company’s direction and ensure they are successful.
There’s also no denying that a start-up being associated with a reputable VC and investor will organically grow their credibility. VCs with a strong track record, like Chrome Capital, will bring eyes to any investment and this is particularly beneficial for early-stage start-ups trying to establish themselves. This credibility can attract additional investors, customers, and media attention, further boosting the start-up’s growth prospects.
Of course capital is essential for growth but let’s not play down the importance of the non-financial contribution VCs can bring. Some might argue it plays even more integral role in value creation.