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Wednesday, April 20, 2011

Entrepreneurs & VCs

Entrepreneurs & VCs: Evolving a partnership
Raja Kumar, C E O & MD, UTI Venture Funds, UTI Venture Funds
 
First, Indian entrepreneurs are often not receptive to advice. When VCs advise them about certain issues, entrepreneurs dismiss them without considering the advisor is a man who has invested in the company. One good example is the numerous underdeveloped product companies in India. Despite a VCs' advice on how a product company should be built entrepreneurs disdainfully designed their own products with a blind hope of the markets accepting and adjusting to these products. Entrepreneurs thought that market would adapt to their products, which never happened.

Individually, each entrepreneur is often a powerhouse of talent with an amazing sense of knowledge, and experience with high-level positions in MNCs but in a group most of them falter. They often fail to play the role that is assigned to them and their typical India mindset causes each of them behave like the owners of the company. Vainly, their private advisors disillusion them with poor suggestions, like aiming for higher percentage of control. VCs demand MIS and the entrepreneurs have nothing to report because there are hardly any customers or pipelines. More importantly, when things are difficult, VCs surely ask for reducing the burn and taking a salary cut, something entrepreneurs are averse to. As a result, they blame those far from their affections: VCs!

Typically, tech entrepreneurs are domain experts in a particular niche space but are not flexible enough to adapt and learn other aspects of the same business. Entrepreneurs hardly monitor cash position, because VCs do that for them and obviously force them to act accordingly. The most important part of business is converting pipelines into a customer base so when entrepreneurs cannot close neighborly transaction due to the lack of business accruement it's intolerable for VCs. It is not that these entrepreneurs have not made attempts at customer traction to develop the pipeline, but the closing of the deal is different where entrepreneurs stumble.

Something else the entrepreneur needs to appreciate is that his VC backed venture needs to continuously scale up within a given time frame. After all, VCs are financial investors who need to realize returns in a particular time period because they are measured in IRR terms by their investors.

Also, it is very important for the entrepreneur to be transparent about important issues like the financial health, pipeline, and relationships with key personnel since the VC will become aware by virtue of being involved in the market. The danger is that such lack of transparency will create doubts in the minds of VCs about other issues as well.

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