Creating Value beyond Capital: A VC Perspective

Manoj Kohli, Country Head, SoftBank India

November 2020


 

Picking up from a crisis and making bold decisions for business success, believing that the best is yet to come. In this article  Manoj Kohli – Country Head, SoftBank India, talks about the evolving role of Venture Capitalists from the perspective of creating value, their key capabilities and how the venture capitalists are helping organisations to cope up with changes that have unfolded post-COVID and come out as winners.

 

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By virtue of conventional ideology, the central role of venture capitalists (VC) is understood to be of investors’, who help in allocating their best resources to the investment process to harness opportunities and perform due diligence. Apart from looking through the lens of multiplying returns, VCs today have taken the leap and repositioned themselves to give active support in coaching and creating value in organizations.  The focus is shifting to 'unearthing value' to create a success story and an exit mechanism.

Organisations in their growth trajectory have never been 'problem-free.' Every successful company has dealt with its own set of challenges through the highs and lows of business complexities. From the perspective of a competitive venture capitalist, the focus is on supporting the founders to foresee challenges, overcome obstacles, and provide support to build a winning organization.

A successful firm does not always have the 'first-mover advantage,' as a good idea can also be copied. However, what has worked for most of the highest valued organizations globally is that they were driven by visionary founders with extraordinary execution prowess and backed by value creator VCs. In this context, the crucial role played by VCs has been thinking through the strategic insights and effectively allocating resources.

Thus, to differentiate a great VC from the rest, value creation is an aspect that needs more emphasis in the startup ecosystem. While funds keep coming in, growing, and scaling up is the real challenge for start-ups, and therefore value creation is crucial.
 

Key Traits Venture Capitalists Should Have for Value Creation

It is of paramount importance that VCs build upon a foundation of trust with the firm's founders and key stakeholders to work towards a shared vision. The idea lies in building a climate of mutual trust, an environment that fosters open, honest, and constructive discussions on aspects that enable critical decision making in an entrepreneur's journey with strategic counsel for shaping a viable business model.

VCs should also have deep operational expertise and understanding of the business to assist the company in implementing an operational strategy and executing it well across the organisation. This would help an organisation to upscale and pivot the business model based on changing market dynamics. 

VCs role should be of a trusted counsel available to the founders on a need basis and should not include active interreference in the organization's operations unless a crisis demands. They should bring to the table a hybrid, proactive, yet non-invasive approach.

While scaling up business rapidly, an organisation needs to ready an agile workforce for a dynamically changing world. This helps them better prepare for testing, learning, and responding to the changing customer market needs. VCs should guide the investee companies in aligning their entire organizational focus towards the vision they thrive to achieve.

How Venture Capitalists Add Value to Organizations

VCs can be resourceful and effective partners in scaling up operations, expanding product lines and growing geographically. VCs generally operate and invest in multiple geographies; this expertise can be handy for companies while scaling up to new landscapes. The same can be true for expanding product lines.   

The founders have a long-term horizon and foresee a broader vision they intend to work towards. VCs can help guide them to keep focus, navigate through short-term challenges, and help them find their true north.

Organisations tend to build upon their core competencies and bring in partners in some of their non-core functions. VCs support them in mapping uncharted territories and bringing in resources in terms of talent and business partners for effective execution and business delivery.

Venture capitalists also aid in building a high-quality leadership team by pooling in the best personnel at the c-suite and senior executive level. High-quality leadership is critical for a company- all the successful companies we see around have been built by high-quality teams. They also help professionalize the management and transition from a startup hustle to a scale-up. 

VCs are active in the startup ecosystem they operate in as they work with a gamut of firms. The portfolio's diversity brings in exposure and rich experience in key resources, tenured investors, senior executives. This helps in coping with past failures and learning from one firm's growth trajectory and applying it to the other to avoid major pitfalls.

Many disruptive technology companies operate in unchartered and unexplored business territories, where the market is non-existent or in its infancy. VCs can help develop the partners and ecosystem for such nascent sectors, ultimately helping the organisation. A vibrant and growing ecosystem is essential for the growth of disruptive technology companies. 

Further, the role of great VCs can be seen in assisting firms to e streamline their internal processes as they move towards automation. They can help with bringing in key regulatory and policy frameworks and obtaining the necessary compliances.

Post COVID-19 Ecosystem and Beyond

The pandemic's after-effects have led to the burgeoning of digital economy and accelerated the online adoption of customers. In India, COVID-19 led to increased internet penetration and many first-time users in sectors like EdTech, eCommerce, Healthcare. Artificial Intelligence and Automation have received a boost, increasing the adoption in mainstream lifestyle and business. Demand for touch-free interactions and advancements in Robotics are enabling a new breed of automated commerce.

At the same time, this has led to cost consciousness among customers, which will necessitate frugality in operations, a high-performance culture and cost efficiency to deliver products. Customer-driven innovation has also accelerated on account of this, where companies had to swiftly adopt safety measures in product delivery. The pandemic has also renewed the focus on financial fitness and profitability. 

Thus, the broader focus of VCs lies in looking at the growth potential of a company in the long run.  A high-quality and sustainable business will make the company valuable and ultimately create value for the VCs through exits. For modern businesses, creating a societal impact for the larger community is gaining importance. Similarly, for VCs, beyond value creation, there will be an increased consideration for the societal impact they make to the consumers at the middle and bottom of the pyramid. 

Keywords: Value Creation, Covid, Automation, Scale Up, Business Model, Portfolio, Agile

 

Manoj Kohli

Country Head, SoftBank India
 

 

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