Venture capital (VC) funds play a critical role in the startup ecosystem by providing capital and expertise to early-stage companies with high growth potential. Based on the sector, theme, or even risk-to-reward ratio, various funds have different lifespans and stages. According to Pitchbook, a VC’s average lifespan is around 13.1 years, with funds taking longer to return capital.
Having talked to a few hundred VC and PE funds over a period of two years, we decided it’s time to share some of the most important lessons learned in selecting the right tool for the job. Venture capital CRM seems to be one of the top queries out there, so we figured it’s only fair we help out by creating a list of important things to think about when it’s time to decide what platform to adopt.
Sound investment decisions are always backed up by thorough data analysis. Access to reliable market data is crucial for venture capital (VC) firms to evaluate which startups should progress in their deal pipelines. Gaining access to the correct data, however, isn’t always easy.
Finding the right deals is arguably the most important skill a VC is expected to learn and hone while working in the capital markets industry. A sizable VC firm handles hundreds of leads at any given time, and even more under viable market conditions.
Investing funds in startups and founders is a long game for VC firms. From finding and finalizing deals to actively managing portfolios, there is a lot of careful work that needs to be done and multiple relationships that need to be maintained. Making the right investments and managing them may not be easy, but it is a process that can be simplified with the help of a focused strategy and the use of a purpose-built CRM.
Negotiation is one of the most critical parts of any private capital markets deal. Contrary to what most venture capitalists (VCs) may believe, the negotiation phase in a deal isn’t limited to a week-long term-sheet negotiation period. Expert negotiators start laying the groundwork for a deal right from their first interaction with a startup founder. As Forbes puts it, the negotiation in any VC deal is centered on the mutual trust between founders and VCs. This trust is usually built over a period of weeks and sometimes months, where both parties attempt to express their goals and expectations and arrive at a mutually beneficial agreement.
Identifying genuine entrepreneurial talent is a rare and considerable skill. VCs need to be able to spot revolutionary ideas and founders to find startups that can generate the desired revenue for them. In capital markets, it is a rule of thumb that 80% of profits are generated by 20% of the investments. This means that capital market businesses, including VC firms, are heavily dependent on high-performing assets for generating revenue. Star performers can also help VCs scale up by giving them the financial security to foray into new market sectors.
Failure is an inevitable risk in every business venture. Capital markets are especially susceptible to risks that can have a long-term financial impact on investment firms and the companies in their portfolios. The magnitude and relevance of this impact are decided by how well a firm can anticipate and mitigate investment risks by staying on top of global market trends. An important part of risk mitigation is having pre-defined risk management measures in place. But how does one come up with such measures? Is there a standard course of action that a VC firm should follow in case of risk exposure?
VC firms often face the dilemma of coming across promising deals with two or more startups competing in the same industry. This is especially the case when a particular market is growing fast and there are multiple startups with similar goals and plans, all lined up one after another.
