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Pegasus Tech Ventures’ General Partner and CEO | Chairman of the Startup World Cup
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When I was thinking about starting a venture capital firm, one of my industry buddies told me something crucial. He claimed that he created a venture capital firm since he was already financially successful and that he had never heard of anyone becoming extremely wealthy as a result of starting a venture capital firm. A statement from a well-known startup investor in a 2017 TechCrunch research on venture capital firms supports this idea: He estimates that 95% of the businesses are unprofitable. As a result, when I first started my journey and created my firm’s business plan, I concentrated on how I might build a long-term, lucrative business.
First, because I was based in Silicon Valley, I immediately recognized that the best discounts in Menlo Park were mostly limited to a few well-established organizations. Secrets of Sand Hill Road: Venture Capital and How to Get It, a popular 2019 book, chronicles Silicon Valley’s inner circle. I quickly understood that if I solely concentrated on Silicon Valley, it would be exceedingly difficult to develop a lucrative firm, based on what my friend told me and what I had learned from others in the valley. As a result, I needed to devise new strategies.
VC-As-A-Service
I began by listening to the demands of investors in the marketplace, commonly known as limited partners (LPs), and immediately realized how many multinational businesses were interested in venture capital but had the competence to deliver on this need. As a result, we developed specialized single-LP funds where we could focus on finding top companies in their strategic priority areas while maintaining a close relationship with the corporate participating in our funds. Over the last decade, focusing on this strategy has not only allowed us to consistently scale new funds, but it has also allowed us to establish a broad network of technical knowledge across our 35+ firms. In today’s venture capital sector, this style of venture fund management is known as the “VC-as-a-Service” model or the CVC 4.0 model.
I’ve discovered the best methods for making the VC-as-a-Service model work. One is to seek out like-minded corporate partners and have a thorough understanding of their operations. This can assist you in determining which startup technologies will help your company become more inventive and successful. Because the corporation is outsourcing this expertise to you, it’s equally critical to employ an experienced team with excellent venture capital experience. Finally, get to know the companies you’re looking at so you can choose the ones with the right teams, business models, and technology to maximize your corporate partners’ business and financial returns.
ADDITIONAL INFORMATION FOR YOU
Investing in Other Countries
Another early tactic we used was to hunt for outstanding investment possibilities in other countries. Given our extensive network, we began by investigating the Japanese market, where we rapidly discovered a plethora of excellent late-stage options. We were given numerous opportunity to engage in high-profile transactions.
Next, I sought for another source of opportunity and diversification. Throughout my career, I’ve believed that countries with huge populations and stable governments would offer a plethora of lucrative investment options. Indonesia, in particular, appeared to be seeing an early-stage startup market boom despite remaining largely under the radar despite having a vast population. It seems like the time had come for me to act. As these early-stage Indonesian firms evolved, I was able to exit many of them through mergers and acquisitions (M&As) or secondary sales.
It’s critical to recognize that investing globally has its own set of problems and considerations. When it comes to financial return, corporate partners in overseas markets may have varying levels of risk tolerance and expectations; make sure to express these preferences up front. Also keep in mind that intellectual property may not be as well protected in other nations as it is in the United States. This could increase competition for the company and jeopardize the investment of the corporate partner. Other key elements to examine before investing abroad include the geopolitical environment and the country’s stability. Don’t be scared to make overseas investments, but do so with caution.
Investing In Well-Known Accelerators’ Startups
We also concentrated on investing in well-known accelerators’ top early-stage firms in Silicon Valley. For us, this method has resulted in a number of positive consequences.
Incubators and accelerators for startups play a vital role in the development of entrepreneurs. With the support of an incubator, startups can launch their businesses and refine their business models. Accelerators can help a startup grow quickly by providing professional guidance and access to resources once it has a competitive product or service. Investors could take advantage of incubators and accelerators by learning about their track records and the types of businesses they normally attract. You may obtain personal knowledge and get to know the startups in residence by visiting their facilities and attending their events. Finally, you’ll be able to form alliances with the incubators and accelerators that best suit your and your corporate partners’ demands.
Diversifying my business model and expanding into new geographies were two of the smartest moves I made when I first started my venture capital firm, and they have resulted in over 40 exits to date. These choices aided us in becoming profitable and achieving a high internal rate of return (IRR). Despite the Covid-19 pandemic, which forced us to cancel most of our overseas trips, we were able to do pretty well and continue to develop new corporate and financial return-focused funds. I urge that businesses look for ways to meet market needs and diversify their portfolios to mitigate risk. Venture money, in my opinion, can scale and achieve profitable expansion.
This website does not provide investment, tax, or financial advice. For counsel on your individual circumstance, you should seek the opinion of a licensed professional.
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