Over the past decade, venture capital has changed dramatically, according to Surah Kumar Rajwani, CEO of DoubleRock, from what he had been in previous decades. The 1990s and before were a time when entrepreneurs had to pitch their ideas to investors. In most cases, success only depended on a good idea, a lot of passion, and a little luck.
The atmosphere for startups today is very different, especially if companies want to go through traditional funding channels, such as venture capitalists or angel investors.
An entrepreneur launching an idea today will need as much passion and drive as ever. Nevertheless, they will also need a detailed business plan that shows market analysis, revenue and cost projections, intellectual property strategy, competitive analysis, among others.
Venture capitalists have become very picky about who they give money to and why. They expect businesses to answer questions about all aspects of their business, especially who their competition is and how they intend to stay ahead of them.
A good example is Facebook vs Myspace. When asked why MySpace beat Facebook in the beginning, said Suraj Kumar Rajwani, founder Tom Anderson replied that he never thought of it as a real business – just something fun with which one to play.
This approach allowed the young company to do whatever it wanted without explaining it or even thinking about all the elements needed to run a viable business.
It wouldn’t have worked sooner, but as the market had changed dramatically between 2005 and 2006, people started flocking to MySpace because it offered the same functionality as Facebook (which was still in its infancy), it had a more interesting content. It eventually became the site people wanted to use.
Without a real business approach, even if your business is successful, you will probably never get past this idea because you don’t have the necessary structure for it. This means that today’s entrepreneurs need more than just an idea they are passionate about – they need to have solid business plans.
Here are a few ways that venture capital has changed over the past decade.
1. Venture capital firms can no longer invest locally
As noted earlier, venture capitalists are much more picky than they were in the past. They want to invest their money, says Suraj Rajwani, in companies that can provide them with returns rather than wasting it all on ideas that may or may not be successful. This means that small businesses might need to partner with others to get enough investment capital.
This means that investors are more likely to invest in larger groups of companies rather than a single small project. This is good for entrepreneurs because it means they are more likely to find someone to take charge of their idea, but it also takes some of the fun away from them. You will no longer see an entrepreneur with his garage full of servers working alone on ideas.
2. Venture capital firms must be multilevel and global
Venture capital has evolved so rapidly that it almost seems to have skipped a generation. Now there are businesses springing up everywhere because they need them for their survival. This makes it easier for entrepreneurs to access these funds and the competition is even fiercer than before.
3. Acceptance of lower ownership thresholds for the best companies
Traditionally, when a venture capitalist invests in a company, they want to own between 20 and 30% of the company. Not anymore – now when an investor makes their first investment in your business, you can expect them to ask for a much higher property than that. Some even ask for 50%, sometimes more. When companies invest this kind of money in start-ups, the stakes become much higher and therefore more control is needed over who is allowed to be on the team.
4. Expectations of platform services are changing
In the past, when a venture capitalist invested in a business, it was to help that business grow or become successful from an idea he believed in. Now there is another kind of investment going on – rather than just buying stocks and equity. Many venture capitalists are looking to gain more control over the business while owning much of what it has to offer. This changes entrepreneurs because they now want to have a say in certain decisions, such as how much to reimburse to investors and which companies or partnerships to enter into with others that could benefit the company later.
5. Companies and partners must actively promote themselves and their network of unions
To attract entrepreneurs or businesses looking for investment, venture capitalists need to market themselves and the people they will bring with them. This can mean gaining a large social media presence and creating interesting content about what is going on within their business, so that the people who will get involved know exactly what they are getting into. Without this type of marketing, new investors can overlook these companies because there is simply not enough knowledge of who works there or what they do – and it could prevent young companies from being successful.
6. Legitimate competition from above and below
When a company gets investments from venture capitalists, there is competition from above and below. Competition within the company comes from the fact that those who invest want to see more and more money first come in before they get their payments – but it also means opportunities for small businesses that can take those companies back. at lower prices later. The competition then relates to the transactions to be concluded and the amount that each investor will receive at the end.
Venture capital has changed, but there is still room for it
Venture capital has many positive aspects, such as motivation, interest, communication and trust. However, once the funds start to flow, the bottom line always trumps everything else, often leading to failure or separation of many parties involved. But even though there are differences in this method of investing, some things haven’t changed – it’s still about growth, expansion and being on top of what will succeed, no matter what the risk. that this implies.