The sell-side of Venture Capital

Recently, my colleague Sajith wrote a widely appreciated essay reflecting on his journey thus far in the world of venture capital. Among other insights, Sajith made a very interesting point about venture being similar to enterprise sales ( # 6 - “ Understanding venture as enterprise sales”).

This is a unique insight and not a lens that is usually applied when people think of venture capital. Most of the people whom I interact with, especially young professionals interviewing for a role with Blume, think a role at a venture firm involves analyzing, investing in, and advising (!) start-ups. Venture is as much a sell-side activity, if not more, than the “buy-side.” While Sajith’s essay focuses on the fact that venture capitalists would need to sell their proposition to founders to be able to attract the best of them, sales permeates all parts of the venture cycle.

First, you need to sell to LPs or Limited Partners

As a prerequisite to investing, the GPs (General Partner, essentially the founders or partners) of a venture firm would need to raise capital. There are myriad sources of capital for a venture firm - ranging from large financial institutions, asset managers, and sovereign wealth funds to corporates, family offices, and HNIs, collectively referred to as Limited Partners or LPs.  Each category of investor or LP has a unique perspective on how they evaluate a fund manager, and accordingly, the GP has to be able to communicate and convince these asset-allocators of their unique proposition. This is the very foundation of a venture firm and needs the firm’s strategy and track record to be marketed well to its investors.

Then you need to sell your brand of capital to the best founders

Sales continue to remain an important ingredient of the investment process. While VCs need to evaluate the founding teams thoroughly on the idea, tech market size, and other differentiators of a start-up, they would need to sell to the best founders to ensure quality deal flow. Sajith has provided his unique perspective on this, shaped by his years of investing at Blume, so I won't dwell too much on this.

You also need to continue selling post the investment, to other investors, and for biz dev

Post-investment, the VC’s role extends not merely to monitor their investments but also to work closely with the founders as needed to ensure the business scales up and maintains not only business traction but also fund-raising momentum. This would typically involve VCs working with the management teams to guide and strategize on fundraise, actively prospecting follow-on investors. Thus, VCs get involved in marketing their portfolio companies to other investors.

Also, VCs often work to find business development connections for their investee companies, to find new customers or vendors, or to troubleshoot as situations arise. With talent acquisition being a critical area for early-stage businesses, VCs might need to actively help recruit early team members, in the process getting involved in selling the roles to prospective hires who often derive comfort about the stability and growth prospects of a business from the halo effect of their VC investors.    

VCs operate finite-term pools of capital and need to work towards ensuring that their portfolio companies are exit-ready and are exited within the tenure of their funds. Some exits may happen in the normal course, e.g., a company getting acquired, another investor making an offer to buy out the positions from existing investors, or a company scaling and launching an IPO. In many cases, actively creating and exploring exit options by selling the investments to other investors or strategic buyers becomes a key agenda for the VCs, involving active and methodical marketing of their investments to prospective buyers. To an extent, a VC would need to build the thought process and ability similar to an investment banker to be able to value and sell assets.  

VC is Sales!

The role and extent of sales as a broad function touching all aspects of operations of a venture firm is often ignored, or at best, not enough thought is given to this aspect. Anyone who is keen to enter the world of venture would do well to be cognizant of the “sales” hat that a VC has to wear at all times. It is no coincidence that operators and entrepreneurs are highly valued as VCs - the ability to sell products and services translates well to an ability to “sell” across the various axes of the venture cycle.

To conclude, venture capital is a multi-dimensional business, requiring a varied array of tools - sales being an important one - for a VC to deal with the underlying complexity of a seemingly simple activity of writing cheques and backing great founders!