Creating a Venture Capital Firm
There are two things needed for creating a venture capital firm. The first is a large source of money that is free to be invested and the second is extremely capable people to manage it.
To a person basically unfamiliar with a fundamental truth of venture capital, it would seem that the only need in creating a venture capital firm is a large amount of liquid capital ready to be selectively invested. This and some office space, some telephone lines, and a few pretty secretaries to handle the calls. The only other thing you would need is a sign on the door and, voila, you have a venture capital firm. If this is your thinking, you would be well advised to purchase a “going out of business” sign from the sign painter. You will soon need it.
The true heart of a venture capital firm is the professional group of partners that manage it. This is an industry where the old saying, “if it were easy, everyone would be doing it”, really applies. It is the expertise; managerial experience, judgment, and analytical ability of the fund managers that offers a venture capital firm any chance of success. The very nature of this high risk/high return type of business requires that the savviest minds are going to be the ones that are able to find the potential deals and use their equity position to guide them to a successful conclusion.
It is very often the reputations of the managers that leads to the availability of funds for investing. It is a trait of the venture capital firm that they tend to advertise the names and experience of their managers more readily than most private equity funding firms. So, many times the act of creating a venture capital firm is nothing more than the joining together of very good, fearless, and creative partners.
When you look at venture capital in emerging economies in the global marketplace, it is often the lack of experienced fund managers that creates the biggest problems. The investment opportunities may be staggering, and traditional lending institutions and conservative investment funds might be doing record business, but venture capital remains risky due to the lack of experienced local managers. In most cases, cultural differences require a partnership with local talent and it just is not there. As local managers gain experience, so does the local venture capital industry flourish.
Creating a venture capital firm is, indeed, the bringing together of professional and competent proven talent. When these movers are in place, it becomes easy to attract investors. The managerial talent is the firm. Once they are in place, the offices, phones, computers, secretaries, researchers, associates, and even the sign on the door are routine matters easily handled.