Providing investments is not enough anymore: The reinvention of venture capitalists
Join two venture builders and serial investors in discussing how the industry transitions from investment only towards collaborative, educational and mentoring initiatives.
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When confronted with the concept of venture capitalists, most people think of start-up investors trying to identify the next unicorn or decacorn in pursuit of the highest possible profit. However, what does it mean to find start-ups to invest in, what are their needs and requirements and what is the success rate of such investments? That and much more was a part of the Wolves Summit 2021.
Join Alina Nilsson, Co-founder at EMERGE and SOLYANKA, as a moderator, together with her guests Alexander Chekan, Founding team member, Chief of Staff at Palta and Nina Alastruey, Principle at Demium and gain insights into the decision processes of these two companies when it comes to investment as well as the general venture capital industry, new forms of start-up investments and smart money.
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Palta and Demium, two innovative venture capital investors and accelerators
Demium and Palta can rely on extensive experience when it comes to mentoring, accelerating and investing into start-ups.
Palta is not a typical investor but rather a long-term partner of ventures. They offer in-house expertise when it comes to strategic decision making and scaling the businesses they invest in.
Demium is an accelerator and supports individuals and teams in launching their ideas into new markets by integrating the ventures within their extensive network.
Image credits: Wolves Summit 2021
The value of mentors for a young venture
Chekan noted that Palta uses a similar approach when it comes to supported ventures. "We provide them with confidence and courage as well as the required financial means", says Chekan. He further explains that Palta avoids bringing additional investors onboard as these situations create challenging environments and increase transaction costs when it comes to managing and accelerating the ventures. With the existing in-house expertise at Palta, supported ventures can rely on a strong partner when it comes to setting up operations across various geographical regions, hiring talents as well as experimenting about future services and products.
Alastruey, herself a serial entrepreneur, helps startups to succeed by running a six to three months long, mandatory accelerator program for ventures joining Demium. While most entrepreneurs will have provided a proof of concept of their service or product offering already and demonstrated technical as well as industry knowledge, the frequent lack of management skills is hindering the upcoming scale-up. Therefore, the program offers extensive mentoring opportunities combined with educational components to teach the founders necessary skills for the years to come. "It is important to acknowledge the vital influence founders have on the success of the venture. This is why I push them to gain the necessary skills rather than replacing them with more experienced entrepreneurs", Alastruey said. Ultimately, launching a business is a concept which heavily relies on experience - which is why mentoring is such a crucial part of the way Demium operates.
Both guest speakers agree that investing in early-stage ventures goes beyond providing financial means only. Especially in today's world where the access barrier to capital, while not evenly distributed across the globe, is rather low. It is about helping founders to excel and strive for global success by providing them with guidance and first-hand experiences.
Recipe for success
One of the guiding questions of the Wolves Summit 2021 was their recipe for success. With so many start-ups out there, how can one narrow down the list of potential ventures enough to carry out a thorough due diligence (as far as this is even possible considering the maturity of the ventures)? According to Chekan and Alastruey, there are several key factors they focus on.
Don't be afraid of making mistakes Everyone makes mistakes - venture capitalists are no exception here. The question, however, is what is worse - not making a decision or making a bad decision? Both agree that from non-decisions no profit can be realized nor any lessons learnt. Chekan said that making mistakes is a part of the venture building process and needs to be integrated in any investment decision process. The market size and structure plays a crucial role hereby. Large as well as growing markets absorb mistakes quicker than declining market environments. "It is better to identify all mistakes at an early stage than to be paralyzed afterwards at a later stage", Chekan concludes.
Don't fall in love with a specific product or idea Ventures grow and sometimes they outgrow current service or product offerings. Which is why it is important to remember that a venture is not mentored because of a service or product they offer but because of how they collaborate and create that very service or product, Alastruey mentions. She further says that Demium emphasizes the importance of vision, the fruitfulness of collaboration between Demium and the venture as well as the willingness to adapt and change to the success of the venture.
Focus on talents Alastruey says that looking out for talents is a great success factor for investors. Talents may join any team if they don't have an idea of their own yet. The difference between individuals and startups is an important one to make, Alastruey said. "Demium offers incubation and acceleration programs. The difference lays within the evaluation, timing, and strategy. Some individuals join only with partially developed ideas and we help them grow these into fully-fletched businesses", she then goes on.
Be geographically present Demium recommends having a Head of Talent (HOT) in every hub. The team does not need to be extensive by any means. Two people responsible for the operational side and one for talent acquisition will do the trick, Alastruey says.
Know what support they need According to Chekan, 40% of founders' time is dedicated to fundraising and 40% to hiring. Founders are decision makers - even if they are needed to develop the product further. Palta supports founders by introducing a variety of experts supporting the venture in hiring as well as operational and administrative tasks. The objective hereby is that the founder can focus on what needs to be done - not on how to pay the salaries next month or what staff to hire.
Relationships matter Respect – the most important attribute in venture team dynamics. There are a few tips on how to create trustful relationships between investors and founders such as to build more touch points, create a collaborative environment by transparent communication approaches or simple Friday-night drinks receptions with the entire team.
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Final words of advice
At the end, we have asked both of our guests to summarise their advice given to the most important conclusions.
According to Alastruey, early stage investors must focus on three important questions. First, how talented is the founding team? Second, how determined and mission-driven is the team? Third, does a market already exist or do we need to develop the market first?
Chekan says that besides the aforementioned points, it is important to acknowledge the achievement of the founding team. They have done very well so far and deserve trust from the investor. Providing the founders with the level of independence they require is of utmost importance to the long-term success of the venture
With this closing remark of Chekan about trust, the Wolves Summit 2021 comes to an end. It has been an intensive, informative and invaluable experience talking with Alastruey and Chekan about their experiences. Thank you very much for your willingness to share your expertise and for your time. We wish you the best success in your future endeavours.