It’s not about the money

Photo by Kat Yukawa on Unsplash

In DILA Capital we invest in companies that are disrupting industries and are transforming traditional businesses. Therefore, we are constantly thinking about the future, imagining what certain businesses will look like and how industries are going to change with technology. We also do this exercise for our own industry, the venture capital (VC) industry. How is the VC industry going to change? What is going to be different in the future?

Many people I have spoken to about our industry are sure that venture capital is going to disappear, that venture capital is going to be displaced by crowdfunding platforms, for example. Many believe that a venture capital firm is simply an intermediary between money and businesses. Economic theory suggests that with technology we could reach a world of efficient markets and perfect information, where the intermediaries will not be necessary. Are we (VCs) truly intermediaries? Are we just capital conduits and organizers? Can we be substituted with technology?

I would certainly argue against these arguments. Why? Because its not about the money! If entrepreneurs are looking for money and money only, then venture capital would most undoubtedly tend to disappear. However, we fullheartedly believe that we add value to the companies we invest in.

So, how do VCs add value that technology can’t? I will name at least 5 ways in which we help in DILA:

  1. Raising additional capital and debt. While its not about the money, it could be about the money of tomorrow. Successful startups usually need more rounds of capital in order to keep their growth going. In DILA we set aside more than half of our funding for follow-on investments in our portfolio companies. We also have extraordinary relationships with fellow VCs, national and international, and we constantly co-invest with our colleagues. We have a very tight relationship with the downstream capital as well: mezzanine debt shops, private equity firms and banks, that we share our pipeline with, to secure funding for our portfolio companies. So, when DILA invests in a company, we bring a lot more additional capital than just the money we invested.

There are many other ways in which VCs are helpful and add tremendous value such as recruiting or PR, which I have not included in the list above, because we (DILA) are still working on how to offer these types of services. But, the point is that VCs should bring a lot more than money to the table. There are many ways in which investors could add value to companies, the trick is (as I mention in this post finding the right investor for you.

So, to conclude, I will leave you with two thoughts:

If you are an investor and the only thing you do as an investor is hand out money, you are in big trouble. There’s a lot of money out there and technology will replace you.

If you are receiving money and money only from your investors, I suggest you find investors that can help you and your business, find investors that bring more than money to the table.

Would love to hear your thoughts below or on Twitter @adiezbarroso.

Alejandro Diez Barroso. General Partner @ DILA Capital, a venture capital firm focused on Latin American and Hispanic startups.