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:
- 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.
- Strategy. No one knows their business better than the operators behind the wheel. We do not pretend to know the business better. We also know that we are no where near as smart or savvy as the entrepreneurs we invest in. But despite all of this, we do see the businesses from a different lens and we have a lot of experience from other investments that we can use to help with strategies for new investments. While we are still a very young firm, we have invested in 40 companies, through more than 55 transactions. We have written off 4 investments and we have sold 5 companies. We have participated in 7 mergers and 2 spin offs. We have made many mistakes and have been part of amazing stories. I truly believe these experiences can help the new companies we invest in.
- Sounding board. Whether it is through an official seat on the Board of Directors, our monthly meetings or our weekly calls, we like for management teams to have someone (external to the day to day operations) to hear them out. It is extremely important, specially for the CEO, to be able to discuss her ideas with someone external in order to get another opinion. When we invest in a company, we like to become those ears.
- Network. This is possibly, at least in DILA Capital, where we add the greatest value. We help companies build relationships. I truly believe our greatest job as investors is making connections. It is what we do for a living. We have been creating business networks for many years and we leverage these network to help our companies sell and grow. When we invest in a business, we like to be a great resource of contacts for our new partners.
- Community. When we invest in companies, they become part of the DILA family. Once part of this community, there are many perks offered. For starters, you are now part of a community of many startups, there are opportunities for portfolio companies to assist each other, partnering, recruiting, introductions, share best practices, amongst others. We also offer our portfolio companies discounts with legal, tax and accounting practices across the region. We have partnerships with other service and technology providers that offer our portfolio companies a wide variety of specials products and services at discounted prices.
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 https://medium.com/@adiezbarroso/the-pitch-its-a-date-not-an-interview-f3e9ab866527) 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.