Have you ever thought why some investors manage to generate extremely high returns for their startups and others fail? In the 21st century, we have a big variety of venture funds, angel and individual investors, who have different approaches to their investment deals. Some of them may only provide money and just wait for their share in returns, others get really engaged in the project development and sincerely interested in its success. We already mentioned good examples of cooperation between VC firms and startups: Rubylight, Practica Capital provide significant practical assistance to their partners and really try to get the best of each project they select.
Recently, the researchers, exploring American VC sector, made a list of so-called ‘top-tier’ venture capital funds and tried to work out why particularly these VCs fell into the category of ‘top-tier’. At first sight, the leading partners of these VC firms seem to be generally the same as the partners of other ‘less successful’ funds: mostly male and middle-aged. However, there is one crucial trait, found common in leading investors’ background: they all possess a certain entrepreneurship or senior executives’ experience at startup companies, many of them launched their own startups. At the same time, partners of ‘non-top tier’ VC firms are in most cases formerly engaged in the banking sector. So why does entrepreneurship background make so much sense for a good VC partner?
First of all, it’s all about real knowledge of what it takes to build a company from scratch. Former founders have already learnt it from personal experience. Another aspect deals with having a personal network of useful business connections, also acquired in the past while working inside the entrepreneurship community: now investors can always ask those people for help or a piece of advice.
As a result, most of these leading VC investors now lead exceptionally successful startup companies that have achieved incredible exit heights. And this is true about 1000 entrepreneurs from 24 countries observed within the research. Interestingly, those experienced investors from top-tier VC firms often encourage their partner startup founders to join their venture communities and also perform as investors. Which is actually the right thing to do: really experienced investors are in great demand!
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