5 things I have learned after 365 days in Venture Capital

I finally completed a year in a Venture Capital Fund, and I believe I have or am about to earn the right to be called a “Venture Capitalist.” Looking back at the year gone by, I have learned many new skills required for my daily duties. Even though I have been an active investor since I was 18 years old, focusing on investing in listed companies, there is an immense difference in how listed companies and startups evaluated.

I have highlighted a few of the key differences:

· Lack of primary database: There is no database/screener to filter the prospective company based on your investment philosophy. The evaluation process requires a hands-on approach to understand the inner workings of the venture.

· Founder’s background: Even though this is crucial in both listed companies and startups, the need to evaluate a startup’s founder is more centric as the venture has not yet proven that it will have perpetual existence.

· Investment risk: Venture capital investments are much riskier as compared to stock market investment as the company does not have a proven track record making a case for the investment proposal. However, venture capital investments do provide a high return when the investment decision is right.

· Importance of negotiation: While evaluating the intrinsic value of a stock, there are multiple approaches one can take, such as a DCF (discounted cash flow) valuation model or enterprise value. The process to value a startup is more to do with the investor’s negotiation or bargaining skills to bring the valuation down to the desired level.

· Portfolio Management: Portfolio management is by far the most significant difference as it is not restricted to monitoring price movements and the financials of the company. It entails much more as it focuses on helping the company grow its business in whatever way necessary.

Even though there are many more differences, it is a great thrill to be working with and evaluating startups. I look forward to my next five years in VC investing and hopefully managing a fund of my own!