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Resource  8, Apr 2014

The Toad @ JFDI: Venture capitalism is not as bad as it is made out to be

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To the artist, commercialisation may be a dirty word, but venture capitalist contribute experience and mentoring in return for few monetary gains

There is a perception that venture capitalism is akin to selling your soul to the devil. Why? Bloomberg sums it up as the following: Venture capitalists are in it just for the money; they could cause startups lose their autonomy and demand for certain conditions such as anti-dilution protection, dividends and liquidity preferences. They may even be able to fire the startup founder if he is not up to scratch. This could range from the CEO being too autocratic, too visionary (crazy), late on monetisation, late to exit, and far too young.

Here’s a scenario to illustrate it: If a group of upstarts woke up and thought to change the world by force, venture capitalists would be the ones who finance the weaponry — the medieval arms dealers. However, they wouldn’t hesitate to start selling arms to the enemy if it is clear that your business would fail.

To the artist, commercialisation may be a dirty word. It may even steal away the independence and individuality from one’s art. The fear of the artist is that his/her art is twisted such that it no longer serves the function it was intended for. Artists, loosely defined as experts in a field, are generally adverse to letting others interfere with their vision.

However, there are many times that working together with venture capitalists results in an equitable exchange. They contribute experience, advice, and mentoring in return for your company’s equity or revenue. Some are even concerned for the startup founder’s mental state. For example, at JFDI, they invited a doctor to do psychotherapy sessions for their entrepreneurs if they experience burnout.

I asked the JFDI startups about their opinions on venture capitalism before and after coming to JFDI. Utkarsh Apoorva from Autocus, which now prefers to be known as Mashbox, described it as a love-hate relationship. He shared there are two different kinds of venture capitalists in India: those that come from successful startups and have a good idea of the industry, and those who have made their fortunes somewhere else. Ex-entrepreneurs normally know what must be done for a startup and contribute valuable advice, and these are the venture capitalists he loves. Venture capitalists from outside the industry, who simply contribute the funds and make demands, are the ones he does not like so much.

In terms of tussle between freedom in artistic endeavours and commercialisation, Rama Manusama from Wikasa commented that there needs to be a compromise between the two. Venture capitalism is definitely the platform for startups to accelerate quickly. Though there are cons, without venture financing, most startups would not make it big outside of the local market for a long while.

Theon Leong

Theon Leong

Theon is a skeptic who believes in possibilities after learning that three thirds of a pie does not add up to one and that cats can be dead and alive at the same time. He writes about business and technology, and is particularly interested in deconstructing complex ideas into bite-sized chunks. His favorite novel is The Little Prince, and spends his free time on chess and video games.

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