VC's provide what is known in the
industry as "smart money". This phrase essentially means that VCs' contribution is not limited to money. They function as guides and mentors and help the entrepreneur in making the business succeed.The VCs can, and
often do, make a valuable contribution in areas like long and short-range business planning, recruitment of key personnel, development of key customer relationships and developing strategic alliances.
The amount and
depth of involvement varies according to the industry, the company and the VC firm. The VC's involvement is mostly "need based". They get more involved in the businesses where they think they can add more value and
their help is required. In all the businesses that the VCs invest in, they try to determine what skills the entrepreneur lacks. Then they work to provide that expertise. This decreases the likelihood of the business
failing due to the skill gap in the business.
For example, if the company is being run by a young "techie' with limited business experience, VCs are more likely to provide their input on a regular
basis. In the case, however, of a business run by an experienced business manager, VCs are likely to limit their involvement to monthly reviews of the business and, perhaps, to introductions with the potential future
constituents of the business.
Some entrepreneurs may consider the VCs active involvement as "interference" in the running of the business. Such an approach is misplaced as the VCs do not actually run a
start up business which someone else has created. They are only interested in adding value to the businesses they invest in, and they cannot do so without being aware of all the aspects of the business. Entrepreneurs
who are used to operating on their own, or as part of a small founder group, must be prepared, on the infusion of venture capital in their business, to have another group of people actively involved in their business.
