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April 15, 2008

VCs taking external help to walk the talk on value-add

The Mint has an article on how VC firms are signing up advisors who can add value to their portfolio companies.

Helion has hired Dhruv Prakash, a former human resources manager at Hewlett-Packard Development Co. Lp., to address another big issue faced by start-ups: recruitment and training. In addition, the firm shares other resources with its portfolio companies. For example, its chief financial officer Natarajan Ranganathan holds a session with all its companies every two months to discuss issues faced by each and share bestpractices.

These initiatives can be put down to a few key factors. One, as VCs with finance and technology backgrounds get into new, unfamiliar sectors such as clean tech, retail or health care, they need domain expertise. For VCs entering India, it could be the need to familiarize themselves with the market quickly. DFJ, for example, has in-house analysts focused on clean tech at its Menlo Park, California offices, but does not have similar resources here.

Two, as the portfolio grows, VCs will be stretched to be very hands-on with each company. For example, both Helion and Erasmic, which have four partners each who can take board seats, fund at least a dozen companies, meaning each partner will be on the board of at least three firms it funds. The partner-to-company ratio is similar for firms such as Nexus India Capital, NEA IndoUS Ventures and Matrix Partners India, all of which have dedicated funds to invest over the next few years. “You can use your VC contacts to help the company with the first few customers, perhaps, but companies have to go beyond that, and it is very difficult without external support,” says Prashanth Prakash, managing partner, Erasmic Ventures.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.