Startup/SME investors (Government, VCs, Angels, Pension funds etc) and entrepreneurs share a common goal of success, and for this to become a reality both the investor and the entrepreneur have to work together in a process called value-creation and this costs investors a minimum of 60% of their revenue. VCs overspend more on value creation because investors have little or no oversight post-investment. We learnt that investors have accurate data only at due-diligence phase, and post-funding investors battle with oversight.
Entrepreneurship is hard, the main challenge is finding product market fit and hence +90% startups fail. Entrepreneurs face challenging decisions daily impacted by procrastination, ranging from compliance, financial reporting, team management etc.
Post initial investment, VCs embark on an industry standard process called value-creation, it is where investors help the startup to grow and this can be in the form of introductions, skill-knowledge sharing, opportunities, additional capital, advisory etc. On average a VC manages about 15 startups, the application of value-creation interventions in order to help the entrepreneur is impossible without oversight-data, especially where timing is a factor.
Currently investors request periodic accounting reports plus an advisory board seat so they can add value, and income case hire expensive professional analysts, however these traditional expensive methods have little correlation with startup success, given the difficulty in accessing oversight data. Obtaining accounting reports from startups is often a big challenge and the advisory meetings are far between thus not effective as a lot happens in startups daily where investors could potentially add-value. By using incentives we can get the much needed data from entrepreneurs.
Investors need data on team hires, unit sales (MRR) , pipeline-build, product development process and the route to selling to a target customer type and accounting reports cannot provide. Some BVCA investors have converted to expensive accelerators-incubators