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Fostering the “Venture Capital Ecosystem”

Are you familiar with the “venture capital ecosystem?”

If your answer is no, then don’t feel like you’re ten steps behind. The concept was recently introduced by Forbes contributor Victor Hwang, who believes that every startup should have access to funding.

According to Hwang, “thousands of companies with potentially world-changing innovations – whether life-saving drugs, alternative energies, or countless other new ways to solve big problems – fail each year because of their inability to access capital.  If money is just money, then it should flow efficiently, and great entrepreneurs with great companies should always find it.”

This, of course, is not the reality. All startups are not created equally; some flourish, while others languish. Some introduce brilliant ideas while others don’t even deserve five minutes of fame. Every startup is nuanced. But in order for the capital market to work freely, Hwang suggests that we need to introduce a new method.

Enter the venture capital ecosystem.

Hwang has developed five rules that can foster a strong, equitable venture environment:

1. Venture Capitalists Need a That “Special Something”

Venture capitalists are not mere financial advisors. In order to make an investment thrive, both parties behind it – both the investors and the entrepreneurs – need to have  a little “oomph.” Hwang suggests that investors “look for people with some “cowboy” in them, who care deeply about growing companies, who are bold enough to rewrite the rules of finance if they need to, and who know how to navigate companies through the tortuous, serendipitous path that is to come.”

2. Focus on People, Not Just Funds

Hwang stresses that there is no concrete formula that guarantees success. Instead, strategy must be tailored to each individual startup. He explains that investors and entrepreneurs should “focus on what you are trying to accomplish, and then design a fund structure for that purpose.  Are you trying to incentivize win-win or zero-sum behavior?  Do you want to grow companies that make local headlines, or become globally viable competitors?  Do you want fund managers who collaborate well with other players over the long run, or maximize their own returns in the short run?  All these factors can be designed into the DNA of a fund, even an entire VC industry.”

3. Foster a Strong Entrepreneur/Investor Relationship

Success comes from collaboration. Strengthen relationships between investors and entrepreneurs and there is an exponentially higher chance that the startup will soar.

4. Up the Enthusiasm-Ante

Hwang reminds us that “Venture capital is an active sport, not a passive one.” A go-getter attitude is absolutely necessary in order to keep things moving. People will never hand your startup opportunities on a silver platter.. You need to seek them out yourself.

5. Stay Loyal

Stick with your project. Consider how it will contribute to the community, and why it matters. Show people why it matters.

Armed with these tools, Hwang explains that startups and venture capitalists can foster a relationship built on mutual respect, success, and growth. It’s an arrangement that has both short-term benefits and long-term advantages. A win/win.

Read more at Forbes, entrepreneurs.


Image Credit: [Flickr/Lake Wentworth]

Categories: Startups , Venture Capital


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