Question

There are several academic studies of how Venture Capitalists add value to their portfolio companies through stage financing, portfolio approach (investing in a portfolio of companies in the same or related industries), active investment style with significant control rights, including the right to replace the management team, etc.

I would like to hear your opinion about these and other mechanisms of Venture Capital investments as value-adding tools.

Answer 1

in VC parlance Stage Financing related to which stage of the business the financing is happening . For e.g. at the earliest stage when the core business idea is getting developed its called Seed financing Once ts started the next step can be Start Up Financing where the business has commenced but at a nascent stage. There would be small revenue accruing. Post this phase one may have several "Follow Up" financing , to expand the business capacity a bit . Subsequently  as business gathers strength follow up financing can be classified in to Series A B C etc depending on how much follow up financing has been made.   These would be mostly about scaling up and or executing the thoughts and ideas tried out on a smaller case during earlier financing rounds .whereas Seed capital is more about working on nascent ideas , follow up financing is all about scaling up and executing .

Portfolio approach would mean if investor likes one particular industry then they would allocate their money across a few companies ( not one) so as to reduce unnecessary risk associated wit one company.Lets say Investor is bullish on FinTech industry so it will be invested in 3/4 fintech companies to balance out the risk associated with anyone .

Active Management style would imply a Hands On investor who is involved in all key decisions Usually the company's operational management have to consult  them for any decisions and sometimes the investor can fire/change the management team if the business situation becomes really bad.  The opposite is "passive management' where in investor provides the capital but the day to day operational management is in the hands of the management.