In 2021, VC investments in India saw 3.8x growth over 2020. In the overall PE-VC investments, the share of VC deal value reached over 50% – a record in itself. It is no secret that the Indian VC investments had a monumental year, growing faster than global VC investments. At the same time, India’s share of global VC funding almost doubled from less than 3% to 5.6% in 2021.

It’s not just capital

Beyond funding, VCs provide new enterprises with something equally, if not more, valuable. Investors not only bring their name but also their expertise, and years of experience to the table. They are armed with solid strategic advice and play an important role in mentoring founders of nascent companies. At the same time, emerging companies can benefit deeply just from the reputation of their VCs which often brings with it a large and global network and long-term scalability. Indeed, capital is just the starting point of a VC-founder partnership. As a company grows, the role of the VC also evolves. It is through this evolving and unique relationship that VCs are shaping the businesses of tomorrow.

Building a competitive advantage

The global tech VC investment in startups hit a record level of $675 billion in 2021, with India following the US and China with $44.6 billion in funding in the sector. While investments in technology deepen, VCs have a duty to carefully analyze a startup’s tech offering. How differentiated is the technology, is it easy to replicate, and what are the costs of building and implementation? What is the competitive edge?

These are just a handful of questions that VCs will pursue before (and often even after) investing in a startup, and rightfully so! Since 2020, the world has been forced to face a multitude of challenges that are only growing day by day. From climate crisis to social injustice and gender inequality, the complex issues facing the world today have impacted everyone. The new generation is not only aware but is also demanding more from larger companies. Many companies have taken to reinventing their business models, introducing innovative solutions, and re-imagining the way they operate. However, the responsibility for a sustainable future does not fall on the shoulders of large companies alone. Startups must become a part of the solution too. This is where VCs are proving to be critical. Venture Capital firms are rapidly incorporating Environmental, Social, and Governance (ESG) factors in their investment considerations and processes.

Today, the focus is not only on investing in new technologies but rather on technologies that have inclusion, sustainability, and equality at the center. No doubt, there are still many barriers diluting the attention that VCs pay to factors other than rapid growth, but the tide is fast turning. VC-powered communities designed for VC firms are working to make ESG a standard part of the due diligence process. The increase in strong measuring and reporting tools also helps today’s VCs to get a clear understanding of a business's environmental and social impact while also simplifying the process for future investors.

Another area where VCs will play a strong role going forward is organizational building and hiring. With a focus on scalability, VCs can help construct decentralized organizational structures that prioritize accountability. Leveraging their network, VC partners have the potential to strengthen the second layer of management, hiring for important roles in the startups. In 2022, Indian startups are set to double their CXO hiring. This is a direct result of growing investments/funding. The multifunctional experience, across industries, allows VCs to identify skill gaps and design good job descriptions that are critical to finding the right talent and power progress for an early-stage startup. The credibility that VCs add to an emerging company also plays an important, though overlooked, role in bridging the talent gap.

Finally, the VC network is increasingly helping startups grow across borders. In today’s connected world, where global expansion does not seem like an over-ambitious dream for an early-stage startup, VC funding and their network can prepare and propel startups to reach newer markets faster than before. The ease of launching business, the widening talent pool, and an increase in capital, all play a crucial role in boosting expansion plans.

Wrapping up

Venture capitalists have always been the backbone of a thriving startup economy. With rapid digitization and tech adoption, the role of VCs is also fast transforming. Today, VCs are placing a premium on innovation and quality over anything else. Borders and geographies are no longer a matter of great concern for global venture capitalists, leading to increased portfolio diversification. Equipped with the right analytical tools, investment insights, and the knowledge of new possibilities, VCs are fueling a new future.