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3 factors that determine how VCs work with Startups

March 28, 2022
Company Building

We certainly live in a cash-rich environment. The AUM of ASEAN-focused PE-VC industry stood at a record $37bn as of December 2020, more than doubling in five years.

But the value of VC money can’t only be counted in dollars.

Getting a term sheet & the capital itself is not the end, it is the beginning. You need to pick a VC that is right for you for your stage of business, knowing that you only have a fixed percentage of shareholding you can afford to give away. This is something easier to do in today’s environment where VCs have raised a lot of money and are ready to deploy that money in your startups.

However, it is important to understand that your relationship with the VC will vastly differ depending on their role and strategy.

ROLE: Lead VC Vs Follower VC

VCs will be more or less actively involved in your business depending on their role as Lead or Follower.

The lead investor will want to drive the process, from setting terms and price to leading the diligence and legal docs. They will ask for a board seat and will try to keep special rights over the next few rounds. For example, your Series A lead will typically tend to remain actively involved and guiding the company until Series C or if there is an exit event before that, they will typically lead the process on behalf of other investors. On the other hand, followers will rely on the lead and on existing investors to help guide the company.

STRATEGY: Concentrated portfolio vs ‘Spray & Pray’

The second important determinant is the VC’s own investment strategy- whether they are building a concentrated portfolio vs ‘spray & pray’.

Managing a fund is complex as you add new portfolio companies more often than you exit these companies. So any investment professional or partner will end-up having to handle upwards of 15 companies or more at the same time. And you can’t give every founder the same level of attention if you have so many running in parallel.

Hence some funds will have a concentrated portfolio — this is what Jungle does — where we have less companies but we commit more money, bandwidth and resources to each of them.

While other funds will invest smaller tickets in a large number of companies, building “index funds”. This effectively translates into investing in several companies every month. As they can’t be actively involved with each and every one and hence play a more passive role.

As a result, some VCs will be fine getting information rights, or a simple monthly or quarterly reporting. On the other hand, more active VCs will require a board seat and what’s called Reserved Matter rights, where their approval is required when the founders want to undertake specific actions (typically approving a new round of financing, approving the budget or spend above a certain threshold or above budget, top-up of the ESOP, M&A etc).

That being said, even active VCs with a board seat are not looking at micromanaging the company. It’s a matter of protecting their investment by staying close.

FUTURE PARTICIPATION: Follow-on support vs one-off investment

Finally, one last implication is to understand what to expect in the future, ie Follow-on support vs one-off investment.

Investors who have a Spray and Pray approach rarely have an automatic follow-on, especially if the company isn’t performing as planned. Other VCs will plan reserves when they do portfolio construction which means they will have money set aside to keep on supporting the companies, either through bridge rounds or as a follow-on along the next new investors.


We would never assert that there should be only one route for founders to take. VCs will be more or less actively involved in your business depending on their role as Lead or Follower and their own investment strategy (concentrated portfolio vs spray & pray).

  • That will dictate what types of rights, reporting and frequency of meetings they request.
  • It’s important to do your due diligence on the investors!
  • Project your captable over time: imagine how much cash you will need to build your business to say — $50/100m revenue and hence how much dilution you are likely to take and what type of investors is preferable.

So, to all you early-stage founders out there — best of luck & make good choices!

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