They are known as ‘value-add professionals’ for the expertise they offer in their respective fields. And a growing number of private equity (PE) and venture capital (VC) firms are increasingly turning to them as a “shared resource” to provide support to their portfolio companies.
Under this model, these experts are being shared across the firms the PEs/VCs have invested in so that they can suggest areas for improvements in their respective verticals such as tech, legal, training, human resources (HR), operations, and brand building, and execute optimal methodologies. Most of these professionals would have worked as chief finance officers, chief marketing officers or chief technology officers or headed verticals such as training, operations and legal for at least 15-20 years.
According to TeamLease Services, India has around 1,700 VC and PE firms that manage portfolios of around 15,000 companies. Around 35-40% of these firms, that is 595-680 funds, leverage shared resources.
In this model, followed by firms like Motilal Oswal Alternates, Eximius Ventures, Elevation Capital, Prime Venture Partners and Matrix Partners, the shared resources team collaborates closely with the partners in the funds and management teams of portfolio companies.
Some of the portfolio companies of these firms that engage shared resources include BimaKavach, Dairy Classic, Simpolo, Asian Footwears, Symbiotec Pharma, Ganesh Grains, Shuru, Vegapay and Finarkein.
The concept of setting up a ‘shared resources’ team has been prevalent in developed startup ecosystems such as the US and China for many years. In India, the trend picked up pace in the recent past, especially after multiple corporate governance and ESG (environmental, social, and governance) issues came to the fore.
“In this model, funds provide portfolio companies with access to expertise that they may not have in-house or may not be able to afford on a full-time basis,” Vikram Ramasubramanian, partner, Inflection Point Ventures, told FE.
Ramasubramanian added that specialised mentors help establish robust frameworks and processes that can prevent mismanagement and foster transparency, integrate sustainable practices and meet regulatory requirements. These practices have increasingly become critical for the long-term success of startups.
The ‘shared resources’ model allows startups to tap into the resources as and when needed, bringing down the overall costs effectively. Experts say that by leveraging mentors from these shared resources, a startup can save around 30-40% of their costs, depending on the overall employee cost and number of employees. This is because the chances of every portfolio startup needing such deep expertise in every function on a full-time basis are low.
For instance, a D2C company opening offline stores may need help from an operations expert only in the initial few months. Similarly, a startup may need a marketing expert when the company is taking the digital route and trying to understand the nitty-gritty of analytics.
Experts say the cost of hiring CXOs is around ₹60-80 lakh per annum.
Ravi Teja Gupta, founder, Guptaji Invests, believes that the success of a startup does not depend on the funding but on spending. “Many B2C startups spend around 30% in marketing, and many D2C companies spend around 40-50% in marketing. So, we hired proven experts in viral marketing,” he said. He also added that certain VC companies have increased their fund size and transformed into PE companies by adopting this work style.
The ‘shared resources’ model has proven to be a win-win for funds and portfolio companies. For investors, this model not only generates better results from portfolio companies but also allows them to have structured control over them without having to interfere daily. It also secures their portfolio startups from getting trapped into complications that may come up if corporate governance is not done right.
Motilal Oswal Alternates, which invests in mid-sized companies, said an organisation is built by its support functions. “Every company has to embrace tech in a big way but none of the mid-sized companies is willing to hire a strong head of technology. Likewise, HR is one of the most important functions, but often companies can’t afford such talent,” Vishal Tulsyan, MD and CEO at MO Alternates (private equity) said.
That’s why, a few years ago, the firm decided to hire senior people from HR, technology and performance improvement and leverage them across its portfolio. The firm currently has a shared resources team of six people, including the chief people officer, CTO, head of performance improvement and other industry experts. The team focuses on improving HR practices, developing leadership capabilities, creating a tech framework, optimising working capital, and cost reduction, among other things.
The area of support that a particular portfolio company needs also varies. For instance, an early-stage startup would need support in hiring, while late-stage in their IPO journey. “Specifically, hiring demands significant time and resources, with founders sometimes dedicating around 100 to 150 hours a month to hiring. To alleviate this burden, we’ve established a dedicated HR team, supplemented by partnerships with HR agencies, enabling our founders to access recruitment services at favorable rates,“ Pearl Agarwal, founder and managing partner at Eximius Ventures, said.
The size of ‘shared resources’ team varies from firm to firm. “Many factors such as the sector in which the startup operates, the complexity of its operations, the unique needs determined by the PE or VC firm and the size of the portfolio company can affect how many personnel are allocated to each job,” Milan Sharma, founder and MD, 35North Ventures said.
