Venture capitalists (VCs) always come with an agenda to cash out investments. They strategise their exits as diligently as they plan entries. Industry experts say VCs are often misunderstood for this, especially, when their agenda works against the companies they have invested in.

“Most companies don’t know how to let VCs go,” says R Ramaraj, senior adviser at Sequoia Capital. “They come with time-bound agendas and have their deadlines to meet. The only way for a VC to regain its money is to exit. Entrepreneurs should be shrewd enough to know when to let a VC in and out. Timing is the essence.”

That is exactly where the misunderstanding sta­rts, says a senior US-based Indian entrepreneur, who requested anonymity. He is a first-generation entrepreneur who ran a notable technology company in Chennai.

“Our investors wanted to exit and tried to force us into a couple of acquisitions, which were total misfits. They wanted us to go for an initial public offering but to our dismay, the market wasn’t conducive. We wanted to grow the company to a certain size before going the intial public offering (IPO) way. We were a small company then; meeting investor and analyst expectations quarter-on-quarter would have been impossible to manage,” he adds.

Mismatched strategies between the venture capital firm and the company led to a discord and they parted ways over a couple of years ago. A new management now runs the company.

Rahul Khanna, manag­ing director at Canaan Pa­rtners, says, “Brilliant improvisers that they are, the best entrepreneurs often don’t start out with an exit mindset. Instead, they constantly assess the market and make the most of the limited resources they have at hand to build their businesses, one day at a time. For those of us in the VC industry, it has always been important to think like entrepreneurs rather than purely as investors. It isn’t always easy, but I believe it requires a conscious effort — not only to meet and spend time with entrepreneurs, but also to understand what motivates them and then truly be a partner that they can count on, through ups and downs to help them achieve their vision.”

According to Investopedia, VCs find it difficult to get money out of an investment because they are generally dealing with private companies. When a firm is private, the shares cannot be sold nearly as easily as when it is publicly traded on a stock exchange. So, even though a private startup firm could be worth millions of dollars, the VC has little access to this wealth. The exit strategy is the first opportunity for a VC to trade an illiquid asset (shares in a private firm) for a liquid one (cash).

“IPO is the best way out that will make everybody happy. Promoters get to hold their stakes and the VCs get their money. But let’s face it. How many of our companies today are ‘IPO-able’ (capable of going for IPO)?” asks Sidharth Gupta, chief executive officer of GETIT Infoservices, the pioneers of Yellow Pages and free classifieds in India. “Even if companies take the IPO route, how many of them are actually successful? When an IPO isn’t possible, VCs would obviously look for other investors to buyout their stakes. In that case, promoters maybe dumped with partners, who may not be the best fits.”

A lot of critical management time would be wasted in appraising the VC about the company and its purpose, and then finding common ground. A VC that doesn’t understand the core values of a company will definitely turn out to be detrimental to the organisation.

“It’s very simple: You can’t have your cake and eat it too. After all, funding is a financial transaction. A VC puts its money in a company to multiply its investment. However, VCs’ exit strategy is not hidden. It is there in the contract and should be clearly understood upfront. It is the choice that promoters have to make and be prepared for,” he adds.

Ironically, money may not be the only reason why entrepreneurs go for VC funding. Sometimes peer pressure also forces entrepreneurs to opt for external funding. Differences in the strategies between the company and its investors start from reasons like these.

“There is definitely peer pressure to raise funds,” says Murugavel Janakiraman, founder and chief executive officer of Consim Info, the promoter of BharatMatrimony.com. “We let go of an opportunity in 2003. But in 2006, we didn’t have a choice but to raise money and grow fast because our competition had done so. Otherwise, we wouldn’t have been where we are today in our business.” VCs bring more to the table than just money.