Shared resource model enables PE, VC firms to oversee management

Known for their expertise, ‘value-add professionals’ are becoming increasingly popular among private equity (PE) and venture capital (VC) firms. These firms are adopting a shared resource model, utilizing these experts to support their portfolio companies.

Under this model, experts are shared across various firms where PEs and VCs have invested. They suggest improvements in areas such as tech, legal, training, HR, operations, and brand building, implementing optimal methodologies. Typically, these professionals have extensive experience, having served as chief finance officers, chief marketing officers, or chief technology officers, or leading verticals like training, operations, and legal for at least 15-20 years.

According to TeamLease Services, India hosts around 1,700 VC and PE firms managing portfolios of about 15,000 companies. Approximately 35-40% of these firms, or 595-680 funds, utilize shared resources.

Firms like Motilal Oswal Alternates, Eximius Ventures, Elevation Capital, Prime Venture Partners, and Matrix Partners follow this model. Their shared resources teams collaborate closely with fund partners and portfolio company management teams.

Notable portfolio companies engaging shared resources include BimaKavach, Dairy Classic, Simpolo, Asian Footwears, Symbiotec Pharma, Ganesh Grains, Shuru, Vegapay, and Finarkein.

The shared resources concept has long been prevalent in established startup ecosystems such as the US and China. In India, it gained traction recently, especially following multiple corporate governance and ESG (environmental, social, and governance) issues.

“This model provides portfolio companies with access to expertise they may not have in-house or afford full-time,” said Vikram Ramasubramanian, partner at Inflection Point Ventures. Specialized mentors help establish robust frameworks, prevent mismanagement, foster transparency, integrate sustainable practices, and meet regulatory requirements, which are critical for long-term success.

The shared resources model allows startups to access expertise as needed, reducing overall costs. By leveraging mentors from shared resources, startups can save around 30-40% of their costs, depending on employee costs and numbers. This is because the need for deep expertise in every function on a full-time basis is low for most startups.

For example, a D2C company opening offline stores might only need an operations expert initially. Similarly, a startup might need a marketing expert when taking the digital route and understanding analytics.

Hiring CXOs can cost around ₹60-80 lakh per annum. Ravi Teja Gupta, founder of Guptaji Invests, emphasized that startup success depends more on spending than funding. “Many B2C startups spend around 30% on marketing, and many D2C companies spend around 40-50% on marketing. So, we hired proven experts in viral marketing,” he said. He added that some VC companies have increased their fund size and transitioned into PE companies by adopting this model.

The shared resources model benefits both funds and portfolio companies. For investors, it generates better results from portfolio companies and allows structured control without daily interference. It also protects startups from complications arising from poor corporate governance.

Vishal Tulsyan, MD and CEO of MO Alternates, noted that an organization is built by its support functions. “Every company must embrace tech significantly, but mid-sized companies often cannot afford a strong head of technology. Likewise, HR is a crucial function, but such talent is often unaffordable,” he said.