entrepreneur-in-residence

Entrepreneur In Residence

An entrepreneur in residence (EIR) describes an entrepreneur that is recruited by a venture capital firm to develop a new business and to ensure the investment company has a steady stream of promising start-ups to support.

Understanding entrepreneurs in residence

When a startup company becomes profitable, the venture capital firm may decide to sell its investment and nominate the founder as the entrepreneur in residence. 

The EIR position is transitional, short-term, and intended to enable the founder to locate their next role while still working for the VC firm.

Over a period of 6 to 12 months, the entrepreneur provides expertise to the company and receives support for their future endeavors in return. 

In addition to venture capital situations, many other organizations are now utilizing the entrepreneur in residence concept for advice on business models, company culture, and potential business relationships or partnerships. 

This includes educational institutions such as MIT, Cornell, and Harvard which use EIRs in advisory roles to teach students how to turn their innovative ideas into businesses.

Tech companies such as Cisco and some government agencies are also benefitting from the concept.

What is the role of an entrepreneur in residence?

The entrepreneur in residence assists with operational due diligence across one or multiple companies in the VC firm’s portfolio.

They may be tasked with nurturing expansion and new product development or be asked to restructure the company’s ownership or management structure.

Some may also use their time to scrutinize a new business idea or find another start-up they may wish to join.

Whatever the intention, however, it’s important to note that the roles and responsibilities of the EIR are specific to the needs of the firm.

Many entrepreneurs in residence are simply asked to use their nous, expertise, and network to benefit whatever project they are asked to work on.

Benefits of entrepreneurs in residence

Here are some of the obvious and not-so-obvious benefits of EIRs:

Time and flexibility

Investment companies that support successful start-ups naturally want the entrepreneur to create other businesses it can fund.

This process takes time, but an EIR who has access to company funds and influence over the transitional period ensures it has another investment opportunity ready to go when required.

Network expansion

While EIRs have access to the firm’s professional network, they can also offer the firm their network in return.

This is particularly true of those who have founded multiple start-ups.

Investment advice

Related to an entrepreneur’s experience is their knowledge of what a start-up requires to generate profits and gain a competitive advantage.

Some companies consult with EIRs to clarify which start-ups they should work with and which should be sold.

Talent retention and industry influence

Some VC firms may offer successful EIRs a permanent position to limit the competition they would potentially create if working for another company.

Permanent positions allow the firm to retain talent and increase its industry influence.

Key takeaways:

  • An entrepreneur in residence (EIR) describes an entrepreneur that is recruited by a venture capital firm to develop a new business.
  • In addition to venture capital situations, many other organizations are now utilizing the entrepreneur in residence concept. These include universities, government agencies, and tech companies.
  • Entrepreneurs in residence ensure the investment company has a steady stream of promising start-ups to support. These companies can also leverage the EIR’s professional network and ability to recognize profitable investments.

Connected Business Concepts

Angel Investing

angel-investor
An angel investor is usually a high net-worth individual who invests in early-stage start-ups in exchange for equity in the company. Angel investors are wealthy private investors focused on financing small business ventures in exchange for an equity stake. Unlike a venture capital firm, an angel investor invests their own capital during the early stages of a start-up when the risk of failure is relatively high, yet it might in the long-term unlock higher rates of return.

Venture Capital

venture-capital
A venture capitalist generally invests in companies and startups which are still in a stage where their business model needs to be proved viable, or they need resources to scale up. Thus, those companies present high risks, but the potential for exponential growth. Therefore, venture capitalists look for startups that can bring a high ROI and high valuation multiples.

Economic Moat

moat
Economic or market moats represent the long-term business defensibility. Or how long a business can retain its competitive advantage in the marketplace over the years. Warren Buffet who popularized the term “moat” referred to it as a share of mind, opposite to market share, as such it is the characteristic that all valuable brands have.

Meme Investing

meme-investing
Meme stocks are securities that go viral online and attract the attention of the younger generation of retail investors. Meme investing, therefore, is a bottom-up, community-driven approach to investing that positions itself as the antonym to Wall Street investing. Also, meme investing often looks at attractive opportunities with lower liquidity that might be easier to overtake, thus enabling wide speculation, as “meme investors” often look for disproportionate short-term returns.

Payment for Order Flow

payment-for-order-flow
Payment for order flow consists of a “kickback” or commission that the broker routing customers to a market maker (in charge of enabling the bid and ask price) will pay a commission to the broker as a sort of market-making fee.

What is a SPAC

special-purpose-acquisition-company-spac
A special purpose acquisition company (SPAC) is a company with no commercial operations that are created to raise capital through an IPO to acquire another company. The SPAC is also called for that reason a “blank check company” as it will use the money provided by investors to enable private companies to go public via the SPAC.

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