How can you differentiate your VC value proposition using portfolio companies?

In 2023, Andreessen Horowitz highlighted its investment in the fintech company Stripe. Andreessen Horowitz showcased Stripe's journey, emphasizing their unique market understanding, customer insights, and competitive landscape navigation. They provided detailed case studies and testimonials demonstrating how their support helped Stripe overcome significant industry challenges and achieve key milestones, such as expanding their global reach and integrating advanced payment technologies. VCs can further differentiate by demonstrating deep technical expertise and a strong network in their chosen sectors. For instance, offering access to cutting-edge technology or exclusive industry events can be a game-changer for startups.

Show, based on your portfolio companies, that you have deep industry experience in one vertical and business model. Nothing is more diluting than a broad portfolio of a micro fund that invests across B2B, B2C, and many different verticals, starting from consumer application to enterprise infrastructure.

As an investor, differentiate your VC value proposition by emphasizing a clear sector focus. Highlight how your expertise in a specific industry has guided your portfolio companies to success. Showcase case studies where your targeted insights and network have uniquely benefited these companies, underlining your deep understanding and commitment to the sector. This approach not only attracts startups in your niche but also establishes your fund as a specialized and knowledgeable player.

One important way for VC's can communicate their value proposition is by alignment of their portfolio firm's value prop. Whether it's a sector focus or something else, create a messaging scaffolding or ladder that's easy to follow. Tell the WHY. Many times it's easier to use a graphic or infographic so readers can understand in a snapshot!

Overall reputation of the VC firm and their sector focus are typically where prospective portfolio companies start when looking for investors. A VC firm can differentiate themselves by highlighting their portfolio companies to add their specific focus within a sector - e.g. fintech with a focus on payments companies or blockchain companies - and when this is combined with some details of the success of their portfolio companies it can create a clearer picture of the VC.

Capital is not a differentiating factor anymore. There is an abundance of available capital (especially in the earlier stages) thanks to new entrants. Differentiate yourself through deep industry knowledge, previous operator experience, and a network in the vertical your startup operates in.

The term 'value add investor' has become an overused label in the VC industry. I've worked with many fund managers who aspire to add value to portfolio companies, but it's aspirational. If you're a passive check writer, own it and be honest about it. Don't claim you're a value add. But, if you do wish to market yourself as a value-added investor, market your skills, abilities, and capacity honestly. Don't be aspirational. Don't advertise that you have a vast network of experts to support founders and then build the network after the fact. Do the hard work to develop the value-added service and then make it known. If you're found out to be an imposter, founders will let each other know!

In 2023, Sequoia Capital invested in DeepMind Technologies, offering more than financial support. Sequoia provided comprehensive mentorship, including industry-specific coaching and training. They facilitated access to influential networks, and made introductions to key customers and partners, crucial for DeepMind's early-stage growth. They also assisted in hiring top talent, crucial for a tech startup, and supported fundraising efforts, leading to additional successful funding rounds. Furthermore, they aided in product development, ensuring market validation and efficient customer acquisition. VCs can offer strategic guidance on intellectual property management, regulatory compliance, and international expansion.

Talk about your experience working with your portfolio companies. What you have actually done beats what you could potentially do any day. And if you don't have that be open about it. Honesty is an added value in this space in and of itself!

VCs should package and market their non-financial services and benefits. Showcase any centralized services available to portfolio companies such as research, training, hiring, contract/legal support and so on. Also describe the VC collaboration support such as introduction to customers, potential partners, and brokering strategic alliances. Collaboration can also include operational advice and mentoring to the portfolio company team. Provide references within your current portfolio companies so prospective ones can get a first-hand perspective.

Are you doing anything that has a substantial social or environmental impact? Do share it with founders, most of them will appreciate a socially responsible management team! However if your entire approach to ESG sits in a policy document somewhere and you are vaguely aware it even exists, don't push this. It's OK not to check all the boxes. In fact, if you're not doing anything meaningful pretending that you do only sends the message that you're virtue signaling and don't really care about the issue. Founders are very sensible to being mislead and oversold and you will only harm your image.

Every company, including a VC firm, needs to have a position, operating approach, and data for their social and environmental impact. It's important for these to NOT be superficial statements with no detail to back them up. Be honest. Be clear. Show data.

In 2023, Bain Capital's impact investing arm invested in a social enterprise focused on improving healthcare access in underprivileged regions. Bain Capital not only provided capital but also strategic guidance, helping the company scale its operations and enhance its impact. Bain Capital shared metrics like the number of new healthcare centers opened, patient increase percentages, and improvements in health outcomes, demonstrating the tangible impact of their investment. VCs can integrate advanced technologies like AI and big data analytics to measure and amplify their social and environmental impacts.

Your network is your net worth. That's true, especially for founder communities. Early-stage founders want to learn from peers who have overcome their challenges already and learn from their experience. It's a massive missed opportunity not to connect the founders of your portfolio companies with each other.

Connecting founders to your strong network of successful alumni is gold, their real-world insights and introductions are priceless for scaling up. Clever way to leverage your investing wins to attract even more top talent

In 2024, Y Combinator built an extensive network among its portfolio companies, fostering a collaborative and supportive ecosystem. Y Combinator organized regular events, workshops, and webinars, where founders from various startups could engage with experts and mentors, and importantly, with each other. They showcased how this network effect had tangible benefits: a startup in their portfolio specializing in renewable energy technology collaborated with a software development company from the same community, leading to the development of a energy management platform. VCs can build digital platforms offering features like mentorship matchmaking, collaborative project tools, and forums for discussing industry trends and challenges.

At the core of our value proposition is our approach to curating a dynamic portfolio network. Rather than merely backing companies, we strategically bring together synergistic ventures. This interconnected ecosystem empowers our portfolio companies to share resources, collaborate, and collectively accelerate growth. By joining our portfolio, you gain access to a meticulously crafted network that goes beyond traditional investment, unlocking amplified potential with the support of our experts, mentors, other VCs, and tech partners.

Creating a community of founders along with functional communities of the founders' teams can provide peer mentoring within the communities. This peer mentoring can help solve both operational and strategic challenges for the community members. It can also extend the members networks for areas such as hiring team members or vendors.

I agree with Vinod Khosla who penned an article in 2013 that shared: 95 percent of VCs add zero value. I would bet that 70-80 percent add negative value to a startup in their advising. He said that most VCs “haven’t done shit” to know what to tell startups going through difficult times. It might be honest and real to accept the true role of VCs, i.e. risk financiers that gamble on founders.

I've seen some fund managers survey their portfolio founders with a Net Promoter Score (NPS) survey. Ideally, the results are favorable, and a fund manager can then share with prospective portfolio company founders that they have a good NPS. A lightweight way to issue a similar survey is simply asking founders, "Would you recommend us to a peer? Yes or No." in an anonymous Airtable or Google Form.

Have a thoughtful and transparent approach to 'what happens after the investment clears'. The money has transferred and here is what happens in 30, 60, 90 days and in subsequent quarters. What are the expectations? What are the responsibilities? What will be the business update and communication cadence? Sorting all this out up front and having documented approaches can differentiate a VC.

While results speak volumes, what motivates us most is empowering great ideas. Discuss how YOU can work together to positively impact the world through the innovations you usher in.

Your portfolio reflects your expertise: think of your portfolio as a mirror that reflects the areas you're really good at Your portfolio tells your story: every company you've invested in is like a chapter in your story. This story includes your past, present and future successes Testimonials are powerful: when a founder of a company you’ve invested in talks about how you helped them, it’s like a personal recommendation. It’s one thing for you to say you’re helpful, but it's much more convincing when others say it for you. Creating a community is key: imagine your portfolio like a web, with lines interconnecting. When these companies benefit from each other, it’s like adding more strands to the web, making it stronger