As a venture capitalist, you have a stake in the success of multiple companies that you have invested in. But how do you keep track of their progress, provide them with guidance, and identify potential risks and opportunities? In this article, we will explore some of the best practices and tools for managing a portfolio of companies effectively.
The first step is to ensure that you and your portfolio companies share a common vision and objectives. This means that you have a clear understanding of their business model, target market, growth strategy, and key metrics. You also need to communicate your expectations, feedback, and support regularly and transparently. By aligning your goals, you can foster a trustful and collaborative relationship that benefits both parties.
When managing a portfolio of venture investments, there are many “soft ways” that you can try to be supportive as a pure investor, such as making introductions and serving as a sounding board for the mgmt team but the relationship remains passive and success or failure is likely beyond your control. The most significant way to truly be impactful and influence success is by joining the Board of Directors and supporting the company by rolling up sleeves and being an exceptional/active/supportive board member. Equally important to choosing great companies to invest in, is choosing great co-investors and syndicates to invest alongside with. Build-in these investing principles early and your portfolio will have better chance of success.
Success for venture-backed companies involves avoiding failure on the hand (i.e. running out of runway, before you've made enough progress to unlock your next fundraising milestone) and solving a big enough problem for a large enough market to become worthy of "venture scale". Keeping these two goals in mind, a few goals we like to align on when we kick off with each new company in our portfolio include: 1. How the company plans to manage their current runway, and what are the ways in which their current plan could get side tracked 2. The definition of PMF (Product-Market-Fit) that the founders believe is relevant for their business 3. The kind of team they need to be able to assemble to unlock those milestones
It's important to recognize that not all the companies will succeed according to the VC model. The key to maximizing the portfolio's overall success lies in focusing resources and support on the fastest-growing companies. These high performers have the potential to deliver outsized returns, making them a priority. However, this doesn't mean abandoning those in trouble; it's about evaluating the cost-benefit of intervention. Deciding whether to invest more time and resources into turning around a struggling company or to further accelerate a high-performer should be guided by the potential impact on the portfolio's overall IRR. In essence, success is more scalable and strategically aligning efforts towards growth can yield the best outcomes.
The pre-investment phase is absolutely critical to establish rapport and build a common understanding of goals and targets. If the VC's shy away from mentioning what their expected reporting, milestone update and metric disclosures are, the founders may assume they can present whenever, whatever. VC's should play the leading role in this and leave no room for doubt. Clear communication before investment is key since the founders would like to hunker down in their office and deliver all they have promised the VC's and their customers and reporting won't be on their priority list. Goal alignment and reporting should be regarded as a tool to identify potential risks that would derail the startup and not just as a compliance checklist item.
Interesting topic especially given that I and others have argued for decades that more VC models should actually work towards a higher success rate. Unfortunately for entrepreneurs and their teams, many VC firm models are designed for a high failure rate. They not only expect up to 50% will fail in some cases, they will expedite that failure when culling the portfolio and focus on the few big wins that generate the supermajority of ROI in those models. We need to be careful about general advice in VC given the variety of models employed. Those firms with models that expect a higher success rate invest in different types of ventures from the start that have a lower risk profile, realizing they are unlikely to experience a Google.
The second step is to monitor the performance of your portfolio companies using data and insights. You need to have access to relevant and reliable information about their financials, operations, customers, and competitors. You can use platforms like Carta, Visible, or Seraf to track and analyze your portfolio data, as well as to generate reports and dashboards. These platforms can also help you streamline your administrative tasks, such as managing cap tables, valuations, and exits.
Defining clear milestones for each portfolio company’s build vs growth stage tracked alongside burn rate, ARR, timelines and funding stages is an efficient way to measure and monitor performance across different companies. These matrices give a great insight into quality of business model, operational execution and financial diligence. It’s important to agree on these milestones with the portfolio company so there is alignment of goals and helps set up future funding or exit conversations for success. This also helps VC investors identify opportunities where their platform and network can add most value.
What doesn’t get measured, doesn’t get managed. Get a system in place to streamline this process. Make sure you get all the relevant data required and save it on your side as well. Direct content with the founder is a priority to get their view on the current business. Monitoring their performance will be key to understand how your portfolio is doing and to anticipate any changes or decisions that are to be made.
Before you invest make sure you include a reporting standard you expect, let it be weekly, monthly or quarterly but be involved not only on board level
Monitoring the performance of a venture investment portfolio involves establishing clear metrics aligned with investment objectives and conducting regular reporting and analysis. Portfolio review meetings assess individual investments and overall portfolio progress, while risk management strategies help mitigate potential adverse effects. Execution of exit strategies and engagement with portfolio companies are crucial aspects of portfolio monitoring. Benchmarking against industry peers and market trends informs decision-making, and portfolio rebalancing ensures alignment with evolving market conditions and investor preferences.
Adopting distinct milestones for a company's development and growth, aligned with financial metrics like burn rate and annual recurring revenue, offers a critical lens for evaluating business robustness and operational savvy. This approach not only fosters goal alignment between investors and portfolio companies, paving the way for fruitful funding or exit dialogues, but also sharpens investor focus on where they can most effectively deploy their resources and networks. However, it's vital to recognize the potential rigidity this might impose, possibly stifling innovation or pressuring companies into premature scaling, hence a balanced, flexible strategy is key.
The third step is to provide your portfolio companies with the resources they need to grow and succeed. This can include capital, connections, expertise, mentorship, and feedback. You can leverage your network, experience, and reputation to introduce them to potential partners, customers, investors, and talent. You can also offer them access to educational programs, events, and communities that can help them learn and improve their skills.
As a VC, one has a folio of companies. For a founder, it is only one. Thus, I find most useful for founders is to get learnings from other folio companies and connects to the right person to share the learning in greater detail. It helps them avoid mistakes made by others - on costs / time and helps them with resources to move forward ie vendors, approaches to solutions etc.
Venture capital is not just about funding; it's about fostering growth through a symbiotic relationship. By providing resources beyond capital, VCs can significantly influence a startup's trajectory. Introductions to industry leaders, hiring top talent, and access to exclusive networks can be as valuable as financial investment. Tailored mentorship and strategic advice often play a critical role in navigating the complex market dynamics and scaling effectively. This holistic approach to nurturing portfolio companies is what differentiates a good investor from a great one.
I don’t think it’s reasonably possible to make sure your whole portfolio succeeds, without severely impacting your overall portfolio gains. That’s just insanity imo; like organising a race and making sure every participant came to crossing the finish line. That’s not what the game is about. You want your best bets to cross the finish line as a winner while applauding your DNFs and those limping in at position 57 for a good try. Make sure you identify your best bets early on, focus 80% of your time/resources on them and spread the residual 20% effort across the rest. Brutal? Yes. Effective? Yes
This highlights the increasing importance of the platform role in venture capital. Platform managers are key, offering more than just funding. They bring expert advice, mentorship, and facilitate vital connections with partners, customers, and investors. Their role extends to talent acquisition and providing access to specialized programs and events, greatly enhancing the growth of portfolio companies. Additionally, they create a community among founders, fostering a space for sharing experiences and tackling common challenges. This collaborative environment not only accelerates growth but also cultivates valuable connections, significantly contributing to the overall success of the portfolio.
One thing that worked well for me as an angel investor is providing portfolio companies with a standing Calendly link. This way, the founders can simply book a 30?min call with me whenever they need, without of the hassle of scheduling a call. Traditionally, you would probably schedule something like a monthly jour fixe, but in the turbulent world of startups this can be too stiff. ?? Sometimes there might be nothing to discuss and other days you urgently need input on something asap. ???? Needs change as the business evolves, and calenders change non-stop. The Calendly link enables both founders and investors to navigate this problem by being much more flexible than a fixed meeting.
The fourth step is to address the challenges that your portfolio companies face along their journey. These can range from product development, market fit, customer acquisition, retention, scaling, regulation, competition, and more. You need to be proactive and responsive in helping them overcome these obstacles, as well as in mitigating any risks or crises that may arise. You can also help them pivot, adapt, or exit when necessary.
Challenges are unavoidable, don’t give additional burden or pressure on founders because of it. Prompt them to think out of the box. Encourage them not to give up. Embrace the challenge with them. That’s a good partnership.
t just obstacles; they're opportunities for growth and innovation. Your role is more than a problem-solver; it's that of a strategist and advisor. Don't just wait for issues to arise; anticipate them. Provide guidance that not only resolves immediate issues but also strengthens the company’s long-term strategy. This might mean advising on a pivot or an exit strategy when necessary. It's about being ruthlessly realistic and constructively critical. You're not just managing companies; you're sculpting them for success.
Challenge your portfolio companies to confront their obstacles head-on by fostering a culture of transparent communication and proactive problem-solving. Rather than passively observing, actively immerse yourself in their struggles. Offer not just advice, but actionable solutions drawn from your own expertise and network. This hands-on approach not only signifies your investment in their success but also cultivates a portfolio that's both resilient and adaptable, ready to face an ever-changing business landscape. Remember, your critical engagement is a catalyst for their growth and, by extension, yours.
I'm not a big fan of analogies likening early stage founders to teenagers, however in this case it actually makes sense. When Early Stage Founders raise money from VC's they mostly don't understand their main duty and responsibility towards their investors. They feel they should only tell good news and hide the bad ones, much like teenagers talking about good grades and not mentioning the bad ones. However the VC's are not parents but more like elder brothers&sisters who'd not be judgemental to mistakes and bad news but be supportive. The VC's need to understand this gap in understanding and should encourage founders regularly to talk about "shit happens" moments of which is almost always the case. This will open room for growth for both.
Your #1 objective as a strategic investor and partner is to help your portcos succeed. That means: - advise on strategy - help make warm intros as needed - make sure the company is operating and functioning in a way that is in the best interest of the customer/user What I find is usually the operations are a mess and they need help with structure but teams are scared to ask for help as it may come off incompetent on their end, so always build a relationship where your portcos see you as a friend that's there to help and less of an investor they need to report too It makes a big difference in communications.
The fifth step is to celebrate the achievements of your portfolio companies, both big and small. This can help boost their morale, motivation, and confidence, as well as strengthen your relationship and reputation. You can acknowledge and appreciate their milestones, such as launching a new product, acquiring a new customer, raising a new round, or exiting successfully. You can also share their stories, testimonials, and best practices with your network and community.
Recognizable their achievements and make sure you are not only there to criticize them. Make them feel that you really care and you should really care and they will consider you as a partner. One of our founders referred to us as our partner, which at the beginning irritated me as I felt we are brought into a role that we don’t hold, but now it prides me as we are aligned
Celebrating achievements within a venture investment portfolio is crucial for fostering motivation and positivity. Recognition and appreciation of efforts should be expressed openly, both within the organization and to stakeholders. Personalized rewards and incentives, along with team-building activities, help strengthen bonds and reinforce a sense of camaraderie. Continuous feedback and encouragement, coupled with reflection on lessons learned, empower individuals and teams to strive for further success. By fostering a culture of gratitude, empowerment, and shared vision, venture investment portfolios can cultivate an environment where achievements are valued and celebrated.
It is a combination of three things: 1. The right person running the company. (Easy to say, harder to do—a post for another time) 2. Accountability for deliverables. 3. Empowerment to adapt as circumstances change. “Man plans. God laughs” is a truism in venture.
Pausing to honor successes isn't just feel-good fluff—it's a strategic necessity. Yet, mere celebration risks being hollow if it doesn't bring critical introspection. Yes, applaud the wins, but don't let the champagne corks popping drown out the lessons whispered by failures. Make those cheers echo not just in the halls of your firm but in the ears of your stakeholders, with recognition that's meaningful and personalized. Fusing team spirit with a culture that prizes feedback and empowerment, transforms these moments from mere back-patting to a shared commitment to climb even higher. Remember, in this arena, every achievement is a stepping stone, not just a trophy.
Celebrate the achievements of your portfolio companies, recognizing both significant milestones and smaller victories. This celebration not only boosts their morale and confidence but also strengthens your relationship and reputation. Acknowledge accomplishments such as product launches, customer acquisitions, successful fundraising rounds, or exits. Sharing their success stories, testimonials, and best practices with your network and community contributes to a positive ecosystem for both your portfolio companies and your venture capital firm.
The sixth step is to learn from the experiences of your portfolio companies, both positive and negative. This can help you improve your own skills, knowledge, and judgment as a venture capitalist, as well as identify new opportunities and trends. You can solicit feedback from your portfolio companies on how you can add more value, as well as conduct post-mortems on what went well and what went wrong. You can also benchmark your portfolio performance against industry standards and peers.
Learning is not enough. Learning and intentionally implementing what was learned? Now we are talking. Wisdom is good. Action is better. What tangible ways can you learn from positive and negative experiences of your porfolio companies. Can you implement change alone? Should you? Or should it be more collaborative? Each experience will either teach us or not, spur us into action or not and the goal is always to get at least 1% better each day. But that takes more than learning---it takes intentional action.
Learn from your portfolio companies' experiences, positive and negative, to enhance your venture capital skills. Solicit feedback, conduct post-mortems, and benchmark performance against industry standards and peers. Adapt and improve based on insights gained from the diverse journeys of your portfolio.
I always recommend writing down the hypothesis on which you are investing in a startup. Memories sometimes play tricks on you. Writing things down does not. This gives you the ideal basis to see a few years later which hypotheses have come true and which have not. This is the starting point for learning.
Learning from the experiences of your portfolio companies is invaluable. Each success or failure offers a wealth of insights that can refine your investment acumen. Don’t just view these companies as investment vehicles; see them as classrooms. The feedback from these companies is critical – it's a mirror reflecting your effectiveness as a VC. Conducting post-mortems on ventures that didn't pan out is essential. What lessons can be gleaned? How can these insights shape future investments? Benchmarking against industry standards isn't just about keeping score; it's about understanding your position in the larger ecosystem and continuously improving. This is about being a student of the game, perpetually learning and evolving.
It's impossible to ensure all companies in a venture portfolio succeed. Venture investing is about diversification and trusting the founders you back to prove out the market opportunity and execute, while providing support with every available resource via your firm and network.
Key criteria for sustainable success in venture investment include robust due diligence, strategic portfolio diversification, active portfolio management, and fostering strong relationships with portfolio companies.
It is also important to build trust mutually so the founders feel safe to share their challenges with you openly. Furthermore, trust has be built so as an investor, you can provide constructive suggestions freely. Transparency and trust are crucial to the success of your portfolio companies.
Another way to support your startups and increase their chances for success revolves around fostering synergies within your portfolio. Encourage collaboration and knowledge sharing among your founders, create a supportive ecosystem where they can benefit from each other's experiences and networks. Your role as a portfolio manager is not just to oversee, but to actively engage and add value. By doing so, you're not only helping each company succeed individually, but also strengthening your portfolio.
Leverage Collective Knowledge and Develop Playbooks An effective strategy is to promote knowledge sharing and the development of playbooks within your portfolio. Encourage companies to share best practices, challenges, and learnings. This collaborative environment can spark innovation and problem-solving. Creating playbooks based on these shared experiences offers a valuable resource, guiding companies through common scenarios and strategies for success. This approach not only streamlines problem-solving but also fosters a sense of community and mutual support among your portfolio companies.