As a venture capitalist, you are not just a source of funding for startups. You are also a partner, a mentor, a connector, and a supporter. In this article, we will explore how you can add value to your portfolio companies beyond writing checks.
One of the most important roles of a venture capitalist is to provide strategic advice to the founders and the management team. You can help them refine their vision, define their goals, prioritize their initiatives, and overcome their challenges. You can also share your insights, perspectives, and feedback based on your experience and expertise in the industry, market, and technology. By offering your strategic advice, you can help the startup avoid common pitfalls, make better decisions, and achieve faster growth.
Providing strategic advise is most helpful from the small minority of VC GP's that actually have operational experience in the field & have built, scaled & run companies before, whether they be startups, mid-caps or large corporate entities. Such hands-on real-world domain expertise is indispensable, especially in difficult times, when doers roll-up their sleaves & help guide startups through the roughs, while followers tend to cut-bait earlier & run after the next VC hype cycle trend. As a VC investment is more akin to a 5-8 year marriage, strive to get strategic advice from those GPs that have actual domain expertise in the areas you're active in. Their networks & strategic introductions will be much stronger too & hold more weight.
1. Strategic advice is probably the key insight that smart investors bring to the table - avoiding foreseeable pitfalls and capitalizing on opportunities. 2. Facilitate learning and growth - at the end of the day, the founding team has to be capable and their capability must keep up with the growth. 3. Leverage network - right people at the right time make the right difference
Venture capitalists invest in the industries they are most familiar with. Over the years, they will build up tremendous personal contacts therein. Startup founders usually do not have much needed networks. If the capitalists could introduce contacts to the founders to widen their business experiences and also build up supply chains, horizontally and vertically, the startups could have greater chance of success.
Investors who bring value to the table can serve as valuable resources by offering strategic guidance. However, for a successful partnership, both parties must contribute to building and maintaining the relationship. Ultimately, the founders possess the most in-depth knowledge of their company. From experience, a detrimental dynamic arises when investors treat founders as employees. Additionally, the relationship can be strained if a founder mismanages the investor's involvement. In my experience, fostering a value-added relationship requires concerted effort and responsibility from both parties to foster its strength and growth.
Help portfolio companies get their first client or a first POC and often that will require a lot of hard work. Commit to it...!
Another way you can support your portfolio companies is by leveraging your network. You can introduce them to potential customers, partners, suppliers, mentors, advisors, and talent. You can also connect them to other investors, media, and influencers who can help them raise their profile, credibility, and visibility. By leveraging your network, you can help the startup access valuable resources, opportunities, and relationships that can accelerate their success.
Open the right doors in the right way at the right times and get out of the way, letting the founder 10x the investment. Less back seat driving.
Pick a VC who can offer more than funds; their true value lies in their vast networks and longstanding relationships across sectors, including government and key industry players. These connections are goldmines for early-stage companies, opening doors to regulatory ease, strategic partnerships, and market entry. Nurtured over 10-20 years, this level of access is priceless, helping early ventures by unlocking opportunities that money can't buy.
1. Strategic Networking: Strategically leverage your network to connect portfolio companies with potential customers, partners, and mentors. Introduce them to key players who align with their goals, fostering meaningful relationships that extend beyond immediate needs. 2. Profile Elevation: Elevate your portfolio companies' profiles by connecting them with investors, media, and influencers. This not only boosts credibility but also enhances visibility in the competitive web3 landscape, opening doors to new opportunities. 3. Resource Acceleration: Use your network to expedite access to valuable resources. Whether it's tapping into talent pools or connecting with influential advisors.
Key introductions, assistance in fundraising, hiring, overseas expansion. A VC can do lots of things, depending on the needs of the entrepreneur.
1. Attending startup events and conferences is a great way to meet other investors and connect with influencers in the industry. 2. Join social media groups. Social media groups are another effective way to connect with other entrepreneurs and leaders in the industry. 3. Use LinkedIn effectively. LinkedIn is a valuable tool for making professional connections. 4. Seek investors functioning as mentors and advisors. Mentors and advisors can provide valuable guidance and experience to your startup. Find people in your network who can be mentors or advisors and share your goals and challenges with them. 5. Participate in incubation and acceleration programs. Incubation and acceleration programs can be a great way to make valuable investors & IR
Sometimes, startups need more than advice and connections. They need hands-on operational support. You can offer your portfolio companies operational support by providing them with tools, resources, and services that can improve their efficiency, productivity, and performance. For example, you can offer them access to software, hardware, data, analytics, legal, accounting, marketing, or HR support. You can also help them with hiring, training, coaching, or mentoring their team members. By offering operational support, you can help the startup optimize their processes, systems, and capabilities.
Many fledgling startups prioritize product development as their main focus, wisely allocating their limited energy. Due to budget constraints, they often cannot afford to hire operational staff such as HR, finance, or marketing professionals. Venture capitalists (VCs) could provide valuable assistance in these areas by establishing an in-house Center of Excellence (CoE) for operations, offering shared resources to the startups in which they invest. This collaborative approach could prove highly beneficial for both parties involved.
1. Holistic Operational Toolbox: Provide a comprehensive operational toolbox encompassing software, hardware, data, analytics, legal, accounting, marketing, and HR support. Tailor this toolbox to the specific needs of each startup in your portfolio, offering practical, hands-on solutions. 2. Strategic Talent Development: Go beyond conventional support by aiding in hiring, training, coaching, and mentoring team members. This hands-on approach to talent development strengthens the startup's capabilities and fosters a culture of continuous improvement.
Offering legal, IT, recruiting, and other services helps your portfolio companies focus on growing their business. It also helps you differentiate your VC firm especially if you are an emerging manager.
Another good way to offer operational support is to help hire the right talent according to the specific stage of the portfolio company. This might seem like a simple idea for venture capitalists but can actually drive a lot of savings in terms of budget and time for new ventures.
Sequoia Capital's involvement with WhatsApp is a prime example of a venture capital firm providing more than just financial support. Their role in WhatsApp's journey went beyond mere investment; they played a key part in the operational and strategic development of the company, offering crucial guidance on business model refinement and growth strategies. Significantly, Sequoia's support in maintaining WhatsApp's focus on an ad-free messaging service was a strategic decision that greatly resonated with users and contributed to the app's exponential growth. This operational and strategic input from Sequoia highlights how VC support can transcend financial contributions, encompassing essential strategic guidance and operational expertise.
As a venture capitalist, you can also support your portfolio companies by fostering a supportive culture. You can do this by building trust, rapport, and communication with the founders and the team. You can also show your appreciation, recognition, and encouragement for their achievements and efforts. You can also provide constructive criticism, honest feedback, and candid advice when needed. You can also respect their autonomy, creativity, and innovation, and avoid micromanaging or interfering with their decisions. By fostering a supportive culture, you can help the startup maintain their motivation, morale, and resilience.
Investors often overlook the pressure and loneliness of the start up CEO. Advice and support are important and often taken - mainly on fundraising, talent acquisition and pace/burn, yet there is a lot of upside in building trust and serving as a friendly and relatively safe sounding board. This adds value right back to the BOD of course.
Ensure corporate governance is taken seriously. Start ups are often about hustle, energy, ideas, go to market and valuation. A world that is creative and fast paced. While these attributes often help a start up move to the next stage of growth, the same reasons often impact corporate governance standards. As I have seen for almost two decades in my line of work, bringing in an institutional investor (such as a VC fund) automatically creates a layer of accountability about governance standards. An investee start up and its founders are more prone to clean up house and have greater answerability with a VC sitting on its cap table. Often, a reliable corporate M&A lawyer will be engaged to provide legal assistance for such an exercise.
This is actually something that I think is underrated. As an example, many investors have started spearheading community initiatives which, in a ways, is exactly the act of fostering a supportive culture. By bringing around a bunch of different stakeholders and mobilising them around the portfolio startups, allows investors to support their founders.
Our network of 70+ female founders is the most powerful part of our ecosystem. We’ve heard loud and clear that they are looking for more ways to network & connect in real life. We're hosting a"CEO summit" in 2024 specifically to connect them to each other and facilitate a supportive culture--after all, one of the best ways to learn is from those who have done it before you.
As Richard Branson famously said, “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” In the context of venture capitalism, this means fostering a supportive culture within your portfolio companies is less about being the all-knowing oracle and more about being a gardener who nurtures growth. Your role goes beyond funding; it’s about building trust, rapport, and a culture of open communication. It’s about ensuring that founders and their teams see you not just as a financier but as a partner in their journey – someone who’s genuinely invested in their well-being and success. Encourage honest dialogue, be approachable, show genuine interest in more than just the numbers.
Finally, you can support your portfolio companies by facilitating their learning and growth. You can do this by exposing them to new ideas, trends, and best practices in the industry, market, and technology. You can also provide them with learning opportunities, such as workshops, webinars, courses, books, podcasts, or events. You can also challenge them to experiment, test, and iterate on their products, services, or business models. You can also encourage them to learn from their failures, mistakes, and feedback. By facilitating their learning and growth, you can help the startup adapt, improve, and innovate.
Startup founders are extremely busy with the day to day operations of running their company that often times they do not have enough time to spend on research. VCs tend to have time to carve out to dedicate to learning new things and staying on top of new trends and resources that founders can benefit from. A huge value add that investors can provide is acquiring knowledge and resources and distilling it out to founders in an easy to understand way. This can save them a lot of time and be an excellent way for an investor to build stronger relationships with founders. This same knowledge can be used to help establish your thought leadership which will lead to more opportunities to work with founders.
My smart clients always tell me we're not looking for an investment. We are looking for an investor. For a person who knows how to help and guide us to grow to where we are thinking. Entrepreneurs invite experts to their boards of directors all the time. Learning from those people is always priceless.
Learning unlike funding is continuous. Even the startups starting with generic technology and attracting VC funds on a large scale, one day have to consider building proprietary technology.
Your founders will be learning as they go, unless they are repeat founders. What makes them successful at Seed stage may not be what makes them successful at Series A. And what makes them successful at Series B may be entirely different. You can help your founders grow into their changing roles. You have seen these transitions many times. Rather than defaulting to replacing the CEO, you can facilitate their learning and growth.
When looking at ways a VC can offer support beyond investment, it’s best to start from a position of relatively low expectations. Most results of surveys - including the latest State of European Tech - shows that when it comes to value-add, most founders’ expectations are not met. Therefore, although it’s important for investors to be as helpful as possible to their portfolio (help with hiring, processes, future funding rounds, exit and board compositions), it’s best not to over-promise.
Advocate for the founder with future investors. Keep track of all the times they exceeded your expectations as an investor and communicate those moments to new potential partners and sources of capital.
Sometimes, the answer is "nothing". It takes a savvy investor to be precise in what type of resources they can deliver to a portfolio company - and often times, the help a founder needs does not fit into your skillset. For example, if you're a seed-stage investor and much of your operational expertise centers on that period of growth, why try to force your perspectives on a Series C+ company? There are many founders in our portfolio with whom we have a warm, cordial relationship - and will wait until they ask for help. This not only is a service to the founders, but also frees up our capacity for the portfolio founders who really need our perspectives.
The value add that VCs can offer differ from firm to firm. For instance, the two big value add propositions MOB Ventures brings is with de-risking the legislative and regulatory environment and helping to bring customers or other funders (which I would call leveraging your network). Simple and to the point. Working with VC that know their value add and are focused in delivering value in those areas is key. As I've seen a lot of other VCs try to micromanage and hurt companies by stepping outside of their core value-add competencies.
Possibly one of the most important areas where VCs can add value beyond funding is to genuinely know their own limitations and outsource for it. Too many in the VC world have never even founded a business, much less brought one to a successful exit as a founder. Also, empathy is crucial. Understanding that each of us lives a different life and more often than not has a different worldview is key. Being able to step into the shoe of your founder, especially if they experienced life differently, is key.