Discussion

Much of the innovation that the venture industry has seen is in the form of systematic value-add with Andreessen Horowitz as the poster-child of this trend. Increasing numbers of VCs attempt to and claim they add value aside from Board participation and providing capital, with a surge in those attempting to offer services for talent placement and customer creation. However, founders report utilizing these services at half that rate VCs are offering them.^[1] While the jury is still out on whether that type of model generates, indeed, better returns, most rising venture capitalists genuinely want to help the founders they invest in.

Managing a portfolio is in part about putting systems in place that allow for thoughtful time and resource management. The Twenty Minute VC found that 68% of VCs “feel they spend too much time with their struggling companies,” and 74% believing the should proactively redistribute time more evenly across the portfolio. 82% believe the best use of time would be to impact companies that have not yet hit outstanding growth trajectories,^[2] however this assumes that VCs have real influence over how portfolio companies succeed. According to Carl Fritjofsson of Creandum, VCs overestimate their influence with companies by 32%, and VCs report they communicate with founders more than they actually do.^[3]

The discussion will thus center around effective tips and tricks to be able to provide some value from the perspective of all kinds of firms; even as funds that do not manage large pools of capital. Michael Staton of Learn Capital summarizes the normal pattern of portfolio value-add as acting as a serendipity ambassador: investors are out there in the world promoting your story to all kinds of people, and they bring back the relationships that can nudge the odds of success up.

Cindy Padnos from Illuminate Ventures took a survey of founders and found that many of the most in-demand services also relied on the professional network of the partnership, including fundraising help, customer intros, business partner intros, recruiting help, and access to advisors.^[4]
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Manu Kumar from K9 Ventures said he wants to be the “eharmony for follow-on funding.”^[5]

Illuminate Ventures claims to have a 40+ member Business Advisory Council and facilitate “direct introductions to thousands of prospective customers and business partners for their enterprise-focused products and services.”^[6]

Tips and Tricks

• Have an exhaustive meeting with the management team immediately after investing with broad participation by the investing firm to back plan from success. (Emergence)

• Do the legwork to throw events to build community. “We’re constantly throwing events.” (Golden Gate Ventures)

• Involve local family offices and company operators in the community of your portfolio. (Golden Gate Ventures)

• “Add value in any way possible.” (Northern Trust)

• Managing a portfolio is like playing a game of whack-a-mole. It’s most important to always ask yourself: what is the one thing I can do that stands a chance at moving the needle? Focus on that. (Inception Science, Capital Invent)

• The relationship should be based on trust and communication. The goal is to be top of mind for the manager/company, for both good and bad news. The information back to the manager/company is the whole truth, not a truth

Worthwhile Events and Involvements

http://vcplatform.com/

Case Studies

Case Study on Cervin Ventures: Preferred Relationships with Service Providers

As a small fund manager at the seed stage, with just $84M under management, Cervin Ventures had to grapple with the canonical, existential question of venture capital: what value can we actually add? Cervin Ventures concluded that there was not much value they could add given their fund size, aside from advisory conversations and board stewardship. How does the firm then leverage its’ expertise as a small fund to provide outstanding support services?

Developing proprietary relationships with professional service providers was the answer Cervin Ventures came up with. In an imaginary Venn Diagram, they decided to focus on the intersection of what they had the greatest competency in and what were most needed and least core to their Seed stage businesses: Marketing, Business Development for Channel Partnerships, and Back Office/Finance. They reached out to their network and found a Marketing Services Agency, a Business Development Partner, and a Financial Controller. For the first two, Cervin pays $10K a month as a retainer, for the latter they helped a controller they trusted as “the world’s best accountant” and helped him set up his own company and brought him enough business the retainer wasn’t needed.

These services are offered, but not required, to the portfolio companies. Each of the three service providers promises to prioritize taking on Cervin portfolio companies and negotiating fair rates for their services. Half the portfolio now accesses one or more of these services, and pay between $2K and $20K per month.

With this strategy, Cervin is able to leverage their expertise in these domains by providing oversight and getting valuable intelligence on their portfolio. Cervin created a playbook for each service provider, and has articulated KPIs for each of their services that are reported back to them. For instance, the Business Development Partner has three KPIs: 1) channel introductions that are made to portfolio companies that lead to opportunities, 2) orchestrated follow-on investment conversations for portfolio companies, 3) and, less relevant but convenient: LP leads for Cervin that can write at least a $5M check into their next fund.

As an example of how this works in action, a portfolio company provides a SaaS platform for restaurants and food service companies managing multiple locations. The Business Development Partner opened a door for them by introducing them to the former CEO of McDonald’s who now runs a Private Equity firm with a large portfolio of food chain brands. That company is now meeting with this Private Equity firm to win business with each of their portfolio companies, a channel partnership worth many millions in recurring revenue.

Case Study on The Social Capital Partnership: Growth Services by Growth Hackers

Starting in 2013, The Social Capital Partnership wanted to advise their companies on growth. They heard consistently from portfolio companies that growth professionals are exceedingly scarce and hard to hire. After helping Remind increase growth 27x and helping Treehouse double their re-engagement, in 2014 they added a Data Science practice and in 2015 added a User Acquisition practice. By 2015, they decided institutionalize “The Growth Team” with two mandates: to increase the value of their portfolio companies, and to help the partnership make better decisions.

The Growth team of seven professionals offers services across user acquisition, data science, and product. They help companies rank in the app store, manage and optimize ad spend, work with product design to optimize conversion funnels and re-engagement loops, and scaffold data-driven iteration for agile software development practices. They come up with fancy charts like the one below, which shows the performance of various creative on Facebook ads and landing pages.

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The work isn’t just about providing direct services, it’s also about capacity building by helping portfolio companies build their own growth teams. The recommended org chart of a growth team at a startup is the following:
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Today, the Growth Team affects the performance and ultimate outcomes of the companies. The Growth Team works with one third of their portfolio companies representing over half of their invested capital. They’ve worked with lighthouse companies like Slack, Intercom, Clearslide, Remind, SurveyMonkey, and Brilliant.

Their current goal is to “be the kingmaker” - meaning they can provide so much value that the company, by working with the Growth Team, it transforms the portfolio company into the market leader of their respective market.

Highlights

Highlighting Atomico on Value Creation & Growth Acceleration

Atomico’s strategy is to make a strong promise to founders; going from “adding value” to “creating value” and accelerating growth. This is rooted in their philosophy that the firm is “Service Provider” rather than a fund manager. This is a core belief shared across the Atomico team. This is reflected in a structure of full-time professionals:

• A “Value Creation” team of 6 professionals, recently renamed “Growth Acceleration” and they provide services on geographic market expansion with team members in Japan, China, and Brazil. This includes:

  • The “Head of Talent” who provides services in talent recruitment, compensation consulting, company culture and organization design.

  • A “Growth Hacker” is a full-time professional dedicated to helping with scaling growth.

  • A “Scaling Specialist” to deal with organizational culture and management practices needed for rapid scale.

  • A “Public Relations” professional that creates earned media and visibility opportunities, such as arranging for speaking roles at conferences.

Highlighting Emergence on Go-To-Market

Emergence has a core belief that it can meaningfully change the trajectory of their portfolio companies. Focusing on Software-as-a-Service companies for enterprise clients, they develop and distribute best practices in hiring Sales and Marketing executives, structuring channel partnerships and managing market channels. Though they do have one “Growth Partner,” portfolio services are considered a responsibility of the entire investment team, starting with a four hour meeting with the company management and the investment team immediately after making the investment. With a focus on go-to-market strategy, team, and business development execution, they frame the conversation by envisioning the company at IPO with the question: “What will the press release for your IPO say?” Then asking “How do we get there?,” plan backwards from that vision in meticulous detail.

Highlighting the GreenSpring Portfolio Impact Program

GreenSpring doesn’t just sit back, “money is a commodity” so they say. Catalyzing M&A, partnerships, introductions vetted dealflow from outside the Bay Area. They offer targeted introductions, and host IT and HealthCare days. HealthCare day was UnderArmour, Google, MERC, DRX, talked to GPs and Entrepreneurs about where they were spending and where they had holes in their products and services.

Highlighting Capital Invent on Having “One Battle” per Portfolio Company

Given Capital Invent’s small team size of two, they feel a strong responsibility to focus their portfolio support efforts. They review their portfolio quarterly. After they review updates and metrics, they set up a conversation with the management team. A main goal of the conversation is to choose “one battle” that Capital Invent can help them fight. They set expectations with the companies that this is the one thing they can rely on Capital Invent for, but they probably won’t be able to expect the two partners to help with other issues. They have a “battle” list for portfolio companies.

Highlighting Golden Gate Ventures and the Walkabout and F1 Night Race

Every year, Golden Gate Ventures gets 150-200 startups to open their offices to the general public, and anyone is invited to walk around Singapore and visit company offices. Last time they did this, over 3000 people participated. It gives people with interest in innovation and startups the opportunity to understand startup culture, see the products and services, and meet teams.

GGV also hosts a three-day party at a nice hotel overlooking the annual Formula 1 race in Singapore, with a nightly invite cap of one hundred people. They use this to invite key entrepreneurs and investors from the US, and they position it primarily as an amazing time and an experience of a lifetime. The catch is, of course, they need to speak at a conference they host at the same time. Based on their speakers, they also invite and attract LPs and potential LPs. And the whole ecosystem mingles and shares information and build relationships with key portfolio executives and local investors. GGV sees it as not just a good time, they see it as a hack to helping their companies with key relationships and orchestrating follow on rounds. They have multiple examples of the relationships developed at this event spawning additional follow on investments for portfolio companies. This adds to Golden Gate’s reputation for early stage companies.

Highlighting Walking Ventures as an Independent CEO Coach

Sensing his greatest joy in seed investing was serving as a CEO Coach, Tim Jackson of Walking Ventures suspected he might get more satisfaction if he tried to serve as an independent CEO Coach. He takes a blend of advisory equity and cash, and prices it just high enough to where supply meets demand.

After serving several CEOs in 2018, he believes that independent CEO Coaches have a level of transparency and authenticity, and productive working relationship than is possible with investors. “CEOs just can’t be completely vulnerable when they know you might influence their next financing, especially when they believe you might be in the next financing.”

Jackson uses assessments like Myers Briggs (fill in more here), which he pays a modest subscription for, and spends a full day with the CEO and management team. He then writes a full report with a plan for options the CEO may choose to work on. The CEO then identifies a few key areas for development. The two then keep regular web meetings where they stay in close communication on the development of the CEO in the highlighted areas.