By Eric Sugar
Founders are expecting a lot from their investors today – not just cash (and some advice), but tactical assistance with execution (product, strategy, sales, marketing, HR). The funds that cannot transition to an execution-oriented value-add for their portfolio are going to be at a huge competitive disadvantage.
When I first joined Landmark Ventures back in 2006, we were in the early stages of transitioning from a small, family-office style fund into a services organization focused on helping companies with business development and sales (and eventually investment banking and marketing events). At the time, the logic of this pivot was simple: we weren’t uniquely good at picking the best investments. We were uniquely good at making strategic executive connections for early-stage companies (introductions to customers, partners, investors, and M&A targets).
So, we essentially took the value-added-services out of the VC, and created a business around it. Voila – Landmark Ventures.
Since then, we’ve invested a lot of time and effort into being the best possible value-added-service for growth-stage companies. We leverage our deep sales experience across 1000+ client engagements to optimize the sales qualification process and maximize our “relationship capital” with various CXO’s and business leaders in the Fortune 1000 to drive results.
Some of the larger VC’s picked up on this same market opportunity (strategic value-added services) at around the same time I joined Landmark. Andreessen was the first firm that I remember actively investing in their content, branding, and portfolio-support infrastructure. There’s actually a great Harvard Business Review article about their approach (and worth the $8.95 for the report – thanks Ira Weiss!). Plenty of other firms followed suit to various degrees, with all kinds of blog content (I’ve always enjoyed Mark Suster and Fred Wilson), creative podcasts, and eventually evolving to more of a “platform” approach for these VC’s to provide ongoing expertise and network development opportunities to their portfolio.
Recently, I’ve noticed a big shift among the VC’s we work with, away from a more passive value-add (eg: here’s some advice, free market analysis, talent recommendations) towards a more active, execution-oriented value-add (eg: we’ll source your new CRO, we’ll lean our network to generate direct sales introductions for you, we’ll promote you at our own marketing event, etc).
There are a growing number of VC’s pushing in this direction (as capital becomes more of a commodity than ever), led by Andreessen, Google Ventures, Forward Partners (specifically their Studio platform), and OpenView Partners (where the wonderful Casey Renner is spearheading network-building initiatives for their portfolio – check out her “weekly walks” on YouTube, they’re great, especially the one with our CTO, Anthony Juliano).
So why doesn’t every VC offer this kind of tactical assistance? Partially because it’s just really expensive – the standard management fee at a midsize fund won’t cover the costs of a single experienced salesperson, let alone the myriad support resources necessary to drive a meaningful ongoing program.
In addition to the cost, most VC’s aren’t set up to have this kind of execution-focused business development, corporate development, and marketing expertise inside the fund. It’s just functionally difficult to build a new services organization from scratch and one that requires a totally different set of skills, even if you have lots of capital and lots of talent.
So, what’s the most efficient way for VC’s to drive more portfolio growth and provide valuable support services for their portfolio?
A few strategies I’ve picked up from several highly-regarded VC’s in our network:
1. Invest in building a deeper and broader executive network. Not just with other VC’s and startups, but also with decision makers at large customers (and potential acquirers). These relationships will pay dividends through valuable introductions you can make, including cross industry (especially as a talent resource for informal HR — plenty of execs want to get into VC/PE or startups). These contacts also provide insight and access towards an eventual strategic investment and/or M&A event.
Travis Bryant @ Redpoint Ventures is responsible for the Founder Experience in their portfolio, and extends this approach beyond the specific role of the executive. I asked him for his thoughts on VC network-building, and per Travis:
“One approach we’re trying to take differently is thinking about the network first as “people-oriented” versus “role-oriented” – we want to have a network of experienced, capable individuals recognizing that the role they might play for one of our companies will vary by context. We’re trying to broaden our approach to think more about curating the People Network, and then paying attention to what appropriate contexts exist to make a connection between nodes in the network.”
This is good, long-term strategic thinking.
2. Directly promote and market your portfolio companies! The best VC’s are finding ways to maximize marketing and networking opportunities for their portfolio by leveraging targeted events and larger conferences.
3. Find great partners: There are a variety of extremely helpful, Gladwell-esque super-connecters out there, and the most valuable partners can bring more scale than just their own personal network.
In summary, VC’s are shifting to a more execution-oriented model of value-added-services as a way to differentiate from other sources of capital. Providing these kinds of services is difficult in a typical VC structure (both tactically and financially), but will become even more important in the future as larger funds continue to raise founder expectations. Getting creative with executive network building initiatives and building strong partner relationships will be essential to meeting these expectations and accelerating portfolio outcomes (faster revenue growth and streamlined M&A).