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The value-add of VCs


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A framework to understand how VCs can support entrepreneurs, beyond money.

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The value-add of VCs

  1. 1. The value-add of VCs A ‘framework’ to understand how VCs can support entrepreneurs, beyond money Boris Golden October 2018 Check out also the previous deck: "Understanding VCs"
  2. 2. Introduction Value-add of VCs – @Boris_Golden – Partech
  3. 3. Disclaimers Only my views, on a disputed topic, Mostly focused on seed & early-stage, Based on European (esp. French) experience, Probably biased towards VC ‘mentoring’, Lacking examples & focused on conceptualization, Content is work in progress, always evolving, Not intended to describe or promote Partech/me, “VC” can refer both to the individual & the firm. Value-add of VCs – @Boris_Golden – Partech
  4. 4. Why this topic matters to me My passion & purpose is to support entrepreneurs in the foundational design & development of their startup. Ex-entrepreneur, researcher & startup mentor, I’m now an early-stage VC @ Partech. However, I realize everyday that the “value-add” of VCs is not so easy to define, explain... or deliver! Value-add of VCs – @Boris_Golden – Partech
  5. 5. VC “value-add”: myth or reality? Founders are often dubious about the ability of VCs to support them beyond money, which is understandable: VCs are primarily financial investors, so support is often not their core focus, and a risk is to overpromise/underdeliver. Indeed, VCs increasingly market themselves as “value-add”, to be attractive in a competitive market. But can they really deliver? Value-add of VCs – @Boris_Golden – Partech
  6. 6. It depends and varies greatly! Some VCs consider themselves mostly as “investors”, while others also believe they are startup “advisors & enablers”. VCs actually have two very different “customers”: LPs (investing money into VC funds) and Entrepreneurs. Both typically have very different (or even conflicting) expectations! So being a “good” VC won’t mean the same thing for each... Value-add of VCs – @Boris_Golden – Partech
  7. 7. Indeed, “support” = ~small part of VC “Investing” [2-3-4] has a strong & direct impact on VC financial performance. But “Support” has a real indirect impact: → VC reputation → [Source+Win]. Value-add of VCs – @Boris_Golden – Partech Support portfolio Raise a VC fund Source startups Assess them 1 2 36 45 Win & make deals Exit with an ROI Reputation, Track record, Brand, Network + Experience, Skills, Knowledge + Platform
  8. 8. And “support" differs from investing! To support founders, VCs need to work hard & continuously to develop and improve their support capabilities. Efficient support requires VCs to have a relevant approach, the right skills, specific knowledge & resources, etc. “Support” depends on both the individual VC(s) involved, and their VC firm. The individual often has the bigger impact on the type & value of support. Value-add of VCs – @Boris_Golden – Partech
  9. 9. Before “value-add”, the basics matter The #1 duty of VCs is to provide healthy money, without being toxic or messing up governance. It looks simple, but in practice it isn’t. Beyond not adding value, “bad” VCs can easily damage a company. “There is no VC good enough to fix a bad company. And there is no team good enough to survive a bad VC.” – Gil Dibner (VC), on Twitter Value-add of VCs – @Boris_Golden – Partech
  10. 10. But VCs can also be of great help! “Value-add” VCs can really enable startups to achieve their goals & reach their full potential. And even be transformative at times! But anyway, “good” or “bad”, VCs bring entrepreneurs more than money. Founders should define their needs/expectations (not all founders want value-add VCs) & pick their VCs carefully (assuming they have the choice). Value-add of VCs – @Boris_Golden – Partech
  11. 11. The “Maslow’s pyramid” of VC support Value-add of VCs – @Boris_Golden – Partech
  12. 12. Value-add of VCs – @Boris_Golden – Partech VCs, well positioned to add value?
  13. 13. 1. Context, but external point of view Uniquely positioned to help the startups they’ve backed, compared with people in the trenches, or punctual advisors. Aware of their situation (the people, their business & market), so can be specific, but with a quite external point of view (step back, perspective & emotional distance). Value-add of VCs – @Boris_Golden – Partech
  14. 14. 2. Time & availability to support Time spent with founders is a prerequisite to build a trusted relationship, understand, keep up to date & support them. It is part of a VC’s job to support founders, they have incentives to do so & don’t ask for money in exchange. But VCs won’t have much time for support if: they back many companies, they focus on some only, or they have many other duties in their fund... Value-add of VCs – @Boris_Golden – Partech
  15. 15. 3. Alignment & stake in success VCs really want & need their portfolio to succeed! They have skin in the game (ROI, reputation) and they also can be somehow “emotionally” connected to the company. Plus, they know it takes a long time to build a company! N.B. in some situations, misalignment is however clearly possible between VCs & entrepreneurs (see next slide). Value-add of VCs – @Boris_Golden – Partech
  16. 16. 3. But: key sources of misalignment • Go big or go home: VCs mostly interested in “home runs” leads to an asymmetric risk • Small or skewed exits: some exits will only suit the founders or VCs • Raise more: VCs sometimes want to invest more, or push for a big next round (→ fund IRR) • No reinvestment: VCs don’t want to reinvest (much) in companies not doing “well enough” • Liquidity agenda: at some point, VCs need to sell their shares & will likely push for an exit The good news is that all these points can (and should!) be discussed together before signing a termsheet. Value-add of VCs – @Boris_Golden – Partech
  17. 17. 4. Have a say & a trusted voice VCs typically have a say in corporate decisions, and can also have a real influence on founders. Thanks to: their legitimacy as shareholders, with often responsibility & power, + potentially a trusted relationship, and credibility (expertise, experience & reputation). Value-add of VCs – @Boris_Golden – Partech
  18. 18. 5. Valuable & up-to-date experience VCs can develop judgment, intuition, learnings & insights, continuously shaped by their ongoing experience. They combine a continuous exposure to a large number of diverse situations + analysis & synthesis to figure out patterns, learnings, good practices, mistakes, comparables... (but being wary of overgeneralizations). Value-add of VCs – @Boris_Golden – Partech
  19. 19. 6. Relevant skills & know-how VCs can develop a unique skill set to be able to support entrepreneurs and impact the path of their startups. Advisor on building & growing companies, facilitation / maieutics / sparring partner (to foster constructive discussions & thinking), coaching & influencing, positioning & attitude, and even hands-on support on specific topics. Value-add of VCs – @Boris_Golden – Partech
  20. 20. 7. Network, resources & community VCs can tap into a large pool of resources, leveraging the scale & power of their firm. Network (experts, investors, corporates, PR...), curation of resources (methods, good practices, tools, content...) & more (portfolio community, events, in-house teams...). Value-add of VCs – @Boris_Golden – Partech
  21. 21. Value-add of VCs – @Boris_Golden – Partech VCs, well positioned to add value! 1. Context, but external point of view 2. Time & availability to support 3. Alignment & stake in success 4. Have a say & a trusted voice 5. Valuable & up-to-date experience 6. Relevant skills & know-how 7. Network, resources & community
  22. 22. Value-add of VCs – @Boris_Golden – Partech Zoom on the “value-add” of VCs
  23. 23. FACILITATOR = help to think relevantly • Clarity: think & communicate articulately • Focus: figure out & foresee what matters • Perspective, stepping back & reframing • Challenge & question decisions or views COACH = support & empowerment • Vitality to cheer up & foster self-growth • Harmony to solve co-founder disputes • Discipline to focus, commit, deliver, track • Hands-on: help implement or deliver stuffs What a VC can bring founders as a trusted… ADVISOR = contextual insights to guide • Advice, feedback, questions to influence/inform • Ideas & actionable suggestions to inspire • Learnings shared from comparable experience • Benchmark for calibration & reality checks ENABLER = access to key resources • Equity: next financing rounds and exit/M&A • Talent: define, identify & hire the right talents • Network: connect, open doors, give credibility • Toolbox: methods, best practices, tips, tools... Value-add of VCs – @Boris_Golden – Partech
  24. 24. Typical areas of support vary greatly Depend on VC focus + company stage/needs/expectations. • Hiring, team organization & culture • Operations & scaling • Biz dev & partnerships • International expansion • Founder relationships & personal growth • Board, investor & shareholder relations • Trends, news, intelligence & competition radar Value-add of VCs – @Boris_Golden – Partech • Business vision & strategy • Strategic planning & company steering • Finance, cash & KPIs • Fundraising & exits • Market analysis & positioning • Product & business model innovation • Go-to-market & growth engine Ideally, VCs should cover very different areas, from strategic to operational & generic to specific:
  25. 25. Value add of VCs – @Boris_Golden – Partech • Portfolio founders community • Experts & advisors • Co-investors • Corporates & organizations • Acquirers • Talent pools ... A rising trend: the VC “platform” In-house services & tools dedicated to supporting portfolio companies: • Playbooks, templates & methods • Best practices & learnings • Curated content (books, articles) • Vetted service providers • Recommended software & tools • Benchmark & stats ... Network, community & proprietary events • HR & Hiring • Finance & KPIs • Marketing & PR • M&A • Product • Biz dev & Sales ... In-house support & experts by topic Curation of actionable resources & tools Value-add of VCs – @Boris_Golden – Partech
  26. 26. But VCs aren’t magicians! VCs are often wrong and can have no clue about key topics. They aren’t in the driving seat, and are just here to help! Entrepreneurs are the ones having the vision and making it happen, while taking the most risks. So entrepreneurs shouldn’t expect or let a VC “steer” their company! (beyond governance, i.e. some power on key corporate decisions) Value-add of VCs – @Boris_Golden – Partech
  27. 27. Value-add of VCs – @Boris_Golden – Partech Making it happen in practice
  28. 28. Some tips to pick VCs on “value-add” If seeking a "value-add" VC, typical points to check (beyond compatibility of ambition & funding): • Involvement: which person leads the investment? Which involvement to expect from them? • Support track record: what are their success & war stories? What do their founders say? • Attitude & values: do their attitude & mindset foster a productive support relationship? • Personal fit: do they & the founders want to spend time and discuss key issues together? • Understanding: without needing to be experts, do they understand the business enough? • Relevancy: do they have especially relevant network, expertise, resources, experience, etc? • Value delivered: have they brought something valuable already, before signing the deal? Value-add of VCs – @Boris_Golden – Partech
  29. 29. Prerequisites to an efficient support Hard to ensure that, once onboard, a “good” VC will be really adding value to a specific company. But some prerequisites can definitely help: • Relationship: building a trusted, pleasant & fluid professional relationship together • Openness: creating an atmosphere & expectations fostering honest & useful discussions • Transparency: founders disclosing proactively & early important/bad news, key issues, etc • Update: founders keeping VCs up-to-date & informed regularly with what's happening • Understanding: making sure that VCs “get” & keep learning about the business/market • Adaptation: VCs adapting their support (posture, style, topics...) to each situation & team Value-add of VCs – @Boris_Golden – Partech
  30. 30. Formats for VC-entrepreneur work • Boards, to review company progress, agree on the next steps & discuss key topics • Workshops, to deepdive in various topics (but outside of a formal board meeting) • “Hotline”: calls & emails to share, discuss & pick VCs’ brain on hot issues • Regular calls to share key updates & discuss quite informally about various topics • Regular email updates to keep up to date more formally with everything • Proactive sharing by VCs of curated, relevant & timely content, ideas, contacts… It should be a work relationship, with initiatives from both founders (ask) & VCs (propose). Value-add of VCs – @Boris_Golden – Partech
  31. 31. Some attributes of supportive VCs Value-add of VCs – @Boris_Golden – Partech • Available • Involved • Listen • Unbiased • Respectful • Benevolent • Empathetic • Positive • Challenge • Constructive • Humble • Everlearning And frequent “Don'ts”: being over-assertive, sharing many impracticable or bad ideas, not taking into account the specific context of each company, imposing their views...
  32. 32. Closing remarks VCs’ time & availability are key factors in impactful support, VCs tend to overly market in-house services over individual VC support, Redirecting founders to vertical experts is only one form of support, Seed founders need cross-functional support to build the “foundations”, Coaching & psychological support tend to be underrated, Advising doesn't mean being intrusive, assertive or willing to decide, Working closely with founders doesn’t prevent a diligent governance, Focused VCs (stage, sector, model…) tend to provide better support. Value-add of VCs – @Boris_Golden – Partech
  33. 33. Thank You! Convinced? Doubts? Suggestions? I’d love to hear your feedback: @Boris_Golden Thanks to founders in my portfolio, my colleagues & Delphine, for their support & feedback! - Picture credit: Brains! by Hey Paul Studios -
  34. 34. Value-add of VCs – @Boris_Golden – Partech PS: What I like to work on with my portfolio • Founders (personal growth, psychological support, co-founder relationships, mindset, management, communication) • Marketing strategy (strategic positioning, differentiated value prop., targets, storytelling, messaging, offering) • Strategic planning (trajectory, key issues/goals/priorities, OKRs, roadmaps & plans, agile execution steering) • Team development (organization chart, roles & responsibilities, hiring, compensation, culture) • Finance & KPIs (cash management, forecasts, reporting, business KPIs definition/modeling/tracking/analysis) • Product (research, structure, features, lean testing, market-fit validation. Also: monetization model, operations map) • Growth engine (go-to-market strategy, growth funnel blueprint/organization/optimization, north star metric) • Fundraising (equity story, timing, company storytelling, pitch deck, business plan, intros & process) • Corporate development (biz dev & networking, strategic partnerships, M&A strategy, market intelligence) • Board & co (board meeting preparation, board management & alignment, shareholder relations)