In my last post I wrote about the problems of current VC “value-adds“. Today I want to expand on that as well as last week’s posts about how VC will morph in the future and speculate about what VC’s operations could focus on, in order to help startups and increase their odds.
My opinion is that there is a massive wealth of knowledge created while building a company, and unfortunately it is usually never captured in a structured way, but rather lives in the minds of the entrepreneur, the VC partner and the employees.
There are a number of VC firms which are experimenting with operational help. First Round Capital, Google Ventures, Andreessen Horowitz, ff Venture Capital, True Ventures, Greylock Partners, and a couple more are all experimenting in different ways. Building from David Teten‘s and ffvc’s TOPSCAN framework (Team Building, Operations, Perspective, Skill Building, Customer Development, Analysis, Network) I tried to compile a list of areas where VCs can and should add value in a much more structured and productized way.
I’ll try to expand on every single one of those points with single blog posts on how such a product or service could look like.
User Acquisition
Internet companies live and die by customer acquisition. It’s hard to find a very good UA person and VCs could come in, set up all the UA infrastructure as well as help train the people who’ll be responsible for its execution.
Taking it to a new level, I can really see a “user acquisition as-a-service” proposition work really well for venture firms. I know that HackFwd and 500 Startups both experimented with in-house growth hackers and that is a very tempting proposition for entrepreneurs.
Sales
B2B companies can only succeed if they’re able to create and implement a predictable and scalable sales process. I would love to see a VC firm offering an Elastic-like service to its companies.
Recruiting
This is where most of the new “operating firms” have been experimenting. It’s not a secret that hiring the right people for a company is both the most important thing and one of the hardest, and so recruiting is a great place to start for VCs. It’s still not very scalable nor efficient, but I’m confident many firms will improve in this regard.
Portfolio
Companies should be able to leverage other portfolio companies’ products, connections and lessons learned in a faster way. This is probably what Dashboard.io will try to do and it’s an area where VCs have been putting the most effort with CEO retreats, networking events and so on.
Financing
Goes without saying, and is often where investors already help a lot. Still, I think there’s space for a more structured approach.
Design
Design has become one of the most important aspects of a company and product. Dave McClure has gone as far as saying that “Design is more important than technology in most consumer applications”. Hiring a designer has become incredibly hard nowadays and VC firms could really accelerate portfolio companies by helping out with design challenges.
Google Ventures has been pioneering this and founders seem to be raving about them.
Business Development
Business development could very well be accelerated by a VC by identifying leads, qualifying them and providing the right introduction to the founders or VP of business development. Rumor has it that a lot of Andreessen Horowitz ~70 people staff work on BD and Marketing for their companies.
Press
Getting press mentions is often vital to early-stage companies, but having a full-time PR person on staff is too expensive. External PR firms can run pretty expensive too and will often not have the commitment a company needs. In my opinion, having this function centralized on a VC firm makes a lot of sense.
Operations
The boring stuff. Accounting, payroll, benefits, office space search, lunch catering and so on. If a firm is able to offload all of this stuff from a company, I can guarantee it’ll win deals over someone else.
Process
First time entrepreneurs usually have no idea what they’re doing, particularly if they are engineers. This stuff takes a lot of time to learn and implement. VCs should come in and help companies implement lean but scalable processes to maximize learning, transparency and efficiency.
Structured Network
As I said earlier, investors heavily “sell” their network, but the access mechanisms to this network are usually flawed and not scalable. VCs should productize their networks and make them as self-serve as possible.
Internationalization
Companies need to expand abroad faster than ever and usually have no clue how to approach foreign markets. VC firms should build products and strategies for internationalization, which startups can leverage as soon as they’re ready to scale out.
One problem I can see is when a startup raises a round from multiple firms. Why would one VC firm have to do all the work? One solution could be to charge for these services, as they’d be invaluable for a company which in my opinion would be more than glad to pay for them. In this way the firm can improve its odds as well as keeping the operations financially sustainable.
My speculation is that if a firm were to offer some of these services, 90%+ of its portfolio companies would pay for them.
In my next posts I’ll try to speculate on some strategies that VCs can use to capture this knowledge and put it back to work in their future investments, as well as define what VCs should not help startups with.
