- Description
- Venture funds have long sold themselves to founders and LPs as having the experience, insight and networks to increase the chances of a successful company and investment. As the industry has evolved, some firms have added team members (often called the “platform” team). No longer are these firms relying on GPs to provide the “value add” and are creating other avenues for collaboration between portfolio companies, their founders or providing playbooks or content. In some ways, this strategy is borrowed from later-stage private equity firms who first had operating partners and sometimes captive consulting companies.
- Benefits
- Specific Tangible Thing to Pitch – members of the firm are aligned on a clear pitch to founders that contain tangible and specific items. It can be persuasive.
- Attractive to LPs – in fundraising from LPs, being able to explain the strategy of winning by adding value can be attractive.
- Trade-offs
- Requires Specific Knowledge – the firm must develop or possess true expertise, experience, judgment or network in order to deliver on adding value. Easier said than done.
- Can be Hard to Prove – It can be hard to prove historically adding value. Specific stories are helpful. Although if you push the story then it can sound like you are taking too much credit for building the portfolio companies and that can backfire.
- Time – Helping portfolio companies requires time. Therefore you will spend less on activities like sourcing, deciding on new investments or building LP relationships. This is sometimes mitigated by hiring specific people to work on portfolio company support that assist the GPs.
- Cost – the more the firm takes on, the more people are required and they must be compensated.
- Examples
- A16z is well-known for building a large team focused on helping portfolio companies.
- True Ventures and First Round were early in creating content and conferences for founders.
