VCs must determine how best to support the companies in their portfolio. There are many approaches to allocate time and resources among portfolio companies.
Even if a VC is looking to make Proactive Intros, should a VC focus efforts on helping “winning” companies in their portfolio or assisting struggling companies? VCs may want to be seen as doing something to offer support, but how to make time? And what to focus on?
Here are common approaches to portfolio management:
- Reactive: Responding to requests for help initiated by the company. A common and default approach for too many GPs. It can be based on a lack of priority setting or a belief that portfolio companies are best to decide what help they need. See also I’m Here if You Need Me.
- Round Robin: Attempting to help all portfolio companies roughly equally can appeal to some in its possible “fairness”. It may help protect a VCs reputation for being helpful and not abandoning a struggling company. It can help explain why there is a limit to the amount of time a VC is willing to spend with a struggling company. The hope in pursuing this strategy would is that it will lead to more referrals from founders. Yet, it is unlikely to maximize returns on a given set of existing investments. Sometimes this approach can be time limited – See Help Until Next Round.
- Focus on Winners: This approach describes when a VC chooses to focus on supporting companies that are doing well. The hope is to generate greater financial returns in a proven investment. This might take the form of, for instance, introducing the company to more customers.
- Focus on Challenges: This involves focusing on companies that are struggling. The hope is that the support will make the difference in turning the company around. The aid might consist of advice on product/market fit, helping founders with a conflict, or working to replace a member of the management team.
- Structured Initial Engagement: By assembling a structured program with fixed duration, a VC can add value in an area of expertise in a short-burst. For example, a 6 session weekly focus on a particular sales or marketing challenge may help a company immediately. (See Hustle Fund for example.)
- Self-Service: Another approach is to enable management teams of portfolio companies to help themselves. This can take the form of self-service written resources or venues to connect with other portfolio companies. The self-service system might include a list of service providers for referral or a knowledge base companies can draw on. The approach is most common for accelerators, earlier-stage investors and VCs with larger portfolio sizes. Examples include YC, First Round and SeedCamp. This self-service system can be setup or administered by a Platform team.
- Platform: Which brings us to Platform which does and does not fit on this list. One can employ Platform along with another method on this list. VCs add “Platform” team members to help existing portfolio companies. Platform team members may help with recruiting, PR, marketing, business development customer introductions or vendor referrals. A VC may want to delegate this work or to increase the capacity of the firm to offer more support. Having a platform team does not answer the question of how to allocate resources, rather it reassigns who is doing the work. (In fact, having a platform team may increase expectations among founders. The increased expectations may push toward Reactive or a Round Robin.) See also Full Platform.
Updated: 7/30/2020
by Miles Lasater with Julian Jacobs
Thanks to Lindsay Knight for input