Mar 7, 2023

The Impact of VC Platforms On Early-Stage Investing

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In a startup eco-system it's always survival of the fittest. This is a violent and aggressive ecosystem where only the best make it big. And when they do, the spoils go out to the investors. But the journey is anything but smooth sailing. Perhaps that's why many entrepreneurs resonate with the old saying "A smooth sea never makes good sailors."

With all the storms, uncertainty and overwhelm that come with taking a startup from fundraising to an IPO (a VC's holy grail), one must pick the right tools necessary to aid success.

VC firms are challenged to develop post-investment support that gives founders a chance in the competitive startup environment. This is most effectively put together and managed through a VC platform. You might be wondering why VC platforms are needed in this technological era. 

In this post, we'll outline the post-fundraising challenges faced by startups, and explore the advantages of leveraging a VC platform hire to support your portfolio companies. As you'll soon learn, these benefits aren't just for the founders. They also encompass the needs of the VC firm and investors.

But first, let's identify the common challenges faced by Startups.

Post-fundraising challenges for startups

1) Choosing the Right Candidates

For a newly established startups with some money to spend, hiring the right new hire with skills is crucial. Investors that are investing on your vision; now you must demonstrate that taking the risk was worthwhile. Finding the best platform team is no easy task, but it is essential to your growth and success. Many entrepreneurs claim that finding funding was more difficult than finding their first 20 new hire.

The team's harmony is one of the most crucial elements in defining organizational culture in a startup business. A platform teams is made up of people with complementary skills and goals. Top Startups, in particular, as well as organizations in general, need to hire the right people to create a highly successful team culture.

Obtaining buy-in requires a strong platform strategy, which is mission critical. The platform leader can use it to demonstrate ROI.

2) Making Partnership Decisions

Collaboration is crucial to success. And startups can benefit from this reasoning as well. Startups struggle to find reliable partners in the ever-expanding and ever-changing digital era, where organizations must fight tooth and nail to survive. Today, it's a difficult task for startups.

For startups, entering into a partnership pays off significantly, but they must weigh several factors before deciding to work with another organization operating in the same ecosystem. Startup businesses should seek out organizations that enjoy a strong presence in the market and a good reputation among the industry giants to maximize the benefits of a partnership.

3) Financial Management

VC backed startups might have plenty of capital after a fundraising but that doesn't meant they know the best way to allocate resources. Most of the time, startups need guidance and the right strategies to handle cash flow as well as any unexpected financial crises.

4) Business Operations

The business world is very competitive. For a young startup, every aspect of the business is in danger if the fundamental business structure and operating systems aren't properly aligned. A portfolio company that lacks proper financial systems will soon encounter problems including:

  • Error in estimating monthly cash flow.
  • Overspending on services.
  • Making costly errors when tax season arrives.

Because of this, it's critical to set up the business operations the right way. Assisting your portfolio companies with the right systems to assist them with their finances, hiring, talent acquisition and more will enable your firm to ensure growth for the founders.

Of course taking on this job is a huge task for a VC fund. That's why hiring for the right platform roles is critical. It makes offering support and managing founders much simpler.

This will also enable you to easily access important network, investment opportunities, allows you to exchange ideas, increase brand awareness, gives broad range of tools and resources.

What is a Venture Capital Platform?

The VC platform is a division within VC firms that performs various tasks. Depending on the VC and its objectives, it may also go by the community, business development, network, talent management, or portfolio success.

To put it another way, think of your VC platform as a merging and combination of business services, technology, and other products designed to complement your ecosystem and business model.

Is it advantageous for Startups to have Venture Capital platforms?

It all depends on the firm, its investors and the need their vision. We've found that in most cases funds benefit greatly when they offer additional resources to their founders.

The common challenges startups face post-fundraising are quickly addressed by having a VC Platform. VC's offer early-stage portfolio companies the funding required to initialize operations. VC's provide mentoring services to aid new businesses in establishing themselves, as well as networking services to assist in discovering talent and advisors. Good VC backing can be used to leverage additional investments.

Therefore, venture capital platform enables startups to take off and realize their vision. 

Startups have the most to gain from the development of a platform function. They see VC platforms as a place to gather resources and negotiate the best vendor prices. This is also where the founder can get tactical coaching and mentoring when they need advice on critical business decisions.

A VC platform works to make sure their company is assisting founders in growing better and faster in the quickest amount of time possible in a startup ecosystem.

The Goals of the Platform and How Your VC Firm Can Benefit from It

A VC platform's primary role is to fill the gaps entrepreneurs frequently find difficult to cross independently.

It becomes clear that there are opportunities for value addition when you consider how challenging it must be for founding members and investment teams to multitask priorities like talent, business development, content creation, go-to-market strategies, sales, systems, and finance. Taking care of such responsibilities typically fall into the purview of your platform roles.

Another significant advantage for the financers is that tracking and reporting progress is made simpler and more transparent by establishing this central network for knowledge sharing and support and being able to access different data they can use to formulate insights for their future investment.

A VC platform's main objective is to increase the chances of their portfolio companies' success in the market by providing them with resources and support.

Investing in formalized post-investment support does have a cost. Still, most VC firms can more than construct a platform strategy that facilitates a favorable return on investment for all stakeholders.

VC platform leaders fills the gaps entrepreneurs frequently need help to cross independently.

What are the benefits of having a Venture Capital Platform for Investors?

 The investors will have increased fund transparency. They can visualize how the platform team leader and business owner distribute resources. Investors can get insights and learn about the various business models the companies use in their portfolios, which can help guide future investments.

Creating an internal ecosystem makes knowledge sharing possible throughout the company's portfolio. When all participants know the potential win-win scenarios, it may attract capital and deal flow at higher levels. Of course, the company would always uphold strict confidentiality standards when necessary, but generally, a co-sharing culture benefits everyone.

What LPs and new managers need to understand about VC Platforms?

The world has evolved. Funds must now stand out to win business; they can no longer rely on their investment thesis.

A successful platform creates the ideal environment for the magic of people helping people to occur. Emerging managers and limited partners (LPs) should compare funds and pay attention to how each fund's head of platform ensures that their companies develop and reach their next round of fundraising.

Is there a need for me to have a Venture Capital Platform?

Is investing in a structure that can benefit your startups after raising money worthwhile?

Do the advantages outweigh the expenses of assembling and training the platform team required to ensure smooth operations and demonstrate a return on investment?

Only you are capable of answering that.

Examine your current position and note any constraints, inefficiencies, or communications breakdowns between funders and entrepreneurs. If you currently have informal platform roles that work with manual or inneficient tools then your VC firm might be in need better resources.

A platform might not be necessary for your fund if you don't see the need for a better system structure and organizational protocol to boost current startup success.

Nevertheless, notice discrepancies, underutilized opportunities, or careless mistakes that could have been avoided with better networking, operations, and knowledge sharing.

If you discover that your portfolio companies are underperforming, it might be time to consult an expert about the choices available for your particular VC firm.

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