Most PE or VC funds don’t really care about vendor management. But we argue helping your portfolio companies to choose the right vendors early on makes a huge difference to the life of a company.
In today’s global economy, successful businesses must prioritize due diligence and risk management across the supply chain, especially for portfolio companies. This is one reason that it is increasingly common to see Chief Procurement Officers (CPO) appointed at the C-suite level, and is starting to be found across the PE and more frequently in VC firms.
A CPO (or sometimes, Head of Platform) handles both the goods and services consumed within the organization and those incorporated into products delivered to an external customer. Vendor management, a key function within the overall procurement process, focuses on securing deals with quality vendors that are the most likely to contribute to customer or client satisfaction and improve return on investment (ROI).
Understanding the dynamics of vendor management will enhance decision-making and the long-term performance of your portfolio companies. Taking vendor management seriously is also a type of due diligence. In today’s complex business environment, mistakes made by your portfolio companies about vendors can rebound onto your fund. Vendor management platforms such as Proven that connect you to already vetted providers are a valuable tool in reputation management and risk assessment.
Here we look at vendor management as a core business function and across the three stages of the venture capital cycle.
Venture capital firms need to wrap vendor management into business development strategy. The quality of selected vendors strongly influences the success or failure of portfolio companies. Emerging companies need vendors for basic functions such as payroll and benefits, while late-stage start-ups will need marketing and legal advisory services. Start-ups in sectors such as healthcare or defense technology will need to secure dependable vendors who have ability in these specialized fields.
Centralizing vendor management under a digital platform also reduces redundancies and simplifies the process of comparing vendor deals and handling renewals. Today’s business environment has little room for error, while the sheer number of options in the vendor space can quickly become overwhelming. The more specialized the industry or sector your portfolio company is in, the more likely it is, as well, that focusing only on a limited number of famous brands or the cheapest alternatives will result in wasted time and money, and unhappy clients or customers.
Partnering with an intermediary company that specializes in vetting vendors and aggregating crucial data on options and costs will help to ensure the success of your portfolio companies. With a vendor management platform in place, entrepreneurs and can focus on refining prototypes, value propositions, and revenue growth rather than on the time-consuming task of finding the best vendors.
Vendor management is not a “one and done” process. It requires oversight, specialized staff, and sustained investment. High-quality vendors not only supply a needed service or product, but also have valuable industry knowledge that can help your businesses compete and grow. When performed skillfully, vendor management is relationship management, hence the added value of a digital platform that aggregates extensive amounts of vendor data and makes it easily accessible to the procurement team.
Effective vendor management is also responsive to the distinct stages of the venture capital cycle. Early-stage startups need specialized and often expensive legal and financial advice. They also need access to deals, discounts, and knowledge to help them expand and to manage essential functions such as data management. With prepackaged software increasingly obsolete, software-as-a-service (SaaS) has emerged as the essential choice for companies that want to scale.
SaaS now includes well-known brands such as AWS Marketplace (Amazon), Salesforce, and Stripe, as well as industry-specific options such as Meditab (health) and ProCore (construction). These subscription-based services work via a cloud delivery model. The vendor manages technical issues such as server maintenance and upgrades, saving investors and entrepreneurs time and money, while improving scalability and efficiency.
Mid-stage startups should already have developed relationships with trusted vendors. However, given the volatility in the SaaS industry, investors and executives may find it necessary to secure new providers. Renegotiating contracts can also improve procurement outcomes and maximize return on investment.
Late-stage startups have different priorities. The portfolio company likely has strong relationships with a bank, law firm, fund manager, accountants, marketing experts, and various SaaS providers. It is now difficult and expensive to make significant changes to a vendor stack that the company has assembled over months or years.
What can be especially useful, however, is for emerging and peer companies to be able to see and compare vendor stacks. It is simply impossible for any startup to predict every challenge or to know all of the vendors that might be available in a market or service niche. A platform such as Proven ensures access to high-quality vendors and allows investors to ensure that the best mix of problem-solving tools is available to portfolio companies.
Vendor management is fundamentally about cultivating relationships with high-quality suppliers. In a global economy rocked by stock market volatility, the supply chain crisis, geopolitical tensions, and high inflation, a proven vendor management platform takes the guesswork out of finding suppliers and securing the best deals.
Investing in a vendor management platform also ensures that the best deal is both cost effective and fit-for-purpose. Return on investment is about money, to be sure, but it is also about quality. The cheapest deal is not always the best option for a company that wants to scale and ultimately to go public. The Proven platform allows the procurement office to evaluate vendors from multiple vantage points and price points.
Proven is an invite-only platform that supplies immediate access to vetted vendors and bids across a wide range of suppliers and industries. Proven has worked with over 70 percent of the Tier 1 VC clients in Silicon Valley, over three thousand vendors, and more than 5600 portfolio companies. Given the overwhelming number of vendor options in the market today—and the need for growing companies to get third-party relationships right the first time—a quality vendor management platform such as Proven is a core requirement for nurturing new start-ups to success.
Like any small business, private equity firms, especially smaller-sized ones, must make use of creativity, strategic plans, and a holistic perspective to fuel their investments.
The software should have a user-friendly interface so that your team can navigate the complexities without any trouble, and it should become their ally, not an obstacle.