The best VC firms are the ones that generate the most value for their portfolio companies. If you're looking to attract and retain the best startups, make sure you're doing more than just writing checks. Invest in the success of your portfolio companies and they will invest in yours.
Here's how VC firms can add value to portfolio companies.
Many startups don't have the time or knowledge to identify and attract top talent. This is where VC firms step in to help. If you want your startup to be successful in the long-term, you need to focus on attracting and retaining top talent.
Help them connect with the right people to build a strong team. Without the right team in place, no startup can succeed. Though a business model may be strong, every company needs individuals at the helm who will guide it to reaching its growth potential. Funding and results-driven companies are always on the lookout for talented employees or service providers that fit their needs.
A company that doesn't invest in the right employees and grow revenue is doomed to fail. The right investors will help companies with the tedious details of building a successful business.
Before you invest, it's crucial to set expectations. Be explicit with the CEO and co-founders about your skillset and what sort of mentorship you're able to provide. Make sure they understand that you're a source of knowledge who is always available if they have questions or need advice.
Most investors, yourself included, likely invest in companies within industries you understand well. This allows for a more comprehensive understanding of the market, customer preferences, products, and skillsets and experience levels of employees these types of businesses tend to hire. In turn, this domain knowledge can be extremely valuable to share with founding teams.
As an investor, you will be more successful if you help your underperforming investees brainstorm solutions and strategies for the problems they face instead of giving up on them.
This could include advice on product development, marketing, fundraising, and business strategy. By reviewing and nurturing companies, VC firms can encourage growth and prevent failures. This is beneficial to the startups as well as the financial interests of the VC firm.
It is also extremely important for a VC firm to have good relationships with the companies it has invested in. Being available when your portfolio company needs you is just as valuable as the initial investment. Make sure you can handle being involved with the right number of companies so that you can be there for them when they need you.
Do your best to stay current on all company activities, like their operations, expansions, new projects, and future fundraising goals. Additionally, don't be afraid to reach out if you think you can help in some way. The best investors not only invest their money, but also their time.
Providing access to your network is one of the most valuable things you can do for a portfolio company. This could include making introductions to prospective customers, though leaders and industry experts, potential co-founders, and other VCs who might partake in future funding rounds.
Connect them with like-minded individuals and professionals through community meet-ups and networking events, as well as maintaining relationships with current contacts to introduce them to new ones are both great ways increase their network. You can also elevate a portfolio company's profile through press connections or access to events.
Lastly, you can add more value by connecting them with relevant service providers, like lawyers, accountants, and PR firms. By leveraging your networks, you can save a startup valuable time and resources.
Investing in a good vendor management platform is the best way to save time and procure high-quality products/services for your portfolio companies.
A powerful tool, VMPs (vendor management platforms) help maximize return on investment by making data about quality vendors for your portfolio companies accessible so you can make strategic decisions based off transparency alone - without having any other sources or information available which could compromise its integrity.
They also provide peace of mind knowing that all internal processes are being followed; this reduces risk significantly!
There are a few great options out there, but we recommend you check out this one: Vendor Management Platform from Proven.
What else would you add to this list? Let us know in the comments below.
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.