The cornerstone of portfolio management is providing tangible value to your portfolio companies. To develop a better understanding of best-in-class portfolio management principles, CB Insights conducted an analysis of 111 startups and the reasons why they failed. Here are three principles inspired by that analysis and how you can support your portfolio companies using your existing resources.
Opening up your network
Knowing how to use your network is important for investing, but it also helps you provide tremendous value to your portfolio companies. Mar Hershenson of Pear Ventures turned to Affinity to instantly surface 11,467 introduction paths to new prospects in sales, BD, and fundraising for Pear Summer 2017’s cohort. These introductions can help your portcos with both material and non-material contributions.
To professional services
CB Insights noted that 18% of startups attributed part of their demise to a lack of basic services such as regulatory and legal support. Introducing your portfolio companies to new partners in various administrative areas can ease this process and set them up for success. Andreessen Horowitz, for instance, provides startups in its network with a range of accounting and marketing services, while GV, the VC arm of Alphabet, aims to help startups with a wide range of services, including product design and marketing.
To subject matter experts (SMEs)
CB Insights also found that 20% of startups failed because they were outcompeted. Competitive advantage often comes down to the simple ingredient of execution speed. Many new business ideas are appealing because they capitalize on a growing platform that is often attractive to many competitors.You should help your portfolio identify experts and connect them with people who can provide them with early support so they can keep a competitive market advantage.
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Building quality operations
Strategic expertise related to business planning and operational guidance is especially critical in the early stages of a startup. Unfortunately, many startups are not afforded this critical insight when it’s needed. Many startups spring from a great founder with a great idea who has little to know business acumen. Supporting them in becoming a successful business can turn a small opportunity into your next major deal.
To identify market need
CB Insights reported that 35% of founders said that the lack of market need was one of the top reasons that their company failed.
When entrepreneurs write business plans, they bake in many assumptions and hypotheses. It’s important that you lend your expertise during the business planning phase. You should be especially critical of the market need that their startup is aiming to meet. Ensure that the proposed offering is a new solution to a real, burning problem—a product or service that customers cannot do without. You may not be the product expert, but your firm does have the business expertise to guide and, as we mentioned above, direct them to an SME in your network if you can’t.
To create access to capital
According to CB Insights, 38% of founders said that the top reason why they failed was that they simply ran out of capital and failed to raise new capital. Your team is clearly invested in your portfolio company’s success, but you can’t deploy every dollar you have. Through your connections, you can ensure that your portfolio companies receive coaching on the capital-raising process and that they have access to a strong network of potential investors.
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Developing lasting relationships
Your best business partnerships will come from your highest quality relationships. These relationships aren’t built overnight, and it’s important to communicate with your portcos consistently to maintain and grow your connection. Here are two recurring issues captured by CB Insights that you can keep on top of when you have a pulse on your founders’ needs.
To recruit the right talent
14% of startups CB Insights reviewed attributed failure to not having the right team, while another 7% cited “disharmony.” Keep abreast of potential frictions within your portfolio company teams and, when warranted, introduce your portfolio company to new talent across your network.
To prevent burnout
CBI Insights also found that 5% of founders cited burnout as part of the reason for the failure of their companies. Nikita Gerts, a Principal at AddVenture, encourages you to listen for signs of burnout, stating that “the rollercoaster is smoother this way.”
The portfolio management principles outlined here will help you set your portfolio companies up for success.
Consolidating your portfolio management processes
In today’s competitive market, you can’t just invest capital, you have to drive value to your portfolio companies by supporting them wherever you can. Whether that’s through direct assistance, providing connections to your firm’s collective network, or providing them the tools to build themselves, you are essential to their companies’ successes.
It is a challenging balancing act to perform all these activities in the fast-paced environment of venture capital, especially as founders often will not admit or realize that they need additional support. By relying on relationship intelligence technologies and automated CRM tools, you can make sure you’re always on top of your most valuable relationships and offer support to your founders when they need you the most.
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