Closing a deal is just step one. It’s the value that’s created afterwards that can be transformational for founders and their teams, and that will make the biggest impact on your firm and its LPs.
As market conditions tighten, firms are spending more time making sure their existing portfolio companies are performing as well as they possibly can. It’s this topic of fund value creation that we recently discussed with Brian Cashin, Vice President at Teamworthy Ventures.
Watch the full conversation or keep reading for the highlights, with timestamps to help you dive deeper at key moments.
Creating unexpected access
At the core of the value creation process is the access that you can grant portfolio companies—be it customers, partners, talent, or strategy.
Cashin explained, “If you can imagine the number of calls that a member of a venture investment team has in a given year, that number represents all the opportunities to find a new customer, a new partner, a new mentor, a new advisor, or maybe a new investor.”
What’s interesting is that your original intention for a connection may not reflect its final outcome. You may bring in a subject matter expert as a consultant, and that person could become a member of a portfolio company’s C-suite. It’s important to remain open minded and perceptive to the needs of portfolio companies as they change—proactivity is important, but so is being reactive if the right situation presents itself.
Cashin added, “Hemingway said, ‘Never mistake motion for action.’ Sending a lot of emails is not always the best way to maximize the success of your portfolio companies. Instead we make sure that every week we’re taking decisive actions that drive growth incrementally, on a weekly, monthly, quarterly, and eventually annual basis.”
Teamworthy Ventures expands and nurtures their network in two stages. The team first uses a proprietary platform to consolidate a multitude of data sources, then uses Affinity as a productivity platform to take action on the data they’ve sourced.
“We have several data providers in our portfolio, including G2 for software reviews, People Data Labs for people data, and Harmonic for firmographic data,” Cashin said. “We use scoring methodologies to identify which contacts are the highest priority for us. Once that scoring is achieved, our investment team uses Affinity to prioritize contacts based on the information we have and the needs of our companies.”
For example, if Cashin sees on G2 that a portfolio company isn’t getting great reviews, he can take action by connecting the relevant product manager to others in his network that can provide support and insight. “A lot of our data-driven work isn’t only related to sourcing the best opportunities. It’s also about developing relationships with the highest caliber entrepreneurs to ensure our portfolio companies are guided with the highest level of insight.”
Adapting to economic realities
Cashin has observed that companies are “re-architecting” their priorities to reflect what now matters to investors.
“Simple metrics like ARR per employee, rule of 40, and cash conversion score are optimized for a lot more in this market,” he explained, “because companies know investors are optimizing their own investments for that capital efficiency.”
Cashin said he’s seeing more companies pressing toward a goal of break-even or positive cash flow, sometimes even at the expense of some growth objectives.
But Cashin believes the metrics you let go of are almost as important as the ones you track. “When I first started out,” he said, “there were a lot of signals I tracked that I don’t anymore. You can't read every news article. You can't read every post on Medium. But what you can do is decide on a few leading indicators, like talent and transaction data. Focus on those, and you’ll be set up for a ten plus year partnership with some great companies.”
To find out more about how Cashin optimizes his value creation process, watch the whole webinar here. You’ll also leave with an understanding of how to:
- Develop and execute a successful strategy that drives value
- Analyze the metrics that matter for retaining your best LPs
- Use technology to generate and report on fund value