The art of consistency: Learnings from the behaviors of top VC firms

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This article originally appeared in Forbes.

The first half of 2023 was remarkable in the world of venture capital. From the collapse of Silicon Valley Bank to JPMorgan's purchase of First Republic, we're living through a disruptive period. The numbers reflect this disruption; the volume of capital deployed in the first quarter of 2023 dropped 53% year-over-year—from $162 billion down to $76 billion.

Operating effectively in this environment is tough. Interestingly, however, our data shows that top VC firms (defined by a track record of unicorn investment) are not changing the way they approach their core workflows. By understanding what they do differently, we can see why it makes them so successful.

An intentional and data-driven approach to the collective network

Top VC firms look after networks that are roughly 59% bigger than the average networks of all VC firms. In this context, their record of successful investments makes sense, as we've found that more than half of VCs prioritize working with business partners they already have relationships with. However, in the same way that growth-at-all-costs companies are realizing the party is over, growth alone is a short-sighted network strategy.

Instead, top VCs are data-driven in their approach to network-building. They do this by establishing a process to capture, quantify and categorize valuable network data—from associates all the way up to general partners. This "collective" thinking is the first step in using relationships as a competitive advantage.

With collective network data in hand, VCs can see how to allocate their time intelligently. For example, firmwide network analysis helps leaders to establish a more intentional growth strategy. By rigorously and systematically tracking how a collective network evolves over time (and its breakdown by founder, fellow investors, C-level executives, limited partners, etc.), top VCs identify gaps to close that support their firm's overall investment thesis.

A network is only as strong as the relationships in it

We've looked at the data-driven, collective approach that top firms take to their networks and touched on why it's successful. It's also worth considering the specific challenges firms are facing today and how to overcome them.

Many firms strategically engage in activities like sponsored events, happy hours and expert talks. This matters because many startups are not fundraising at the moment. They're either waiting out market uncertainty or are in no rush—having built strong, profitable companies. It's precisely these people that VCs need to stay top of mind with.

Taking a one-to-many approach should be accompanied by one-to-one touchpoints. Technology can help ensure that no balls get dropped, but it does require a firm to commit to a single source of record.

For example, ingesting all relationship data at a firmwide level means leaders can understand the strength of connections across their firm's network. Then, putting structure and policies around metrics like "time since last contact" ensures that team members know when to reach out so that relationships don't weaken over time.

The top takeaway here is this: Being in touch more translates to greater opportunity at a firm level. We found that in 2022, top VCs sent an average of 11% more emails and booked 15% more meetings than their peers.

This steady cadence of communication pays off when new deals arise, when information is needed for due diligence, when a portfolio company needs an introduction or when it's time to raise a new fund. Top VCs know just who to reach out to—and the warm relationship increases the chances that they get the information they need.

Top firms are made in down markets

While it's fascinating to analyze deal-making performance based on a history of unicorn investment, it's also true that after a blockbuster start to the decade, the number of startups reaching unicorn status has stalled—as have exits more generally.

It's important to remember that the top firms were not always the top firms. A down market like we see today can provide an opportunity for new firms to rise to the top, especially those able to find and act on windows of opportunity.

Not all industries are feeling the same macroeconomic impact. Society's need to move away from fossil fuels has helped the energy industry, and the scale of cyberattacks over the past few years has drawn more attention and investment to the area of security.

There's one other industry bucking the trend: generative AI. The launch of ChatGPT in November 2022 created a new hype cycle that continues to grow. New accelerators are being spun up to attract the most promising startups, and generative AI valuations so far in 2023 have already eclipsed 2021 and 2022 combined.

New unicorns will remain few and far between, but the promise of the next generation of billion-dollar startups is still out there. VCs that can capitalize on data—from relationship context to industry signals—should find them first.

Now is a good time to be an investor if you double down on a data-driven, relationship-first strategy to improve results across key workflows from sourcing deals to facilitating introductions that help portfolio companies reach their potential.

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author
Ray Zhou
CEO & Co-Founder
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