Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more
Three Essential Types of Relationships for Investors
For investors, few things are more important than the strength of one’s network. Whether you are an angel, seed, venture, growth equity, your relationships matter.
In addition to entrepreneurs, it’s important that investors forge strong relationships with other investors who interact with companies at various stages of their lifecycle. The stronger these relationships are, the more effectively investors can access new knowledge and improve deal flow.
For venture capitalists, three types of relationships that are especially important:
Relationships with angel and seed investors
Angel and seed investors typically act as “feeder systems” for later stage investors. They provide startups with early-stage capital in the initial journey down the venture-backed financing route.
By developing strong relationships with early-stage investors, venture capitalists can access important knowledge. Angel and seed investors can keep later stage venture capitalists informed of high growth potential companies that they might consider funding in the future (when, for example, the company has progressed from the pre-to post-revenue stage).
Venture capitalists can leverage Affinity to discover early-stage investors in their network, build relationships with them, and help ensure they are kept abreast of the next biggest opportunities.
Relationships with incubator and accelerator programs
Venture capitalists commonly attend incubator and accelerator program demo days in hopes of discovering new opportunities. For many, Y Combinator demo days are especially important. At this year’s event, Josh Elman, General Partner at Greylock, explained: “I'm here to see the latest and greatest out of the Y Combo batch.”
There’s great value in venture capitalists developing strong relationships with incubator and accelerator programs. Top-tier programs like Y Combinator, Techstars, and AngelPad have proven track records of producing successful companies (Uber, Twilio, and ClassPass are all Techstars graduates). Venture capitalists can reduce risk by investing in graduates of top-tier programs. Startups have already been vetted and much of the due diligence process has been completed.
By using Affinity's Alliances feature, venture capitalists can connect with investors at incubators and accelerators and tap into their relationships. They can forge strong relationships with promising startups and secure a leg up on the competition--well in advance of demo days.
Relationships with late-stage investors
Late-stage venture capitalists typically have expertise in specific domains. A report published in Small Business Economics found that venture capitalists benefit from combining their investment expertise. When late-stage venture capitalists develop strong relationships with each other, they can leverage one another’s areas of expertise.
Consider, for example, the financial technology (fintech) sector. It’s common to see venture capitalists based in financially-oriented regions co-invest with venture capitalists based in high-tech-oriented regions. In fact, according to “Sources of Metropolitan Growth”, New York-based venture capitalists co-invest more frequently with San Francisco-based venture capitalists than with other New York-based venture capitalists. When California-based investors specializing in high-tech co-invest with New York-based investors specializing in finance, both parties can combine their knowledge and maximize the success of fintech portfolio companies.
Affinity enables venture capitalists to view the strengths of their relationships to other venture capitalists. Using Affinity’s search filters, they can segment venture capitalists based on their specific areas of expertise.
According to a study published in the Journal of Finance, the strength of a venture capitalist’s network has a significant positive impact on fund performance. Use Affinity to get the most out of your relationships and maximize your investment performance.