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 Cutting-Edge Venture Capital Value-Add Resources
Just like the disruptive companies that they aim to fund and partner with, venture capital firms are continually looking for disruptive ways to appeal to and offer value to portfolio companies. As research and a large body of anecdotal evidence confirm, no longer is a venture capital firm’s greatest value-add, its check size. In fact, too much capital can be detrimental to entrepreneurs. Research has revealed that companies that raise $2-3M are more likely to see an exit valuation in excess of $10M as compared to startups that raise $3-10M.
Here are three value-added resources that are transforming the ways in which venture capitalists are able to attract and add value to their portfolio companies.
1. Mental health resources.
There’s no debating that entrepreneurship is difficult. According to research by Michael Freeman, a faculty member at the Department of Psychiatry at the University of California San Francisco School of Medicine, as well as a psychiatrist, psychologist, and former CEO, entrepreneurs are 50% more likely to report exhibiting a mental health condition. A staggering 72% of entrepreneurs included in Freeman’s sample self-reported mental health concerns. The specific breakdown is alarming:
- 10X more likely to suffer from bipolar disorder
- 6X more likely to suffer from ADHD
- 3X more likely to suffer from substance abuse
- 2X more likely to suffer from depression
Recognizing that entrepreneurs are especially susceptible to experiencing mental health conditions, several venture capitalists now offer mental health resources and services as part of their offerings to portfolio companies. One notable venture capitalist who was at the forefront of this trend is Dasha Maggio a partner at Felicis Ventures. In 2018, Maggio launched Felicis’ “1 percent” program, which was founded on the commitment that Felicis will allocate 1 percent on top of every first check it writes in non-dilutive capital to “founder development services.”
As Maggio has reflected, “Money talks, I think, and it’s one thing to say yes we support you, etc. It’s another thing to say, we are committing money out of our own budget and giving you the choice of how to invest in yourself as a founder.”
2. Artificial intelligence.
Biases are pervasive in venture capital. Recognizing this, many firms have started to embrace algorithms and AI as a means of reducing biases and making more sound decisions with respect to investments. Deep Knowledge Ventures, a Hong Kong-based venture capital firm, is especially bullish on AI. The firm leverages AI-powered software called Vital to spot investment opportunities, primarily in the life sciences sector. The firm has gone so far as to name Vital to its board! As Dmitry Kaminskiy, a managing partner at Deep Knowledge Ventures has explained, “We treat it as a member of our board with observer status…As a board, we agreed that we would not make positive investment decisions without corroboration by Vital."
Not only can artificial intelligence help venture capitalists identify potentially promising startups, it can also be leveraged to help startups scale and transform after the initial venture capital investment. Valuer.ai, for example, is one platform that is embracing AI to add value to startups through their lifecycles. Valuer.ai, which is endorsed by esteemed investors Reid Hoffman and Cris Yeh, authors of the best selling book, Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies, identifies, assesses, and engages with startups at a ten times faster rate than traditional means.
3. The power of the network.
Arguably, a venture capital firm’s greatest value-add is its network. With strong connections to recruiters, business leaders, marketing experts, and other talent, venture capital firms can afford portfolio companies crucial access to new talent, mentorship opportunities, sources of revenue and partnership opportunities, and enhanced knowledge about how to build a powerful brand.
One firm that has truly embraced the power of a network is New York-based Human Ventures. Recognizing the potential power of its network, Human Ventures has created the “Human Network”, which supports entrepreneurs in developing relationships with potential customers, potential employees, and a wide range of experts. As Alessandra Henderson, who previously served as VP of Network at Human Ventures has explained, “Whether an early stage company is looking to hire employee number three or needs specialized expertise to answer a time sensitive question, our founders leverage our Human Network to best set themselves up for success from the start….Our thesis is that it always comes back to Humans…We provide founders impactful, value-add connections necessary to take their company to the next level.”
Using Affinity, venture capitalists can easily discover and tap into the extent of their network. What’s more, with Affinity’s Alliance platform, venture capitalists can give portfolio companies immediate access to their networks, as well as insight into where critical connections exist and how strong they are.
A check cannot single-handedly propel venture capital success. Venture capital firms must continually look for ways to offer unparalleled value to their portfolio companies in the form of value-added resources.