Every early-stage VC has some flavour of go-to-market approach they use with their investments. These approaches vary and can be condensed or expanded depending on the nature of the business and stage of the venture.
Regardless of the areas of go-to-market focus, the big question lies on how a VC and their teams can get investments to grow faster and better, maximising your fund metrics, with simplicity and effectiveness.
Like everyone else, alongside the cash deal, the VC will offer their amazing experience gained through years of activity in helping countless numbers of successful start-ups.
They will also put their amazing connections at the service of the venture, and they will be able to sell to large corporates or partner with the best technology firms. Well, this is exactly what most of VCs offer. I’m still to meet a VC who doesn’t have a great experience and amazing connections.
If the “product” is roughly the same, then how do VCs compete?
Well, it seems like "price" is the only way. VCs will get the ventures with the best potential by offering the most money by the least equity.
The alternative needs to be a different “product”. VCs can demonstrate that beyond money and experience they have the right tools, processes and people that will effectively help scale-up businesses go-to-market successfully.
The other week I had a meeting with an amazing VC, and the first thing they mentioned when talking about the VC was the number of people they have dedicated to helping the invested businesses being successful in the market. More than sixty I was proudly told. A team like that, if they are any good, must cost about 10 million dollars per year. If they work on average on ten start-ups per year, that means 1 million in costs per startup per year. That is a lot of money to dilute.
The great thing about it is that they can attract high-quality ventures because they have a differentiated positioning in the market. They are also able to attract differentiated investors that believe in a more interventive model. So, it works for a limited few cases, but it isn’t a model that can be widely adopted.
Rather than crushing the start-ups with costs that will be hard to recover, VCs can create a differentiated “product” by aggregating (or bundling) services, provided by third parties, which can have a determinant impact on the ventures:
- Venture Growth Enablers - Here the value of VCs is the access to high-quality services at the lowest price possible. VCs can aggregate services of Accounting, Legal, HR, Finance, Tax, Property, Recruiting, IT, …, which build the enablers of real venture growth. The ventures benefit from trusted sources to all of these, without having to invest founders time and energy in looking for solutions in the market.
Also, and sometimes disregarded, is the benefit of interoperability between funded companies. You can then move resources between any of the ventures, and these resources can create immediate impact.
- Venture Growth Drivers - These are the areas that make the difference. Especially in the case of those ventures that are performing in the middle of the pack. VCs can provide teams that help, not just in advising, but actually doing the hands-on work in generating, nurturing and converting opportunities and guaranteeing client success. These teams need to be able to intervene in content, marketing performance, technology and analytics and growth strategy.
To create these services, rather than growing internal teams whose costs will need to be diluted through invested companies, VCs can create on-demand propositions by having the right partners for each of the specific areas. Some successful VCs are cutting down the number of internal teams as they realise the complexities (and cost) of recruiting, managing and billing internal teams to invested businesses.
Naturally, an oversight there needs to exist, along with the right governance from the VC. But ultimately, the balance of keeping a slim structure and still effectively helping the ventures grow faster seems like the right direction.