How a VC Can Add Value

June 28, 2013 § 1 Comment

Fred Wilson (one of the elite Venture Capitalists) had a great blog post recently on the price war that is happening in the VC industry.  In response to the post, I mentioned that price pressure from competitors is nothing new to any business person.  His portfolio CEO’s face that all the time.  The answer is differentiation.  Meaning, provide value beyond cash.

That response started a back and forth with Brad Feld (another top-tier VC) and some other commenters.  Some commenters (not Brad) openly questions whether a VC can actually add value to a company beyond a check.  While it is true, that only the Founder spends every waking (and often sleeping) hour thinking about, and working on, the business.  I do think that great investors can actually add value beyond just a check.

How can a VC Add Value?

Some ideas off the top of my head:

1. Experienced VCs can be great Board Members.

2. Experience VCs are great maximizing value when it is time for an exit.

3. Great VCs can make introductions for business deals.

I am sure there are others, but these jump to mind.

The Most Valuable Service

Point #3 is the one I want to focus on, because I think it is the most under-utilized value add, yet could be the most valuable to all parties.  In my opinion, there is a great opportunity for a VC to build a sense of community among its portfolio companies.  A network of businesses that are willing to help each other.  Additionally, invite executives at companies outside of its portfolio (preferably with big companies) to join this community.

To be clear, I am not talking about sending a few email introductions.  I am talking about building a community.  Similar to how you feel about your alma mater, or fraternity, or your house of worship.  A real sense of loyalty and pride and collaboration.

What would this network do?

1.  Use each other’s products.  Duh…right?  Seems pretty straight forward.  But customer validation is so important for any start-up or new product launch.  We all work so hard to find our early customers, so a strong network would be hugely valuable.  I know how valuable this would be because I have been using the network of one of my alma matters to find early customers.  It is an amazing network that has yielded hundreds of meetings based on cold emails through LinkedIn.  Imagine if your VC could provide a strong community to a start-up?  Hugely differentiating!  And it is sitting right there for you.

2.  Make introductions.  I can’t use your product, but I know someone who might.

3.  Be a sympathetic ear.  The Founder’s role is lonely.  You can’t understand how lonely it is until you are a Founder.  Even your spouse doesn’t fully understand it.  Only a fellow Founder can.  And as a general rule, we love speaking with each other.

What’s in it for Non-Portfolios?

To be immensely valuable, a VC should recruit non-portfolio companies into the network.  Preferably executives at big companies (ie with big checkbooks).  But why would they join a VC’s network?  Pretty simple:

1. Big company execs always need to see what is coming.

2. Some people just love new technology and like to be in the know.

3. People are always looking to build connections that will create career opportunities.

The Greycroft Summit

I recently went to the Greycroft Summit, which is a weekend offsite in The Hamptons of an equal mix of Greycroft’s portfolio companies and senior executives at big companies.  We talked about industries, ate great food, drank adult beverages and had a great time.  That weekend has produced several hugely valuable sales leads for me.  A few of them might become my biggest clients.  That is some serious, serious value add.

Now I know that that weekend was expensive, and thus not scalable beyond once per year.  And I also know that most VCs do something like this once a year.  My point is that there exists an opportunity to extend the camaraderie among the participants in much more scalable ways.  One needs not thing too long before you can realize some simple ideas to extend the sense of community beyond the weekend.

I am not a VC

To be clear, I am not a VC.  Never been one either. So I have no idea how a VC thinks.  I am just a multiple time entrepreneur.  I have started (and exited) several companies…i.e. I am your customer.  And this is the best idea that I have on how a VC can create value for me.

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§ One Response to How a VC Can Add Value

  • I’m glad Fred’s post inspired this post – it’s a good one. Lots of VCs assert how “value added” they are. My view is that whenever someone says “I’m a value added investor” they probably aren’t. In my experience, if you have to assert what you are, then you probably aren’t.

    Your comment on community across the entrepreneurs within a VCs portfolio is right on the money. We try to facilitate this – it’s the entrepreneurs network; we are merely participants in it. It’s be awesome to see what has come out of it.

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