Active Investing In Early Stage Technology Startups
Anik Bose, BGV General Partner shares his perspective on VC value-add in early stage start-ups. Venture Capital firms invest significant effort to convince tech founders to accept their financing deals, often citing the active role they will play in helping the founder build the company (i.e. beyond money/smart money). Vineet Jain, CEO and co-founder of cloud storage firm Egnyte believes many VC firms overpromise. http://www.businessinsider.my/founder-majority-of-vc-firms-are-talking-complete-hogwash-2016-5/. Andreessen Horowitz organizes executive briefings, where portfolio CEO’s meet senior executives at potential customers and have a large talent function to hire for their companies. Google Ventures has teams that help portfolio companies with design, engineering, recruiting, marketing and partnerships. While these are only a few data points, what is the truth? The answer to this question varies with the VC firm. VC firms with Partners who have deep operating and company building expertise tend to bring more value add to their portfolio companies with a more active investment style than say VC firms with partners who have more of a financial background and passive investment styles. Playing an active role in portfolio companies consumes a lot of bandwidth of the partners. In order to do so efficiently, BGV believes that one of the best ways to add operational value is by having a laser sharp focus on sector and stage – for us this is Early stage Enterprise IT around the areas of cloud, cyber security and mobility. This focus allows us to offer relevant advice and insights and leverage our domain specific eco-system relationships. As one can imagine the operational challenges, the market opportunities and the expertise gaps vary widely with stage and sectors of focus. In addition, at BGV we believe in the power of team, where the diverse experience of the partners can augment the founding team in multiple functional areas, than just making introductions to potential customers and partners. At BGV we tend to be the first and most active institutional investor in our early stage portfolio companies for three simple reasons: a) We enjoy the work of building companies given our operating DNA; b) by it’s very nature early stage investing tends to be bandwidth intensive, as such we like working a few select companies where we can give our complete attention, and c;) we want to help entrepreneurs learn from our collective experiences instead of repeating the same mistakes in their entrepreneurial journey. At BGV we help build value along several dimensions including:
- Improved Governance – At BGV we work closely with the founder CEO to identify key value creation objectives needed to successfully secure the next round of financing and install key performance indicators to align the organization and measure progress along the way. We play an active role in mentoring and coaching first time CEO’s and finally we help recruit independent “industry expert” Board members from our network to assist the company with continued value creation.
- Scaling Operations – We make introductions to early adopter customers (based on our CIO and CISO network) and also to strategic alliance partners (based on our corporate affiliate network). Strategic partners range from larger technology vendors to Systems Integrators to MSSP’s. We work closely with the founders to apply a strategic filter to prioritize and select the most appropriate scaling relationships. For cross-border portfolio companies we play a critical role in establishing US HQ and operations. Sometimes we also play a role in facilitating Founder CEO transitions in the event that the Founder CEO is unable to scale with the company.
- Recruiting Key Executives – We work closely with the Founder CEO to assess team capabilities and identify skill gaps. We then help to fill gaps on the management team with key executives and or advisors from within our network as well as working with our preferred recruiters.
- Refining Go To Market Strategy – Start-up Founders tend to have a strong vision and solid core technology skills but often lack the marketing savvy to optimize the company’s market positioning or develop the optimal GTM plan. We leverage our Sales & Marketing Advisory committee comprised of experienced S&M executives to provide feedback to our portfolio companies on positioning, pricing and channel strategies.