Developing a Specialization

Importance of Industry or Sector Focus

Even if you are joining an industry agnostic fund, there is great power in developing a specialization. The reason being, VCs are increasingly expected to bring more to the table than just a check. VC value add refers to any additional support VCs provide founders’ past capital. This may include access to their internal network, industry knowledge, or operational support. As more VC funds pop up and larger funds are raised, the need to differentiate VC money is increasingly more important. Money is a commodity and value add is how founders will choose who they accept capital from. A good indicator of “smart money” is one in which the value added by the VC is greater than or equal to the money invested.

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                                          value-added ≥ money invested 

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The Forward More than Money report 2021, found that while 92% of VCs interviewed self-described as value-add investors, 61% of founders rated their value-add experience as ‘below average’. Clearly indicating that there is a gap between what VCs perceive as value-add and how founders actually feel during the partnership.

Interestingly, the same survey showed that female founders (73%) rated value-add above brand and portfolio while male founders (57%) chose the latter while selecting an investor. Value add is especially beneficial for underrepresented founders since the barriers to receiving funding, building an initial customer base and recruitment can be significantly lowered with the VC’s network and backing.

How to bring value to founders?

Investors should outline where and how they can add value to founders. Being honest about your skillset and mentorship is crucial for a long-term partnership. Additionally, founders should focus on how the VC fund can complement them and be honest about which areas they need additional support in. Together a VC fund and founder can evaluate their alignment and investors can tailor their value-add accordingly. Value add is not a one-size-fits-all.

The main areas of support generally fall within access to the VC’s network and experiential knowledge. The frequency of support founders need will vary as their startups go through phases of development, therefore having an open and frequent line of communication is often the best place to start. Top areas of value add include:

• Securing the next round of funding. As a VC, advocating for a founder and introducing them to your network of investors can be incredibly helpful as they scale. Support may also include helping them clean up their pitch and strengthen their company narrative.
• New hire intros. Connecting founders to top talent in your network or creating a job board of your portfolio companies hiring can boost the quality of their applicants and cut down the recruiting time needed to attract and retain talent.
• Reach potential customers. Once your founder has a profile of their target customer, you can offer to make intros within your own network. Allowing them to enhance their product and build a strong initial baseline of customers.
• Access to learnings. As a VC, your experience can be one of the most helpful value-adds for early-stage or first-time founders. Additionally, support can be built within the portfolio companies that have hit similar roadblocks or are in the same industry.
• Operational guidance. Whether it’s go-to-market strategy, PR resources, or product development VCs can advise operationally as well. Remembering to facilitate over implementation.

VC’s Role Outside of Investing

While our main focus has been on attaining investment roles in VC, the industry is ever changing and slowly we’ve seen the rise of an important non-investment role: Platform. When we think about the makeup of a venture capital fund, the investors are often top of mind - along with their portfolio companies. However, many have described Platform to be the connective tissue between the two. VC Platform encompasses pre and post-investment activities - think everything outside of writing the checks. As you can imagine, this role can include many functions but when done right, is tailored to the specific fund.

While some firms may focus on talent acquisition others may put a lot of their efforts into networking and community building. The “live by design, not by default” approach to Platform roles is what will ultimately make them valuable for an individual fund. The need for this value is becoming imperative as founders are no longer taking capital blindly. When asked about the necessity of Platform roles, Joshua Goodfield, Executive Director at VC Platform put it like this,

With more and more VCs popping up both fresh firms and veteran firms really need to differentiate themselves from others. We’re in a world where everyone is trying to write checks to each other and so “What is going to make your check more valuable?”

Functions of Platform: Pre & Post Investment

As mentioned, building out of a Platform team asks you to look across multiple pre and post-investment activities. Pre-investment activities could include marketing and branding for the fund, hosting events and workshops, or building fellowship programs. These initiatives are aimed at supporting deal flow and maintaining a positive public perception of the fund. Post-investment activities could range from talent acquisition, ESG, founder networking, and business development. On this side, the focus is on the portfolio companies and catering to their needs as they build.

For early-stage funds, a recommended strategy is to identify your core strengths and strive to outperform in those areas. For a later stage, Platform should transform into a team that can effectively navigate the entire VC value chain, adopting a holistic approach. While Platform roles have typically appealed to generalists, more funds are hiring Platform specialists with expertise in core areas. These areas include Marketing, Investment Operations, Talent, Business Development, Community, and ESG.

Today, Platform is the fastest growing role in VC.

Moderate: up to 10% of the core team in the fund’s investment period in a Platform role.

Significant: 10% or more of the core team in the fund’s investment period in a Platform role.

52.8% of venture firms have Moderate or Significant platform teams, double the proportion of firms that had Platform teams in 2000.

In 2022, one in eight core employees at a venture firm (13.1% of core team members) are focused on Platform, compared to one in sixteen (or 6.4%) in 2000.

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