Surprisingly, some of the most important resources from a VC isn’t the financial funding.
When I meet with startups I find it helpful to find out who their investor is, secondly, it’s important to watch how VCs are funding, as it impacts what type of technologies we’ll see in the next few months. I don’t know as much as I want to about the VC world, so when I have questions I turn to Jennifer Jones, just this weekend we were engaged in the topic of the overall value that VCs bring. No, not just the money aspect, but the other intangible benefits, as VCs provide several intangible services to their portfolio companies, as I understand it, they include:
VCs Provide Startups With A Competitive Edge by Offering Additional Services:
VCs are required to anticipate future trends, and as a result they are highly connected, obtain information from a variety of sources, and have to quickly synthesize what’s next. Some of the VCs are more active in public, and are on the speaking circuit, and are sharing their ideas. Take for example David Hornick, who does a great job at this as he discusses why and how he’ll invest the $650mm they raised in high tech. Considering the recession this fund will fuel a great deal of innovation –even during a downturn.
Often, VCs sit on the Board of Directors of their portfolio companies and provide guidance, direction, and access to other decision makers. This not only protects the VC to keep an eye on the company, but gives the entrepreneurs a chance to bounce ideas off senior and seasoned investors.
Being Part of The Family
Access is important. When I meet with startups, it’s important to know who invested in them, as it indicates their network. If you watch carefully (real carefully) you can see that startups that share the same investor use each others products, exchange executives, and are talking to each other. They often have offsites
Some VC firms have education teams and marketing teams that provide a broad range of services to the portfolio companies who don’t have the resources to hire full time marketing staff. In fact, I’ll be doing a workshop with Giovanni Rodriguez in the near future for a VC group. Recently I held a dinner discussion with Allegis capital and Scale Venture Partners, to meet their portfolio and discuss market trends.
Perhaps the most under utilized is the benefit of being part of the brand of a well known firm. There are certain firms that are known for investing in certain verticals, or have a track record of success that lights my eyes up. Companies often tout their investors in briefings, especially if they are a top tier firm.
Parties… eerr um Networking
Ok, that’s my polite way of saying great parties, well networking too. During the height of the economy, some VC firms flew the executives of their portfolio companies out to a one week retreat in Hawaii. Also, some of the best parties in all of Silicon Valley are at August capital –social media networking nirvana.
Recruiting and Fundraising
I added this bullet after the fact, after seeing how David Hornick has added to the conversation it’s too important to pass up. VCs offer additional services like recruiting, which I’d be so bold to say is often executive placement of the right folks. Secondly, they help with fundraising, which I would assume would be for additional rounds of investment, I would expect that this would often mean a solid reference from one investor to the next.
Entrepreneurs should weigh all benefits
Of course, with the top tier VC firms, there are certainly considerations, getting backed by a very successful VC firm may mean they have more influence over the terms, may drive the direction of your company, and ultimately, may have more equity of the company. I encourage you to think about the other services, network, and events that your VC will offer you, find out by observing or talking to companies in their portfolio.
VCs offer more than just funding
VC should continue to provide thought leadership in their space, discussing in public why they are raising money, where they anticipate market growth, and how they plan to invest. This not only attracts new investors for their fund, but gives branding cover for their portfolio, and the folks in the industry, like me, visibility on the next trends. What they do beyond the investment makes a different –I can see it.