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How to Scale Support of Portfolio Companies

As I’ve worked to build out HOF Capital’s portfolio acceleration platform, the #1 question I think about is: how do we scalably support our companies?  Large private equity funds like KKR can afford to pursue a consulting model (Capstone), typically with associated fees, but that doesn’t normally make economic sense for a VC.  We have lower AUM, therefore lower management fees.  In addition, we are virtually always a minority investor, which means we’re only getting a minority percentage of the value we create by accelerating a company.  

Many VCs offer (or strive to offer) a bundle of levers and support structures to help their portfolio companies. For each of these, there is a human element (non-scaleable) and the possibility of a tech layer (which any one VC will only have implemented to varying extents).  I’m very interested in additional ways to use technology to extend each of these!

At HOF Capital, we support our companies through 7 main levers (i.e., the “TOPSCAN” framework from my research study on value creation by VCs):

Team-Building – We aggregate openings across our portfolio on our jobs page. We also provide coaching resources to portfolio executives on how to build out a human capital function: source, interview, onboard, and retain. Our long-term goal is to ensure that the best people can consistently find their calling within the HOF family, including identifying logical next career progression opportunities across different HOF companies when a rising employee does not have a logical next move within her current employer.  We have insight on the competencies of our companies’ personnel, and who is hiring or shrinking.  We also have a better known brand than some of our early stage companies, so we can leverage that to help source talent.

Operations – We work closely with a pool of preferred service providers who address the operational challenges of early-stage companies: accounting, financial modeling, sales acceleration, legal and regulatory needs, insurance, real estate, engineering, and community building. We have built relationships with a set of service providers specializing in startups, and have pre-negotiated discounted rates with them.

Perspective – Our team has significant experience serving on the boards of both public and private companies, including currently ItaliaOnline (Bit:IOL), OCI (AMS: OCI), OTMT (OTMT: LI), Evolution Mining (ASX:EVN), DADA (BIT:DA) and Euronews. We leverage these positions to provide our companies with strategic counsel and frank feedback.

Skill-Building – Over time, we want our portfolio executives to build out the full skill set needed to lead world class technology companies. We think coaching is a key lever for doing this, with our own team or through outside partners. For example, we provide direct coaching on how to pitch investors.

Customer Development – We have relationships with hundreds of large global corporations. For example, our limited partners have major ownership interests in such companies as Adidas, LafargeHolcim (largest building materials manufacturer in the world), and SuperNAP International (developer of data center facilities worldwide; used by Amazon, Intel and Microsoft). We maintain a database of these corporations’ priority needs — allowing us to identify early clients for companies we back.

Analysis – One of the luxuries of being a VC is that we have a larger data set than most entrepreneurs of performance. Based on our data set, we help our entrepreneurs measure, understand, and report their performance.

Network – We organize events regularly to build out our community. Most importantly, we have regular meetings with later-stage VCs and enterprise clients both in the US and internationally to discuss our companies which fit their investment mandates. Effectively, we are a market maker between our portfolio companies and the late-stage VCs and large enterprises which are our co-investors.  For example, consider public relations.  Startup companies inherently have no brand; we leverage our brand and networks to promote theirs.  Similarly, we have an ongoing program to introduce our companies to later-round VCs, and have more credibility in presenting our companies to other investors than an independent investment banker would have.

 

In addition, there are a lot of other ways to support growth companies which make more sense when provided by an independent firm than by a standalone VC.  I’ve listed a few ideas below.  Any one of these could be an independent company.  If you know someone offering these services today, and/or are interested in partnering with us to deliver them, please contact me.  

A tool to automatically update all databases (Crunchbase, CB Insights, etc.) with the announcement of a funding round, new senior hires, etc.  HOF has to do this manually today with regard to our own investments into each company.  Ideally each portfolio company would also report their own data to the data-trackers (except when they’re in stealth), but not all of them are diligent.  This is roughly comparable to PRNewswire’s distribution service.

A site sanitizer service to ensure that potential clients can see a company’s site.  We’ve seen in the past that many corporate employees cannot see certain websites, because they’re incorrectly categorized as ‘adult’, ‘job search’, or some other verboten category.

 Creating a synthetic portfolio across multiple PE/VC-backed firms.  One of the first steps to doing this is to aggregate, rank, and negotiated discounts from service providers. FundedBuy is targeting this market; AnyPerk offers the same model to a larger client base.  BluWave is pursuing this model.

A suite of templates and legal and other forms for a typical startup (e.g., Ethics Policy, Expenses policy).  Besides Foundersuite (ff Venture Capital portfolio company), some of the companies with variations of this idea are Biztree, Foundersuite, Goodwin Founders Workbench, Guides.co, Inc.com, and StartupRocket .

–  A database with typical major titles/hierarchy in a tech startup, plus average compensation.  Steve Newcomb offers a great example. See slides 33-35 of my presentation on recruiting.

A database of accurate costs for financial models: salary, rent, IT, etc.  Ideally, you would use data from InDinero, Intuit Quickbooks, or another similar aggregator of financial information.  A more sophisticated way to do this: calculate your internal ratios, e.g., your Customer Acquisition Cost and Lifetime Value.  This requires pulling in data from multiple datasets, e.g.,: marketing (e.g., RJMetrics); technology (e.g., DataDogHQ); HR; and financials (InDinero.com, Intuit Quickbooks).  

OKRs for CEOs.  Betterworks has become quite popular in the tech world as a vehicle to track OKRs (Objectives & Key Results).  7Geese and Perdoo are similar tools targeting smaller companies.  CEOs also give OKRs to their boards, but generally tracking them is haphazard.  We use Asana internally at HOF.

Tracking the calendars of portfolio executives in order to help them connect with the right people.  E.g., a Community Manager at a VC could check once a week where portfolio execs are visiting, perhaps using Tripit, and then ping them saying, “I see you’re in Atlanta; would you like to meet Nancy?”  CB Insights’ Ava is a version of this.

I hope to see companies emerge that address all of the use cases I list.  We’ll continue to see more creative examples of how accelerators, VCs, and corporates use technology to promote experimentation and the creation of successful new companies.

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Comments

  1. david – you should think about reaching out to brandon labrum at fund lab. He’s a former PE guy who started fund lab to help solve the PR problem you mentioned.

    http://www.axial.net/forum/the-essential-checklist-for-marketing-closed-deals/

    happy to make an intro for you. let me know.

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