Do your portfolio companies respect you, as minority investors?
I'm more familiar with buyouts, so excuse the question: do your portfolio companies even respect the VCs that fund them?
Realistically, as minority investors, how much influence do you have on management?
I heard things like your internal "executive network," "community of investors," are overrated. If I wanted a community, I'd go to Soho House.
One example I heard is that the VC firm can help the portfolio company with recruitment, but even then, why not just use headhunters like CPI or Amity for that?
Do VC firms have any value-add at all?
Based on the most helpful WSO content, the relationship between venture capital firms and their portfolio companies can vary greatly, but respect is typically a cornerstone of the dynamic. Here's a breakdown of the influence and value-add that VCs can have:
Influence on Management:
Executive Network and Community of Investors:
Recruitment Assistance:
Value-Add of VC Firms:
In summary, while the level of respect and influence can vary, VCs often play a crucial role in the success of their portfolio companies. Their value-add extends beyond financial investment to strategic and operational support, which can be critical for startups looking to scale and succeed in competitive markets.
Sources: As an M&A Investment Banker, What Value Do You Actually Add?, https://www.wallstreetoasis.com/forum/venture-capital/pick-you-life-venture-capital?customgpt=1, Q&A: Private Equity Investor at a Large Buyout Firm Focused on Growth and LBO Strategies, As an M&A Investment Banker, What Value Do You Actually Add?, What the f**k is VC even???
1) High-quality VCs provide stage-relevant advice and support to founders, which can include answers to questions that technically-minded entrepreneurs don't have time to seriously consider. This ranges from basic things like "what metrics should we be tracking and reporting on a month-to-month basis" to advising on sales strategy and recruiting, helping founders figure out the balance between growth and burn, etc. Influence is meant to be persuasion-based, not control-oriented. As a result, VCs place a lot of emphasis on finding and backing strong founders who can scale a company to IPO and beyond. A bad founder can ruin a business.
2) A VC firm's network can help facilitate introductions that lead to M&A, strategic investments, or commercial relationships. VCs also leverage their networks to help with diligence (qualitative input is more valuable in venture due to lack of metrics)
3) Amity, CPI, and other HHs charge 30% of all-in salary for their services. This is extremely expensive. VC intros help screen talent (especially important at the senior levels) and save founders both time and money. However, almost every company I've worked with has supplemented VC intros with their own recruitment efforts as well as HHs when necessary (typically for higher-level positions, like CFO, VP Finance, VP Sales, etc.)
But overall - while good VCs can generally help accelerate a company's existing trajectory and improve probability of reaching a successful outcome, they are not in the driver's seat and therefore cannot dramatically change a startup's destiny, especially if the founder / management team is inept. Firms make investments knowing this reality.
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