97212 Ventures
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97212 Ventures

The Rise of the VC Operating Platform

Investors have positioned themselves more and more in recent years as the founder’s partners and not just a capital investor. For the most part, that has been true. Investors started creating different models and platforms that address different needs founders have.

From studios and accelerators to PE firms, we’ve seen a trend of investors getting more involved at different stages of the startup life cycle, helping the team in various ways. The most recent example is the operating platforms built by VCs across different investing stages.

The Purpose is Clear

The operating platform, sometimes called value-creation platform, is usually built around experienced operators from specialized functions such as finance, HR, product, or engineering, who work hands-on with the founders and the management team.

The operating platform has been a common practice in the PE land but over the past few years it started trickling to the earlier funding stages as more and more VCs adopted more hands-on models.

The value and focus changes with the company’s stage

In general, we can identify a few areas where operating platforms add value to the company and its team(s):

  1. Early stage startups — providing critical access (advisors, investors, design partners, etc), figuring out product and GTM strategy and fundraising.
  2. Growth stage startups — talent acquisition (technical and non-technical), culture building, growth hacking, sales, GTM, finance.
  3. Late stage companies — this is typically the P/E domain which includes change management, leadership placement, strategy & corporate development, finance, and much more.

It just makes sense all around as the incentives of the different parties are aligned: founders, especially first time founders, need the guidance, operators have the knowledge and experience to assist, and investors want to maximize their success.

The Value for Founders can Be Big

By offering these platforms to the founders, VCs are increasing their portfolio companies’ chances of success by:

  1. Instilling expertise and lowering chances of unnecessary detours
  2. Shortening cycles and time to hitting the next milestones
  3. Building solid foundations for the company to grow on
  4. Opening up opportunities that otherwise wouldn’t exist
  5. Ensuring consistent a runway for the company

It’s Happening and It’s Real

Searching Linkedin for General Partner yields 689,000 results, while searching for Operating Partner yields 68,000 results, a 10:1 ratio. This is actually not that bad given that most early stage funds don’t have operating partners yet (thus skewing the ratio in favor of the general partners). To me, that’s an impressive number of operating partners at this stage and it shows that the trend is real and is here to stay.

If I had to guess, I would expect the ratio to get to around 3:1 as operating partners become more common with seed stage and A round funds as the competition in VC landscape intensifies.

But Success is Dependent on the Founders

That said, the key part to the success here is openness and proactiveness from the young founders to getting the help.

Typically there is some level of tension and conflict of interest between the founder and its investors. Founders, more often than not, prefer to not share everything, especially concerns. Yes, it’s a natural behavior but it doesn’t help the founders and their companies.

My hope is to see the operating platform minimizing this conflict by offering the founders the permission, channel and tools to open up to get all the help they can.

To that end, I will reiterate the importance of choosing investors wisely.

Founders, do your homework! Back-channel, ask for references and pay extra attention to the DNA of the investors that you are choosing. You want (and need) investors who will fully align with you, back you up and add tangible value (e.g. an operating platform). The check is just a byproduct of that.

If you choose the right investors for you, create the trust and open up, you can expect major gains.

Success awaits!

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