VC Platform Strategy Framework

How to build winning platform in 2024

2023 was a year marked by significant challenges for startups and venture capital firms. Data and reporting from Carta underscored this reality, revealing a steep decline in both funding rounds and total investment. With the number of rounds in Q1 2023 plummeting by 64% and total dollars invested falling by 86% from their peak in Q4 2021, the landscape has undeniably shifted.

Success in 2024 demands resilience. Agility and a strong focus on fundamentals are no longer optional but essential for survival and growth of startups. The same can be said for VC firms.

My Partner, and Forum’s CEO & Managing Partner, Michael Cardamone shared his perspective in TechCrunch that 2024 will bring a lot of angst for fund managers and LPs. Many funds will not be able to raise subsequent funds in this environment and be forced to slow their deployment pace or shut-down completely.

While it might feel like a tough-time to be in a “value-add” role like Platform, I’m very optimistic. I believe that funds with smart platform strategies will continue to out-perform.

The Strategy & Target

For Platform Managers, devising a strategy for 2024 must involve a nuanced understanding of the current landscape and the implications for funds. Before you get to setting the strategy, it’s important understand what success looks like.

For most — it’s going to be strong returns to your LPs. There might be additional success metrics around things like impact, or strategic value for CVC folks.

Let’s say you work at a VC firm with a $100M Seed Fund, and you charge 2% annual fees for the entire 10-year lifecycle. $2M x 10 = $20M, which leaves the fund with $80M in investable capital.

Generating 3x returns (not net of fees and carry), would require returning $240M. If we over simplify and assume that at the time of IPO the firm own 10% of every company, then $2.4B in exit value needs to be created across the portfolio. In today’s market, only the best companies are achieving any sort of meaningful liquidation.

In order for any of this to be true, your funds needs to invest in great startups. To invest in great startups, your fund has to:

• See those startups;
• Win the right to invest in those startups (aka do the deals);
• And hopefully deliver unfair advantages that allows your portfolio companies to more effectively grow and scale.

I want to acknowledge that there’s also a lot out of your control. You can’t control the founders and their ability to execute or not. You can’t control the market. But you can build and execute on a strategy that allows you to see, and win, more deals, and help take those companies to the next level.

A Framework for Platform Managers

As you head into annual planning season, here’s the framework I like to use and one that will hopefully be a solid starting point for you too. I find that going through these 5 questions results in a strong strategy that helps move the needle for your founders and your fund.

1. Assess Your Stage: Recognize the investment stage of your fund and align your platform strategy accordingly. Different stages require different types of support, initiatives, and resources.
2. Leverage Your Team’s Skillset: Evaluate the strengths and expertise of your team. Determine areas where your team can add the most value to your portfolio companies.
3. Identify Levers to Pull: Determine the key levers that can help win the best deals and power portfolio companies. This could involve enhancing founder support systems, improving operational efficiency, or leveraging your network for business development opportunities.
4. Determine Deal Drivers: Understand where most of your deals are coming from today, how you make those sources work harder, and where to find look-a-like sources. Think through what uniquely allows your fund to build awareness and affinity with founders and how you can apply it to drive sourcing.
5. Bring Down Operating Effort: Figure out how you do more with less time and energy. This means that once you test an initiative successfully, build systems, tools, and processes around them. There are countless ways to apply AI, low-code/no-code tools, and software to the day-to-day work — freeing up time for more strategic tasks.

2024 will no doubt be another crazy year for the startup and VC world, but firms who thoughtfully design and execute platform strategies will continue to set themselves apart. Happy planning.

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