VC Support is Best when it’s Hands-Off, Right ?

As a venture capitalist, startups often ask me what help we can offer besides investment. I therefore hope that this article can give founders and CEOs a deeper understanding of what we can offer, and how this support is provided.

I’m sure the more experienced VCs will definitely have something to add to this list. However, less experienced VCs may gain some additional insight from hearing an inside-out account of effective portfolio management

From my experience, it is true that first-time founders, or founders who have not previously raised venture capital, benefit more from getting VCs on board than others.

The more I invest, the more I am convinced that the founding team and further HR strategy have the greatest impact on the ultimate success of the company. The next section of this article elaborates on what factors I’ve found to be most indicative of a company’s success.

Human relations. During the due diligence (DD) stage, we conduct an audit of the startup team. Regardless of whether the startup is involved in deep tech / hardware, IT, or a different branch of technology, we seek to identify key areas of responsibility in each company we work with. These are Strategy, Operations, Product(s), Sales, Marketing, and HR. Depending on what development stage the company is at, one person can be responsible for a number of competencies in the company. However, if an individual is in charge of more than 3, it usually causes problems. As the company grows, these problems can snowball quickly.

Our task as a VC is to build an HR Map of the company, to identify and notify the founder of weaknesses in the startup’s HR policy and, in future, to assist the company in recruiting strong, experienced managers, in specific areas of expertise. We have an HR function in the fund for this exact purpose, which can also help create a system of motivation within the entire team.

Industry insights. Since we invest in technology companies, one of our core principles is to always carry out proper due diligence of the technology itself. DD results usually include industry insights, potential clients’ and experts’ contact details, and market reports, as well as other analyses. We share this information with companies after the investment is made.

Additionally, our DD is updated at every follow-on round. We use this to monitor a number of industries, and to keep our portfolio companies informed of any discoveries and insights we make.

Advisory Board. We systematically develop our networks in a dedicated number of industries, which enables us to identify high-quality experts for both DD and portfolio management. This is a crucial element of the support we offer, since one of the most important tasks of an early-stage company is to establish the Advisory Board (AB). The AB is not about photos and short bios for the investment deck. Instead, an effective AB constitutes a group of experienced and motivated people ready to share their expertise with the founder, to reduce mistakes, and expedite the company’s growth. As a result, we have helped to create to create ABs for several of our portfolio companies.

Board of Directors. A slightly less scalable, though equally important aspect of a startup is the Board of Directors (BoD). In his article, Baz Banai gives a comprehensive and detailed view of BoD dynamics and targets. If we enter a company as its first institutional investor, we help them establish a working ( helpful) BoD, and arrange corresponding processes. We always strive to strengthen the BoD with external experts, and further encourage the inclusion of independent directors with strong industrial competencies. This can provide startups with a valuable source of unbiased expertise.

Founder’s skill set. In the course of working with and getting to know a founder, I will always note their specific strengths and weakness. My job is to provide honest feedback, and offer assistance in strengthening the founder’s skill set. We have a pool of proven professionals who can help with this, including mentors, coaches, advisors, and trainers, all of whom are ready and eager to assist. This is especially beneficial for tech founders (“hackers”).

We also promote a knowledge sharing practice that includes providing our portfolio companies with a useful, detailed list of information. This can comprise of legal templates, playbooks, relevant pieces of content written by experts, training materials, and any other relevant documents that we deem useful to the company.

One of our most popular areas of assistance is advice on entering new geographical markets. The MENA region is an effective example of how we can aid companies in this respect. Our Dubai office is responsible for industrial, energy and robotics collaborations, and works with the majority of the region’s countries, including Oman, Saudi Arabia, Bahrain, Egypt, and others. Consequently, our team members can help facilitate communications between industry and investment groups, and give guidance on cross-cultural communications and business practices in the region’s countries.

As a result of economic and cultural differences between countries, entering a new geographical market in most instances requires adjustments to a number of strategies. If the founders find it useful, we will also join discussions on this topic through strategic reviews or brain storming sessions. Most often, we get involved on the following issues:

HR strategy. Expansion into a new region is usually not possible without a minimal local team or, in the case of online businesses, a team with knowledge of the specifics of doing business in the region, and who have an appropriate network. Based on the region’s specifics, we help companies determine the minimum team composition required, as well as the budget and headhunting plan.

Product and operations strategy. Regional industry specifics, as well as climatic and environmental conditions, can significantly influence product features. Moreover, consumer habits can also be reflective of the cultural and religious practices of a particular country, or even a province.

Sales & Marketing strategy. Additionally, we can help with the testing of marketing models, by studying the effectiveness of funnels and different marketing channels. We also audit end-to-end analytics, and can even set up analytics for companies on their behalf, if they have not yet done so themselves. Effective marketing analytics can analyse cohorts in terms of engagement channels, geographies, and assess how marketing efforts are impacting key performance indicators, such as LTV, conversions, ROI, Retention Rate, CAC, etc.

Less frequently, we may also be involved in the development of our portfolio companies’ PR, IP, and legal strategies.

Accelerators. We assist companies with getting into the most effective accelerators across the world. From my experience, acceleration has proven to be a valuable tool for entering new markets, and can also have a positive impact on the founder’s “business” mindset. Moreover, accelerators also enable founders to begin developing a wider understanding of the specifics and dynamics of the fundraising process.

Fundraising strategy. The majority of founders, particularly first-time ones, only have a modest understanding of the particulars of the fundraising and investment process. This is even true of experienced, former senior managers of multinational corporations. As a result, advice on this is one of the most common requests from founders at the early stage. As experts in this area, we are happy to be involved in fundraising strategy development. A key aspect of creating a sound fundraising strategy is establishing a clear and solid plan. Specifically, founders should consider when to pursue fundraising, for what purpose they will use it, and how much investment they will need to raise. Tactics and methods are also strongly connected with the founder’s mindset and soft skills. Tools like investment decks, pitches, and financial model optimization are also important, and we can assist here in evaluating these components of a fundraising strategy.

Non-dilutive funding. We can also assist early stage startups with raising R&D grants, though this is primarily for deep tech companies. In the last 4 years, I can clearly recall at least 10 cases alone where we assisted in this manner. However, we receive more requests today for support in obtaining credit lines, to establish and scale up production facilities or large service hubs for hardware companies.

Production facilities advice. While this is far from a common competency for VCs, oddly enough, we have been directly involved in the creation of five hardware productions with our portfolio companies over the last 5 years. Because of this, we have accumulated significant in-house experience in this area, and are able to provide guidance on a number of issues:

• Organisational chart and team composition
• Production processes and quality control
• HSE and tech regulations

Network. Please don’t think I’ve forgotten about network development — I’ve just decided to leave the most obvious, but no less important part, for the final section of this article. I particularly like the statement “Venture capitalists tend to be networking machines” — from my experience, it’s largely true.
Our thoughts and actions are largely focused on establishing lucrative business relationships of our portfolio companies through introductions to:

• prospective customers
• thought leaders and industry experts
• potential new talent
• legal advisory, law, accounting and audit firms
• other VCs (who might partake in future funding rounds)

Communities. One specific form of networking and business collaboration we engage in is the creation of micro-communities. We establish these by bringing together representatives of portfolio companies and industry experts in a single communication channel.

Exit strategy. We can also guide founders of when and how to execute their exit strategy. Our support in this respect includes introductions to corporate development people, IB firms, and strategic advice, as conversations progress. Guidance in this area can also cover deal terms, pricing, and value capture in an earn-out deal, among other things.

Last, but not least — we invest money. In addition, we are happy to invite our limited partners (LPs), value-adding VCs, or angel investors into further investment rounds we participate in.

Instead of a conclusion. Since we do not profess a spray and pray strategy, but rather make point-by-point, thoughtful investment decisions, we do not invest in a large number of companies. Usually we do 4–8 deals per year, which allows us to allocate significant time and resources to delivering the above set of services for our portfolio companies.

PS. Hands off. The fundamental principle is not to do business instead of management. On the basis of this principle, we believe only recommendations, advice, consultancy and intros should be provided. This is because the development and accumulation of experienced individuals and key competencies is crucial to a company’s value creation.