What do companies expect from their investors and the 3 key findings regarding value adding services
Venture capital is developing as an industry. Funds are growing in size and number as well as variety of functions within. More funds are going beyond capital and providing a wide range of value-added services to their portfolio companies in order to differentiate themselves and increase their financial returns. These value-added activities range from producing podcasts and writing blog posts to offering functional expertise in terms of business development, hiring, and even engineering. The former is probably as much about sharing knowledge as it is about positioning in order to create deal flow while the latter is intended to have a direct impact to a portfolio company.
We wanted to know more what companies are thinking about this topic and what do they expect from their investors regarding value add beyond capital? We sent a survey to about 200 CEOs & founders in our network, mainly in the US and Europe, including some of our portfolio companies, to get a snapshot in time of what these leaders and founders think about this topic. We asked the recipients to click through an anonymous Web survey of 30 written statements about what they expect from their investors, rating each statement on a scale of 1 to 5 as to whether they thought it is not valuable at all (1) or valued it a lot (5). Roughly every sixth recipient replied the entire survey. Here are the three most interesting results:
1. Companies want connections to investors and business partners
The most highlighted expectation among the respondents was to get their investors to open their networks and connect them with potential new investors. The survey also highlighted interest in getting doors opened to partners that can have an impact on their business. Corporate venture capital players, in particular, position themselves to provide unparalleled strategic value-add through their affiliation with their corporate parents and investors on this last point.
2. International perspective is important
Expanding into new markets and gaining international perspective stood out as an interesting topic that most of these companies ranked high. These days innovation is global, there are multiple hubs around the world and companies are interested to understand what is going outside their immediate purview. This is a topic where investors, especially ones with activities across multiple regions can support and make a difference. Venture funds, including us, invest a lot time to foster inter-portfolio company interaction through events and other means of communication, basically getting a lot of founders and CEOs together and in our case from all over the world. Supporting these interactions among companies and their management teams is intended to create a network for sharing lessons learned and add value. Entrepreneurs tend to be more open to discuss their challenges and learn from their peers compared to their investors and board members. Often the peer group have relevant, up to date, operational experience on matters that their investors don’t have. This is not a substitute for a trusted investor-company relationship but a very useful add on.
3. Operational value-added services are not high on the list
Our survey suggests that companies don’t put operational support high on their investor wish list items. One VC firm shared and interesting anecdote with me about a case where they had introduced their fund to an entrepreneur and highlighted their ability to assist with several operational topics. The entrepreneur had told them that if they thought the company required all this support on all these operational topics then why were they interested in investing in the first place. In that particular case the company partnered with another investor instead. This does not mean that offering operational know-how and other value-added services to portfolio companies don’t make a difference. However, it does not appear to be high on the list. One thing to consider, depending on the stage of the company, is that these expectations may be different for earlier stage companies which may be more interested in operational support from the get go.
To conclude, based on a survey of our network, entrepreneurs expect their investors to provide access to follow on investors, open doors for business development and provide international perspective beyond capital above anything else. One needs to consider that this type of survey should always be taken with a grain of salt. The sample size is not that large and is likely biased towards later stage companies. How we framed the questions may have impacted the replies. But nevertheless, this snapshot provides some food for thought on what venture investors should consider when positioning themselves and providing their value adding services.
by Walter Masalin, Partner @ NGP Capital
