VC platform: the shadow task force behind investors’ war for founders
As the VC market becomes more competitive, platform services — the non-financial support that VCs offer — have become the shadow taskforce that determines who wins the VC war.
Beyond providing capital, VCs count on platform functions to raise funds and influence founders. These functions encompass the entirety of the startup lifecycle — ranging from PR, recruiting, design, legal services to mental health counseling.
As Mark Suster, Managing Partner of Upfront Ventures and straight talker extraordinaire behind the popular VC blog Both Sides of the Table, puts it:
Our top requests include: helping with PR announcements, helping with recruiting, helping to connect with other companies with similar issues (acquiring expertise), helping with introductions (biz dev) and of course help with strategy, advice, mentorship, conflict resolution and several other interactions.
At SOSV, deemed “The Accelerator VC”, these also include multi-million dollar wet labs, scientists-in-residence, hardware equipment, and free product cross-promotion for their vertically focused accelerators. For venture firms without a designated platform platoon, here are the most high-leverage VC platform functions that you can invest in.
1. Increase reputation capital with public relations
“The running joke of the firm is that we’re a media company that monetizes through venture capital,” Marc Andreessen once says. If we have anyone to thank for the image of financiers as celebrities, that person would be a16z’s infamous Margit Wennmachers, the doyenne of PR for venture capital.
Wennmachers co-founded OutCast Communications — representing Amazon, Facebook, Etsy and other tech giants — before helping launch Andreessen Horowitz. At a16z, she advanced the fund’s mission by shaping the narratives about the general partners and its portfolio companies.
“In the years that followed, many firms emulated Andreessen Horowitz’s strategy, hiring marketing and communications leads,” wrote WIRED Magazine’s Jessi Hempel in a profile of Wennmachers. Hempel continues: “As a journalist, I’d often get the call: ‘Hey, we’re trying to hire a Margit. Do you know anyone?’”
On the other end of the spectrum, PR can include an entire in-house content team that establishes the firm as an authority without ever mentioning the partners. At First Round Capital, ex-VentureBeat journalist Camille Ricketts pioneered the First Round Review to deliver unique, contrarian voices and actionable insights to entrepreneurs. The wide spectrum of VC podcasts, newsletters and state-of-startups surveys has created both promotional and educational values, reducing information asymmetry while helping founders find synergy.
2. Invest in human capital
“Fundamentally venture capital is about human capital,” shares Suster.
Human capital, in the context of early-stage startups, is a matter of survival. Co-founder disputes, or great people hired at the wrong time for the wrong roles, have taken their toll on team morale and company growth.
Here are some of the ways that VCs invest in human capital: recruiting C-suite talent, hiring managers, dissolving conflicts, and even running intern programs. William Bao Bean, a general partner at SOSV and formerly of SingTel Innov8 and SoftBank China & India, often mobilizes his network of operators across Asia to support early-stage startups. The result is investor-founder relationships that last several reincarnations of a startup. Founders of companies that exited keep coming back to the SOSV ecosystem to benefit from the network and, in turn, contribute to it.
In a study of 160 VCs by Columbia Business School, “a substantial proportion of VCs affirm that they adopt the strategy of recycling managers in their portfolio companies.” The study finds that VCs with “superior network resources (including management recruiting contacts) are more likely to succeed when bidding for portfolio companies.” Firms such as Accel and Lerer Hippeau have all created their own job boards, acting as a hub for portfolio companies and for job-seeking tech talents.
3. Take care of founder mental health
Founding a company is an excruciatingly lonely job: Elon Musk infamously quipped that “Starting a company is like eating glass and staring into the abyss.”
Over time, investors with more “skin in the game” gradually take on the role of sounding board, sparring partner, mediator, and sometimes amateur therapist.
It is not uncommon that founders wrestling with existential questions call their investors first instead of their spouse. (The average investor-founder relationship is about 10 years, longer than the average marriage in the US.)
Alan Clayton — the creator of the “Wholebrain Startup” methodology and SOSV’s internal coach — makes sure each portfolio team understands the co-founders' “user manual”: how each team member thinks and functions, and how to fully liberate the intellectual resources of startup founders and teams.
“Life expectancy of Fortune 500 companies has fallen from 50 years to around 10 years in just a decade, and the world is hungry and bankrupt. The SOSV rescue package involves combining science and psychology, and in particular the work of Ned Herrmann at GE, NLP gurus Robert Dilts & Todd Epstein,” writes Clayton.
Meanwhile, Crunchbase News reports of “a small, but growing, cohort of venture capital firms that explicitly offer mental health services for their portfolios,” including Starting Line, Crosscut, Felicis and Alpha Bridge. According to a study by Michael Freeman MD at UC San Francisco, entrepreneurs are 2X more likely to suffer from depression and 3X more likely to suffer from substance abuse. It’s high time that the productivity-obsessed tech world had an honest look at founder mental health. Investors who invest in human capital will help set up their companies for long-term success.
How to win funds and influence founders
As Jay Acunzo, VP Platform at NextView Ventures, puts it: every VC firm “runs a bakery on a street full of bakeries that all sell one thing: plain bagels.”
Acunzo’s title, though unfamiliar to laymen, has become more common as the competition between VC firms increases. VC Platform, a community of platform professionals at VC firms, has grown from a handful in New York City to now over 320 members across the world.
Platform professionals help VCs invest in two types of assets: reputation capital and human capital.
The result is a flywheel effect that ripples throughout the portfolio and into the outer startup ecosystem: better communication leads to better deal flow and attracts better talents for portfolio companies, which in turn increases the firm’s reputation. As the investors’ war heats up, platform functions are also shifting into full gear.