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VC value add: trends and challenges and more...

VC value add: trends and challenges

In recent years VCs have been rushing to add value by hiring non-investors to help their portfolio companies. I touched on this subject last week when I wrote that Capitalism is being replaced by talentism. This week I want to talk a little more about what VCs are actually doing.

This is a list of the funds that are working hardest to add value beyond capital, strategic advice, and the partners’ contacts. These are just the ones I know. Please shout if you know other examples and I will update. (Note: I haven’t included accelerator programmes or incubators. They do add value, but they are different to venture funds.)

  • Andreessen Horowitz: organise executive briefings where portfolio CEOs meet senior execs at potential customers, have a large talent function to hire for their companies (and have built software to support it), have staff dedicated to helping portfolio companies network effectively
  • Google Ventures: has teams that help portfolio companies with design, engineering, recruiting, marketing and partnerships
  • First Round Capital: built a software platform to help entrepreneurs collaborate, have a talent team, run a large number of events for their portfolio
  • OpenView Partners: has teams to help their portfolio companies with recruiting and sales and marketing
  • Index Ventures: has a ‘platform team’ of nine people, key activities are organising functional support communities for their portfolio execs and running events
  • Greylock: have a data scientist who helps their portfolio
  • NextView Ventures: have a director of platform
  • True Ventures: run an undergrad programme
  • Spark Ventures: have a director of platform, primary activity seems to be events
  • Founder Collective: hired a journalist to help their portfolio with PR
  • Playfair Capital: recently hired a Facebook recruiter to hire for their portfolio
  • Balderton Capital: have a head of PR and content, a data scientist, and a talent and development analyst
  • Frontline Ventures: have a head of platform

And there’s us. Forward Partners has a team of eight to help our partners with product, design, development, customer acquisition and recruitment.

That’s the activity. The major trend is that there’s more and more of it over time.

The challenge is that it’s hard to find ways to make a difference, particularly across a large multi-sector portfolio. Jay Acunzo, director of platform at NextView Ventures recently wrote on Techcrunch:

In the last three months, every frustrated director [of platform, at a VC] I’ve met with (and there have been multiple) had the same complaint about a lack of focus confusing their work and yielding generic-sounding, ineffective projects.

As I wrote last month, focus is one way to address the challenge. We only invest in early stage ecommerce companies so there is a lot of commonality in the problems they face and we have built a team focused on those areas. OpenView partners has done something similar for expansion stage software companies. As Joe wrote in his Techcrunch post, one option for VCs with less focused investment strategies is to build sector and stage focused value add capabilities.

      


Give feedback with compassion

This passage is from a 1958 letter Samuel Beckett wrote as feedback to Aiden Higgins, an aspiring Irish author living in South African (emphasis mine):

My reluctance to comment has become overpowering. I hate the thought of the damage I may do from such unwillingness and such incapacity. If I were less concerned with you I should simply say it is very good, I like it very much, but don’t see where to send it, and leave it at that. But I don’t want to do that with you. And at the same time I know I can’t go into it in a way profitable for you. This is not how writers help one another.

I love the burning compassion that comes through. Beckett clearly cares deeply for Higgins and is delivering the feedback because he wants to help. People on the receiving end of feedback coming from a place of caring are much more likely to listen and remember.

The other thing that stands out for me is the effort that Beckett puts in. That’s important because it reinforces the point that he cares, but the bigger takeaway is that giving good feedback takes a lot of work. Facts need to be remembered and it takes time to prepare properly. The McKinsey Feedback Model is a good guide.

Hat tip to Brainpickings.

      


The correlation between intellectual honesty and great companies

Intellectual honesty is tough, but a powerful enhancer of company performance and driver of personal growth. That’s the message of this post from Joanna Lord, and I couldn’t agree more.

Here’s how she puts it:

I think great companies appreciate intellectual honesty. I’ve seen this at Porch. The past few weeks I’ve pushed on some big things and asked some hard questions. I’ve actually blown up a few email threads…not because I want to. Or even because I had to. But because I believed an argument needed to be made for the greater good. Greater good can be the customer, the team or even the bottom line. There are lots of “greater goods” that demand that sort of risk.

Lesser companies punish people for those risks. They shut you down. They ignore your concern. They silence it with sentences like “we’ll get to that later” or “good point, but we’re just too far along to rethink that.” Great companies stop. They pause. Acknowledge the point made and give it at least a few minutes to breathe.

It doesn’t mean that the argument made wins out. In fact, I’d bet most times it doesn’t. But there is something really special about allowing it to breathe. This sort of respect for intellectual honesty breeds empowerment. It reminds everyone in the room that we all have voices and bring perspectives and experiences that are valuable. It kills bureaucracy and rewards gumption.

Startups have to make decisions based on imperfect information all the time. That means mistakes. Intellectual honesty is key to quick course correction when those mistakes happen. Heaven help the startup that says “we’re just too far along to rethink that”.

Similarly empowerment, rewarding gumption and avoiding bureaucracy are also things founders and CEOs should aspire to.

But intellectual honesty is tough too. It’s tough on individuals and teams who spend more time in uncertain and uncomfortable places (although that way lies personal growth) and it’s tough on startups who want to progress rapidly whilst hearing all voices.

As with so much in life the key is striking the right balance. Individuals should develop good judgement about when something is worth mentioning, worth fighting for, or should be kept on watch for a while. Companies should develop a culture that encourages speaking out, coaches individuals to help them develop judgement, requires that people get behind decisions that have been made, but have regular review points, and not allow intellectual honesty to be a cover for unconstructive criticism or snarking.

      


The future of mobile ecommerce

We’ve been doing a good deal of thinking about the future of ecommerce as the world goes mobile. As we all know people are increasingly accessing the internet and shopping from their smartphones (one of our more recent investments has 81% of it’s traffic from mobile), and within mobile people are spending a larger and larger share of their time in apps at the expense of browsers. That presents a challenge for retailers of occasional purchases whose customers don’t use them often enough to download an app. On the web these retailers found their customers via search, but that doesn’t work as well on mobile.

So how will discovery work on mobile?

In a couple of different ways, I think.

Firstly some apps will aggregate goods from lots of retailers and discovery will happen in app. Amazon is the best example here, but different types of discovery are appropriate for different types of purchase and whilst Amazon works well for commodity goods it doesn’t work so well for higher value goods where the purchase is emotionally driven. That creates space for startups to build discovery experiences focused on specific verticals. Good examples include Houzz in interior design, Thread.com and Stylect in fashion, and Top10 in travel. We have invested a lot on this theme and the last three examples are partner companies (note Thread is working on their mobile app).

Key to success for these companies is building a loyal customer base with high life time values. The aggregation needs to be broad enough that transactions occur frequently but narrow enough that product discovery is truly engaging. Strong brands will be built on the back of great product ranges and strong discovery experiences.

Secondly, some companies will focus on a small range of their own products. They will be primarily web based (including mobile web) and may not need an app. Strong brands will be built on the back of amazing products and first class marketing. Facebook is the best channel for many of these companies, for now at least. Bonobos in the US is a good example, and amongst our partners I would point to Lost My Name, Big Health, and Spoke.

An interesting question for the first group is whether the aggregation moves from apps into the OS layer, or something similar. There are lots of hints we are headed in this direction:

  • Baidu surfaces recommendations from maps
  • Facebook’s Instant Articles pulls news discovery into Facebook
  • Amazon’s Echo device enables re-ordering via voice command

If aggregation does move to the OS layer then in the short term partnerships will become critical drivers of traffic and custom, and in the long run I hope we will see a meritocratic discovery process emerge.

Update: Benedict Evans argues here that the trend within mobile towards apps is concentrated in a small number of apps (mostly Facebook and YouTube) and hence less significant for ecommerce companies than one would think

      


Capitalism is being replaced by ‘talentism’

Screen Shot 2015-05-15 at 14.26.55

This is a super interesting perspective. I’m not a big fan of inventing new words and I’m not proposing that we all start talking about ‘talentism’, but I do think we should all understand the key message here: As capital is increasingly commoditised the pace of change increases it is human talents that drive value creation.

This move towards human capital is manifesting itself in the startup and venture community in two ways. Firstly power is shifting from investor to entrepreneur, as evidenced by the rising celebration of founders, and secondly investors are increasingly bundling human talent with their investment of capital.

Forward Partners aims to be in the vanguard of both these changes.

      


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