Updated: Mar 15
Almost all VCs pride themselves on providing value to their portfolio. In fact, funds spend a third of their time supporting companies they've invested in.
In our last article, we discussed how funds can leverage technology to source the best companies. Now, we review the tech stack that helps funds better support the teams they back, and deliver higher returns.
We’ve gathered insights from a VC roundtable we ran in partnership with Global Shares, as well as through conversations with European investors and their US counterparts. We cover artificial intelligence tools which track key performance indicators across a portfolio, software to source and retain the best talent, and automations to drive process efficiency.
Off-the-shelf solutions to track business performance
Having access to sales data, cash burn and rate of growth in real time can be vital for follow-on investment considerations, providing the necessary data points to effectively report on portfolio performance, improve fund reporting processes, and also signal where to spend more time.
Off-the-shelf solutions are available, without having to sacrifice high levels of customisation and significant upfront costs.
Vestberry has built modular software for VCs through its API-first platform, allowing users to make customised changes to dashboards and data integrations, across multiple formats. Used by Atomico and Anthemis Group, startups are able to feed their data directly to the partners via the platform, which in turn can simplify capital calls, distributions, and waterfall calculations. Funds are then able to decide which is the most important data to report to LPs.
“We adopted Vestberry’s platform in 2019 and are currently using it to monitor the performance of our funds. We are very happy with the relationship and think their modern solution has a lot to offer many VC funds out there.”
Iason Nikolakis, Anthemis
Kushim is a management tool specifically designed for VCs. Users are able to manage several investment vehicles in one place, track over 60 metrics, and restructure financial data from any format.
iLevel gives investors the ability to customise both the dashboard as well as reports, creating formulas that are specific to the portfolio company and their business model. Their ‘fusion’ product integrates with Excel and other live data sources such as Quickbooks, Yardi and Entrata.
Alluve and Q-Biz Solutions also allow investors to configure dashboards specific to the fund’s needs, but are limited in data upload formats. Nevertheless, they have built in-platform engines which can run scenario modelling, concentration analysis and cash flow forecasting.
Quaestor is a relatively new solution, having gained traction with funds in the US. The platform connects to live and historical data sources, allowing portfolio companies to share financial statements with added features of media, modelling tools, and ROI calculators. For non-institutional investors, Visible is an entry-level platform for those wanting to share basic, non-custom metrics with open dashboards.
Another example of a cloud-based solution delivering value for investors and their portfolio companies is Global Shares, which makes issuing shares to investors and managing options and awards to employees simple. The secure and easy to use software tool gives employees, investors and stakeholders unique, personalised access to their equity. The Growth Platform will track ownership with a live Cap table, help prepare for funding rounds and engage employees by giving them visibility of their equity.
These types of platforms not only benefit investors, but also help founders lay the foundation for future funding rounds, by developing a metric-focused mindset.
For more information on what some of the fastest-growing companies are using, see G2. Specialised software review platforms such as TrustRadius should also be used in parallel before purchasing any software.
Proprietary solutions to track business performance
The best proprietary solutions allow funds to prioritise performance metrics that fit their investment thesis and help free up partners' time to focus on the more critical tasks.
Many funds currently find it difficult to receive consistent data sets from their portfolio companies, often having to navigate alternate platforms and deal with information in different formats.
This pain point resonated with Mark Lyons, Director at with Praetura Ventures, “having trialled various portfolio management tools, and recognising that none provided sufficient functionality, we felt an in-house solution was needed to efficiently manage a portfolio at scale.”
They decided to partner with one of their portfolio companies, Peak.ai, in order to remove the reporting burden from portfolio companies, whilst ensuring that they capture data that is most valuable to them and the founders.
Considerations when building an in-house solution
When developing a proprietary solution, partners, as well as the wider team, need to share the same vision, incentives and expectations for it to benefit the fund.
Funds need to have a full understanding of the founder experience when designing the solution, and be able to map the pain points that founders may face.
Working closely with a professional developer to fine-tune the solution is paramount. Naza Metghalchi, from EQT Ventures, says “you need to be adaptable and have a testing mindset: test, fail fast, learn, adapt.”
Funds are now turning to software to source, diligence and ultimately better engage future hires and existing employees - although the use of specialist recruitment firms are still popular in assisting with hiring.
The Big Search hires leadership teams and builds out new departments for fast-growing technology companies and their investors. They operate a model that supports industry experts with data and custom-built technology so that they can reduce time-to-hire, extend the reach of their searches and create personalised, digital experiences for their clients and candidates. They’re currently partnered with Preply, Vinted and Gorillas, amongst others, but in the past have supported UiPath, Revolut, Booking.com + 22 more unicorns as they’ve grown from Series A.
When using technology for sourcing candidates, it’s important to consider a combined strategy of job boards, marketplaces and outreach.
Sourcing platforms such as Jobbio and Recruitee provide portfolio companies with opportunities to reach a combined 3.5 million potential applicants, and have been responsible for early hires at companies such as Lyft and Klarna.
Job boards linked on VCs' websites can also provide relevant applications for portfolio companies. Getro automatically populates job boards for funds such as Redpoint and Foundry Group with portfolio openings in real time. Jobiqo interacts more with the applicant, enabling them to explore available opportunities, bookmark ads, and submit applications using AI-based face search and matching technology.
Data-driven Beacon Talent can provide deep intelligence on the specialised talent pool of the tech industry, with roles spanning data scientists and engineers. Post-identification, the platform predicts how open the individual is to switch jobs and whether they would be a good fit for the portfolio company in question.
Diligencing tools such as Workable and Beamery use AI to accelerate and organise the hiring process. The platforms automate processes such as scheduling interviews and provide collaboration tools to help evaluate and gather feedback.
Benchmarking against market-standard remuneration is vital in order to remain free from bias. PayScale draws upon 65 million profiles, providing portfolio companies with customary salaries.
When finalising a hire, integrating legal technology is integral to ensure compliance. Veriphy is an inexpensive solution delivering KYC, AML & DBS checks. People Data Labs and Digital Insight go a step further in detailing second-degree insights such as business connections and personal interests.
Providing a platform to align individual goals to the company’s objectives is also essential post-hire. 15Five is a feedback collection platform where employees can anonymously provide comments and suggest improvement on HR practices or working life - invaluable especially if working remotely. In a similar vein, Hive HR is an ‘employee voice’ platform, helping companies to harness employee feedback to navigate change and make data-driven decisions about the future of their organisation.
Receiving sufficient and regular updates from portfolio companies is the best way of keeping track of individual performance, and allows funds to understand a company’s product development, sales and marketing strategy, as well as key issues facing the business.
Templates can help portfolio companies in producing effective updates. Examples from Kima Ventures and Y Combinator display what specific graphics and numbers are effective in showing progress, whilst cutting out unnecessary slides.
Foundersuite has a dedicated “investor updater” to optimise portfolio companies' time in creating and distributing updates. Goodbits and Constant Contact are more professional and interactive alternatives.
54% of consumers use social media to research products, spending on average 2 hours and 25 minutes on platforms each day, according to GlobalWebIndex. Are your portfolio companies leveraging social media tools as best as they could be?
Tools like Buffer encourage constant interaction between companies and their customer base, whereas Quuu automates posts within a specific area of interest. Others such as Diigo allow companies to keep records of sources that may be useful for future engagements.
Data-driven approaches can increase the efficiency of portfolio marketing teams through prioritisation of leads. MightySignal works with real-time mobile SDK data to reveal consumer insights and keep track of competitor strategies.
Tracking value add
Quantifying value-add of VCs is important to not only to show both current and potential portfolio companies the value they’re providing, but also to identify what is and isn’t working.
Intranets such as Honey can be a great way to collaborate on the success of internal and external strategies. Users can post content, integrate file sharing and organise conversations by groups or topics, all through a single sign-on compatible with Google Apps.
For perks and discounts on technologies specifically for startups, BuiltFirst provides significant savings on software spanning legal, HR, sales and marketing sectors. Dffrnt operates a subscription model to provide discounts on reduced domain hosting costs, tax credit claims, fee-free processing on Stripe, and perks such as unlimited job board access for its community.
Whilst the importance of providing value to a fund’s portfolio hasn’t changed, technology has dramatically improved the way that value is being delivered, tracked and executed.
In the short term, the goal of effective portfolio management is to accelerate a company’s growth In the medium term, it is to increase the likelihood of a future round, or an exit. It can also be leveraged to reinforce the signalling effect to new potential companies by turning existing founders into advocates, increasing your chance of being chosen as the lead investor.
Designated platform teams are becoming increasingly more common in the industry, as partners see knowledge sharing through such technologies as a way to support new and existing founders when their resources are limited. It can, however, be demanding for funds to maintain.
Like many technological innovations, a combination of human value-add and leveraging the latest technology, such as those solutions discussed in this article, is often the optimal approach.
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