Deep Dive: VC Value Add

This deep dive was initially published in our VC Stack newsletter. Make sure to subscribe here to not miss any future episodes.

What is VC Value Add?

‍VC value add refers to any additional support VCs provide founders’ past capital. This may include access to their internal network, industry knowledge, or operational support. As more VC funds pop up and larger funds are raised, the need to differentiate VC money is increasingly more important. Money is a commodity and value add is how founders will choose who they accept capital from. A good indicator of “smart money” is one in which the value added by the VC is greater than or equal to the money invested.

value-added ≥ money invested

The Forward More than Money report 2021, found that while 92% of VCs interviewed self-describe as value-add investors, 61% of founders rated their value-add experience as ‘below average’. Clearly indicating that there is a gap between what VCs perceive as value-add and how founders actually feel during the partnership.

Interestingly, the same survey showed that female founders (73%) rated value-add above brand and portfolio while male founders (57%) chose the latter while selecting an investor. Value add is especially beneficial for underrepresented founders since the barriers to receiving funding, building an initial customer base and recruitment can be significantly lowered with the VC’s network and backing.

‍
How to bring value to founders?

Investors should outline where and how they can add value to founders. Being honest about your skillset and mentorship is crucial for a long-term partnership. Additionally, founders should focus on how the VC fund can complement them and be honest about the areas in which they need additional support. Together a VC fund and founder can evaluate their alignment and investors can tailor their value-add accordingly. Value add is not a one-size-fits-all.

The main areas of support generally fall within access to the VC’s network and experiential knowledge. The frequency of support founders need will vary as their startups go through phases of development, therefore having an open and frequent line of communication is often the best place to start. Top areas of value add include:

Securing the next round of funding. As a VC, advocating for a founder and introducing them to your network of investors can be incredibly helpful as they scale. Support may also include helping them clean up their pitch and strengthen their company narrative.
New hire intros. Connecting founders to top talent in your network or creating a job board of your portfolio companies hiring can boost the quality of their applicants and cut down the recruiting time needed to attract and retain talent.
Reach potential customers. Once your founder has a profile of their target customer, you can offer to make intros within your own network. Allowing them to enhance their product and build a strong initial baseline of customers.
Access to learnings. As a VC, your experience can be one of the most helpful value-adds for early-stage or first-time founders. Additionally, support can be built within the portfolio companies that have hit similar roadblocks or are in the same industry.
Operational guidance. Whether it’s go-to-market strategy, PR resources, or product development VCs can advise operationally as well. Remembering to facilitate over implement.

VC Platform Role

The VC platform role(s) has seen its growth in popularity over the last decade as more VCs acknowledge the importance of portfolio support. A platform role is designed to provide portfolio companies support after an investment is made. The role may be function-specific or a generalist position that entails managing the platform services a VC firm provides. This may range from consulting and hiring services to market and community building.

Reasons to hire Platform roles

VCs can’t do it all. Every portfolio company will vary in the support they need, the roadblocks they hit, and, most obviously, what they’re building. Therefore it’s impractical for a singular VC to provide direct and personalized guidance to each one on top of making investments.
Competition is high. When capital is available, founders will ultimately choose to join a VC fund that understands the need for post-investment support. Showing that you have a team and system dedicated to their growth can convince them to join you.

VC Platform Positioning

‍If you’re just starting to build a platform role or team, this diagram by Visible VC is a great way to look at how you may want to define the role. Understanding where your portfolio needs, resources, and VC brand intersect can allow you to pinpoint your unique platform strategy.‍

‍

Value-Add forward VC Funds

‍Not Boring

‍Not Boring is a media & venture capital firm that invests in companies with stories to tell and helps tell them. We invest mainly in Seed through Series B companies, with the very occasional pre-seed and growth-stage investment.
‍
Andreessen Horowitz

‍a16z is defined by respect for the entrepreneur and the company-building process; we know what it’s like to be in the founder’s shoes. We aim to connect entrepreneurs, investors, industry experts, and others in the technology ecosystem.

Project A

‍Project A invests in digital companies that challenge the status quo of their industries. In addition to $1 billion in assets under management, Project A supports its portfolio companies with a team of over 140 in-house experts in areas across product, growth, data, and people.

Sequoia Capital

‍We partner early—sometimes when a company is no more than an idea. We value teamwork over showmanship. Our contribution to a company always comes from several of us working together. We consider ourselves partners for the long term.

Blossom Capital

‍Early-stage capital is a long-term strategy. We believe that a confident and informed founder is good for long-term growth. We freely share our hard-won expertise and transparently structure deals so that our interests are fully aligned.
‍
Forward Partners

‍It takes more than money to transform a great idea into a world-changing business. Forward provides thinking capital. Capital with the capability to help founders find market fit, develop scalable products, high-performing teams - and enviable sales pipelines.

Salesforce Ventures

‍We leverage our decades of expertise in the cloud and our long-term relationships with key decision-makers at thousands of businesses around the world to give you an unfair advantage, help you build credibility, and accelerate growth.

Planet A

‍Through our operational platform and extensive network, we help and mentor founders to develop their companies, with impact as the centric metric of success. The Planet A Platform is a source of expertise from successful entrepreneurs, proven scientific experts, and impact-driven investors.‍