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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.
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:
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.
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.
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