How VCs can become a one-stop-shop for unlocking growth.
There’s more cash in VC pockets than ever before, putting the power in founders' hands to pick and choose the partner that best suits their needs. It’s no wonder then, that promises of value-add are being made – and then not met. Most of us, working with founders on the ground, know not all value-add is created equal (and our recent report, More than Money, confirmed this loud and clear).
It’s the strength of these value-add services and support, and evidence of the results they get, that will set VCs apart at the deal table.
We’re interested in overlaying value-add with the changes in our rapidly-evolving market.
How can we, as an industry, ensure that going beyond equity actually:
- Improves the odds of founders succeeding
- Generates better deal flow
- – and does both these things in a market where capital is increasingly commoditised?
Let’s break it down.
Beyond the platform
VC value-add has exploded. The majority of funds now have some kind of platform team – where virtually no funds were offering this 10 years ago. This approach usually involves aspects of networking, mentoring, talent, PR and marketing, with some expertise in-house and/or guidance towards external support.
This kind of capability – not just strategy but hands-on help with execution too – is something we believe must be baked into a VC firm. We can look across the pond to the likes of a16z, OpenView Venture Partners and Google Ventures, who have all pioneered this model in different ways.
A16z is hyper-founder focused and has been from the very start, while OpenView is incredibly good at creating resources for founders around its product-led growth expertise, with the highest quality content and resources for founders. Meanwhile, GV has nailed tech specialisation and incubation.
At Forward Partners, our route has been to build ourselves out as not just a VC, but a professional services firm. Our founders have exclusive access to our Studio – hands-on advice, workshopping and building with expert operators – and to services like Forward Advances, our revenue-based financing offering. We’ll be talking about how and why we’re focusing on funding beyond equity in a subsequent piece.
But scaling services to this level is capital and resource intensive, and many VCs are not willing to take this critical step to take their value-add to the next level.
We’re not the only firm building out a value-add platform offering. But it is, unfortunately, still the case that many VCs that say ‘hey, we’ve got this other stuff as well’, are really only interested in equity. For us, we see that the “other stuff” - is equally as important as the money – because it creates the opportunity to grow a business beyond what investment can achieve alone.
Hands-on for the long term.
For VCs, getting value-add right means improving founders’ odds of success, which in turn improves investor returns. For it to be effective at scale, it needs to be a highly-competitive, high-quality, paid-for offering that’s fast, effective, transparent and value-driven.
At Forward, the Studio provides founders with support from a team of startup experts. We set goals, deliverables and charge for the team’s services, because it makes us accountable - and allows us to scale without the costs undermining returns for our investors. We operate the studio on a not-for-profit basis, because its sole objective must be to supercharge the growth of our portfolio companies. It has proved popular, delivering over 300 projects that have taken in excess of 80,000 hours in the last five years alone.
Getting involved at the earliest stages with specialised support, can influence outcomes earlier and help more high-potential founding teams to succeed. It means we’re not just searching for unicorns. We’re looking for outliers in the earlier stages of their journey too - opening up the possibility of 20x returns from smaller ‘gazelles’ whilst pursuing unicorns when they appear in the herd.
So baking in hands-on support makes sense for us – but we think it can for any venture firm.
Take Would You Rather Be, one of the very early stage startups in our portfolio, as an example. Phil, a single founder, came to Forward with a strong vision, a nice idea and an algorithm. His vision would become Would You Rather Be who now help people find careers that truly make them happy. To make it a reality, he needed a product, proposition and brand ready for testing with the public. A brand agency might have created a beautiful website; a product agency might have created a robust product; but few would understand the unique context of a pre-seed business - the flexibility and tradeoffs required within each of these areas to validate an idea and find product-market-fit fast. This project is typical of those we run with the studio: laying the foundations of success for a company using insights and experiences from an expert team, and making it happen across a range of disciplines.
An investor offering this kind of support is better aligned to the needs of a founding team. At Forward Partners, we build proprietary knowledge and competitive advantage by focusing on the challenges faced by early-stage businesses with high-growth potential, who leverage specific technology-led operating models: eCommerce, marketplaces and applied AI. Our expertise, combined with the fact that we see and solve the same issues regularly, means that we are in a better position than an agency to support founders through everything from honing a marketing strategy and building out infrastructure to hiring a team.
While this may seem obvious, it’s not something always reflected in VC value-add offerings, which are all too commonly off-the-shelf services and far from competitive if a startup were to seek these kinds of services on the open market.
Services that build reputation
Getting value add right benefits founders but it also improves deal flow for firms themselves.
VC is still an industry built on networks and word-of-mouth. Putting founders and their businesses first matters, because it’s inextricably linked to your sales and marketing. New founders come through the doors at Forward Partners because of what we’ve already done for our portfolio teams.
One such founder is Freddie, who created Patch Plants in late 2015. When we met Freddie we quickly became more like partners than investor and founder. From the very start of our engagement, we helped Freddie develop the offer for Patch through a ‘design sprint’ that enabled us to create, test and iterate propositions and business models. The final test was a pure eCommerce play for Christmas trees. It was a huge success - with Patch selling over 1000 trees in just a month. From there, Patch has grown to become the leader in UK online plant sales, achieving great revenue and growth in a distinctive, differentiated way.
These long-term relationships between investor and founder matter now more than ever, as capital is increasingly commoditised. Cheap money and a ballooning landscape means that value-add is vital. That VC has become a founders’ market. If we want to support our founders and make sure they’re a success; providing truly valuable services has to be the way forward.
In a founders’ market, the scale and precision of what you can offer besides money is what matters. And, to our mind, this offering needs to be comprehensive – otherwise, there simply isn’t sufficient competitive edge. As founders have to grow faster, so should we. The age of tech we find ourselves in, where companies can grow almost exponentially at a certain point, rocketing into profitability, means investors have to make that journey as easy as humanly possible. Becoming the one-stop-shop for growth is how we get there.