3 steps VCs can take to better support their portfolio companies
Research from Affinity’s 2024 private capital investment predictions report reveals that portfolio support is a top priority for more than one-third of investors this year. VCs have a vested interest in maximizing their portfolio companies’ success—and this can be more involved during times of economic uncertainty.
This article walks through three portfolio management principles to help you build stronger relationships with founders, enhance your operational support, and evaluate the right metrics to help your portfolio companies grow.
1. Open your network
Knowing how to use your network is important for investing, but it also helps you provide tremendous value to your portfolio companies. Mar Hershenson of Pear Ventures used Affinity to instantly surface 11,467 introduction paths to new prospects in sales, business development, and fundraising for one of the firm’s cohorts. These introductions can help your portfolio companies with both material and non-material contributions.
Introductions to professional services
Introducing your portfolio companies to new partners in administrative areas, like regulatory or legal support, can set them up for success. Andreessen Horowitz, for instance, provides startups in its network with a range of accounting and marketing services, while GV, the VC arm of Alphabet, aims to help startups with a wide range of services, including product design and marketing.
Introductions to subject matter experts (SMEs)
Competitive advantage often comes down to the simple ingredient of execution speed. Many new business ideas are appealing because they take advantage of rapidly growing markets or emerging technologies, which often attract many competitors. You should help your portfolio identify experts and connect them with people who can provide them with early support so they can maintain a competitive market advantage.
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2. Build quality operations
Strategic expertise related to business planning and operational guidance is especially critical in the early stages of a startup. Unfortunately, many startups are not afforded this critical insight when it’s needed. Many startups spring from a great founder with a great idea who may lack business acumen. Supporting them in becoming a successful business can turn a small opportunity into your next major deal.
Building operations to identify market need
When entrepreneurs write business plans, they bake in many assumptions and hypotheses. It’s important that you lend your expertise during the business planning phase to ensure product-market fit. You should be especially critical of the market need that their startup is aiming to meet.
Ensure that the proposed offering is a new solution to a real, burning problem—a product or service that customers cannot do without. You may not be the product expert, but your firm does have the business expertise to guide and direct them to an SME in your network if you can’t.
Building operations for data-driven decision-making
When used properly, data from your portfolio companies can provide a wealth of information—from informing funding allocations to identifying where a company’s next hire should be.
To ensure data is effectively managed, secured, and used, Augie Wilkinson, Director of Portfolio Monitoring & Analysis at Bessemer Venture Partners, suggests developing a data governance model—a framework for handling data. The goal is to create a system that collects data seamlessly, includes relevant metrics, and is easy to understand.
Wilkinson notes, “Any data that you're going to ingest and structure to ultimately report on—you have to make sure that you have the right guardrails in place so that that data isn't necessarily lost or becomes unusable.”
With a structured system for handling data (including one that uses effective portfolio support and management tools), you can make more strategic decisions at critical junctures of a company’s growth journey.
Building operations to create access to capital
While your team is invested in your portfolio company’s success, you can’t deploy every dollar you have. Through your connections, you can ensure that your portfolio companies receive coaching on the capital-raising process and that they have access to a strong network of potential investors.
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3. Monitor the right metrics
Being an indispensable partner to your portfolio companies starts with a deep understanding of their businesses, including the most relevant company and sector-specific metrics to track. By monitoring and analyzing these metrics, you can mitigate risks earlier on, anticipate financing needs, and assess whether a company is on track to achieve targets.
The result is a more comprehensive picture of the overall health and growth potential of a company, which is a win-win for you and your portfolio companies.
Monitor metrics to anticipate potential issues
Monitoring the right metrics can help you identify warning signs—like early indications of financial trouble, product-market fit challenges, or operational inefficiencies—before they turn into critical issues. For example, an unexpected dip in revenue growth could suggest potential cash flow problems ahead, while changes in customer engagement and increasing churn rates could suggest that product-market fit needs to be revisited.
Wilkinson underscores how consistently tracking the right data can mean getting ahead of issues before they escalate:
“Being able to raise that yellow flag before the red one to our GPs, or even the management at these companies, is super important to us. So having good, clean data that we're ingesting, having it [on time], being able to structure it, and then send it back out to our GPs is what we're focused on most of the time.”
A proactive approach—combined with high data competency—allows you to intervene and provide support at the right time.
Monitor metrics to provide streamlined reporting
High-quality data and robust reporting processes help GPs, LPs, and portfolio companies understand where and why decisions are being made. They also enable more informed decision-making, performance tracking, resource allocation, and strategic guidance—while helping drive your return on investment.
At the same time, Wilkinson notes that it’s important to balance the granularity of your reporting while minimizing the burden on your portfolio companies. He says,
“We don't want to put too much strain on these reporting teams or finance suites because we know that any time we take away from them running the business is crucial to their longer-term success. The more time we ask them to report—and on a more frequent or complex cadence—the less time they're able to spend on working with their customers, partners, or management to grow the business.”
Consolidating your portfolio management processes
In today’s competitive market, you can’t just invest capital, you have to drive value for your portfolio companies by supporting them wherever you can. Whether that’s through direct assistance, providing connections to your firm’s collective network, or equipping them with the resources they need to grow, you are essential to their companies’ successes.
It is a challenging balancing act to perform all of these activities in the fast-paced environment of venture capital, especially as founders may not realize that they need additional support. By relying on relationship intelligence technologies within an automated CRM, you can make sure you’re always on top of your most valuable relationships and offer support to your founders when they need you the most.
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