It's common today to hear CEOs talk about their desire for 'value-added capital.' Investing is a competitive business. The best deals go to the best investors and the best investors are the ones that do more than just write checks. The best investors help their investments succeed in a variety of ways and are proactive in doing so.
San Francisco's Andreessen Horowitz have come to embody the value-added investment firm. They are far more than just a fund. They've invested in teams, resources and capabilities that enable them to advise and assist on almost every aspect of their portfolios' business.
In today's startup world, many CEOs are domain
experts rather than technical experts. They possess great insight into their market, but lack the technical expertise necessary to realize their business vision in an age when software has eaten the world.
With so much investment interest in technology, most good CEOs can access capital fairly easily. Their bigger challenge is often access to the necessary software engineering expertise which ensures they're building the right product with the right technologies.
Finding the right product and technology team in the early stages of a business can be a crucial enabler, one that gives the CEO the requisite runway to accelerate the company towards a long-term solution. And solving this challenge requires more than just a capital partner, it requires a digital partner
As digital partners, venture services
firms bring essential capabilities to their clients in precisely these circumstances. They are hands-on in the definition of the product strategy, technical architecture, product roadmap and the mapping of analytics back to business KPIs. The value they deliver extends well beyond the provision of engineering resources. Even the best engineers are rarely able to provide the strategic, technology and product guidance that most CEOs need.
Venture services firms are often active on the investment side as well, leveraging their channel partnerships with networks of investors to bring necessary capital to their deals in tandem.
By way of example, Castle (a US venture services firm) recently partnered with a Seattle-based retailer of machine parts to the construction industry. The founder had built a solid business with substantial revenue streams but knew that the absence of robust technology had become a significant constraint on the company's growth prospects.
After an initial introduction, he and Castle quickly constructed a program that brought much needed technical and product capabilities as well as financing into the company; the definition of the the term 'value-added investor.'
This was also the case with a UK fintech startup seeking to disrupt the 'expert network' sector that supports hedge funds and consultancies (amongst others) in researching the industries they are evaluating or are active within.
The founders had followed a familiar trajectory. They'd built an MVP (aka Minimum Viable Product) with which they'd validated their initial thesis but, at the same time, realized it was unable to cope with the demands of a scaling business. They needed to rapidly rebuild their platform whilst raising a Seed Round to finance investment in product development and sales.
By constructing a program that combined cash, equity and even a deferred option, Castle were able to move quickly to begin the replatform whilst leveraging their network to find a suitable angel investor to complete the financing.
Castle were also on hand to advise the founders about an overlooked UK government scheme that allows companies to reclaim almost 40% of their technology investment back as R&D expenditure - a beneficial outcome for all parties.
Taken at face value, the companies mentioned above share little as regards geography, sector or business model. Yet the respective founders shared a common desire (to focus on growing their business instead of worrying about operating their technology) and a common struggle (to find the right person or team to help them). The Future of Venture Services
The future of venture services lies in the few firms who can act as both digital and
Rather relying on channel partnerships, some have raised funds, eliminating dependency on external investors and empowering them to bring both capital and product resources to their portfolio.