Navigating the Post-Investment Phase: A Comprehensive Guide for New VCs

o you’re a new VC and wondering what happens after your firm makes an investment. As you probably already know - simply writing a check is not enough. While optimizing pipeline processes is crucial, the real work often begins after the investment is made.

The post-investment phase shapes the future of portfolio companies and ultimately determines the success of your investments. In this guide for new VCs, we take a look at how to provide value-add post-investment, and best practices for driving growth and ensuring success for both the portfolio companies and the fund.

We’ve divided this guide into three parts; Support, Management, and Planning. Let’s dive in! 

Part 1: Support

What is Portfolio Support?

Portfolio support is a post-investment process designed to help portfolio companies perform, grow, and overcome potential hurdles.

This typically includes some combination of the following:

• New Company Onboardings - Integrating new portfolio companies into the fund’s ecosystem.
• Hiring and Recruiting - Assisting with talent acquisition and executive search.
• Marketing and Promotional Support - Providing resources for brand building and market penetration.
• Future Fundraising Support - Guiding companies through subsequent funding rounds.
• Events - Organizing events for networking, learning, and community building.

How Do Portfolio Companies Request Support?

According to Visible’s survey of VC Portfolio Operators, support needs from companies are communicated in various ways. The most common is directly from companies (44%), followed by investment team members (29%), and from investor updates (27%).

This data highlights the importance of having open and transparent communication across your fund team so that portfolio support requests can be triaged quickly and by the right person.

7 Ways to Carry Out Effective Portfolio Support

1. Proactive Onboarding

Start with a comprehensive onboarding process that integrates new companies into your network and provides them with essential resources and introductions.

2. Regular Check-ins

Establish regular communication to track progress, understand challenges, and provide timely support.

3. Customized Support Plans

Customize support based on the specific needs of each company, recognizing that one-size-fits-all solutions rarely work.

4. Make the Most Out of Your Network

Use your network to provide portfolio companies with access to potential partners, customers, and talent.

5. Monitor Performance

Implement systems to monitor key performance indicators (KPIs) and use data-driven insights to guide support efforts.

6. Encourage Peer Learning and Events

Facilitate opportunities for portfolio companies to learn from each other through events, workshops, and shared resources.

7. Transparent Communication

Maintain clear and open communication channels within your team and with portfolio companies to ensure that support needs are addressed efficiently.

By adopting these best practices, VCs can significantly enhance their post-investment processes, providing valuable support that helps portfolio companies thrive and ultimately leads to greater success for the fund.

The Importance of Portfolio Support

Portfolio support is more than just a buzzword; it's an essential process that helps companies grow, perform, and overcome hurdles. In today's venture capital landscape, financial backing alone isn't a differentiator.

Effective post-investment support is critical for brand recognition, enhancing portfolio company performance, and increasing returns. 

Here's how value-add portfolio support can make a difference:

• Attracting better deal flow (founders talk to each other!).
• Improving brand recognition.
• Raising capital from Limited Partners (LPs).
• Most importantly, helping companies succeed.

Providing Guidance

There’s three ways new VCs can provide guidance to their portfolio companies. Let’s take a look.

1. Offering Strategic Advice

VCs can offer invaluable strategic advice, ranging from market positioning and competitive analysis to product development and go-to-market strategies. Use your experience and the collective wisdom of your network to provide insights that help steer the company in the right direction.

2. Using Connections for Growth

Your network is a powerful tool. Introduce portfolio companies to potential customers, partners, and industry experts. These connections can lead to strategic partnerships, sales opportunities, and invaluable advice.

3. Supporting Talent Acquisition

Hiring the right talent is critical for any startup’s success. Use your connections to help portfolio companies attract and retain top talent. This might involve recommending candidates, connecting companies with executive search firms, or even assisting in the interview process.

Operational Support

Startup founders often benefit from your advice in various operational areas. Provide templates, frameworks, and tools for financial planning, marketing, and sales processes. Sharing proven methodologies can help startups operate more efficiently and effectively.

New VCs can also guide startups in adopting the right technology and tools to streamline operations and improve productivity. Stay on top of the latest tools and recommend software solutions for customer relationship management, project management, financial tracking, and more. Ensuring these tools are integrated and used effectively can significantly impact the company’s performance. Founders need to wear many hats, so if you can save them time on things like this, they can focus on the more important tasks. 

Financial management is another critical area where VCs can add value. This includes budgeting, cash flow management, and financial reporting. Helping startups establish robust financial processes and controls ensures they use their resources wisely and are prepared for future fundraising rounds.

An example of excellent operational support is when Google Ventures (GV) provided extensive operational support to Nest Labs, covering financial management improvements, strategic marketing guidance, and operational process optimization. GV's involvement was key in refining Nest’s budgeting and forecasting, effectively positioning the brand in the smart home market, and streamlining product development and customer service operations.

Additionally, GV facilitated access to advanced technology resources and helped attract top industry talent. This support was crucial to Nest’s growth and success, leading to its acquisition by Google for $3.2 billion in 2014. This showcases the essential role VC operational support plays in a startup’s scaling journey.

Part 2: Management

Forming a Strong Relationship

Effective communication is the basis of any successful VC-founder relationship. Great VCs set clear expectations with their founders about the level of support they will receive and the support you can’t provide. Communication is key, as is transparency. Expectations should be clear from day one.

Aligning on Vision and Strategy

Alignment on vision and strategy ensures that both the VC and the founders are working towards the same objectives. This involves discussions about the company’s long-term goals, strategic milestones, and KPIs. 

Ensuring that there is mutual understanding and agreement on these aspects can set the stage for a productive partnership.

Building Trust and Transparency

Trust is built through consistent, transparent interactions. Foster an environment where founders feel comfortable sharing both successes and challenges. 

This openness facilitates proactive problem-solving and fosters a collaborative relationship.

Regular Check-ins and Feedback Loops

Frequent and structured check-ins with the company’s leadership team are vital. These meetings should focus on reviewing progress, discussing challenges, and planning next steps. 

Constructive feedback during these sessions helps the team stay focused and motivated.

Managing Conflicts Between VCs and Founders

Conflicts are inevitable in any business relationship. As a new VC, knowing how to manage and resolve them is crucial. Effective conflict resolution involves open communication, empathy, and a willingness to find mutually beneficial solutions. Regular meetings and open forums for discussion can help in airing grievances and resolving issues before they escalate.

Friction can arise from various sources, such as differing visions, strategic disagreements, or performance issues. Understanding these common sources helps in anticipating and addressing conflicts proactively.

It’s essential to strike a balance between providing support and allowing founders the autonomy to make decisions. Micromanaging can stifle creativity and innovation, while too much distance can lead to misalignment. Finding the right balance ensures that founders feel supported yet empowered.

Bringing in Outside Consultants and New Ideas

You can't know everything about every business in every sector, especially as a new VC, but you will have considerable experience in applying trusted methods to grow businesses. Seeing success in one firm and sharing that knowledge with another is extremely valuable.

However, if you're outside your comfort zone and unable to get up to speed, bringing in outside consultants can provide the industry-specific expertise needed to build the company. An outside consultant won't have the same level of drive as you in making the business successful, but they can offer insights into what's happening within the business.

Continuous Improvement and Reflecting on Experiences

The venture capital landscape is constantly evolving. Staying on top of industry trends, learning from your experiences, and adapting your strategy are crucial for long-term success. Regularly reviewing and updating your investment thesis ensures it remains relevant and effective.

Every investment, whether successful or not, offers lessons. Analyzing both successes and failures helps in refining your investment strategy and improving your decision-making processes. Sharing these insights with your team and network can also contribute to collective learning.

If you’ve been part of an exit, conduct a thorough review of the investment process. This review should cover what worked well, what didn’t, and how future investments can be improved. Documenting these lessons can refine your investment approach and enhance future outcomes.

Part 3: Planning

Preparing for Future Funding Rounds

"The right investor will add value by helping you complete your next round of fundraising by connecting you to their VC community network," says Sunny Dhillon, a partner at Signia Ventures. "If you happen to be the belle of the ball and spoiled for choice among investors at the next stage, your current investor can provide insights into your options."

One of the primary roles of an investor is to act as a cheerleader for the company. As companies grow, they will likely need to raise additional capital. At every networking opportunity, you can tell the company’s story to potential new backers and bring more on board. When actively recruiting investors, you as the VC need to thoroughly vet their credentials and understand how they will add value themselves.

Here’s how you can help out founders:

Help Founders Polish Their Narrative

New VCs can help founders create a compelling narrative that highlights their progress, market opportunity, and future potential. This narrative is crucial for attracting new investors and securing follow-on funding.

Refine the Pitch

Assist in refining the pitch deck and presentation to improve the chances of successful fundraising. This includes honing the messaging, designing impactful slides, and rehearsing the delivery. Provide feedback based on your experiences and investor expectations.

Connect Them with Potential Investors

Use your network to connect portfolio companies with potential investors, facilitating the fundraising process. Warm introductions and endorsements from existing investors can carry significant weight and open doors to new funding opportunities.

VCs should be trusted advisors on approaching potential future investors and avoiding common pitfalls. Bringing this expertise breeds confidence in the founders, allowing them to be more comfortable throughout the fundraising process.

Planning Exit Strategies

In the future, you will be expected to advise founders on the best time and manner to exit a company, and to provide advice on post-merger integration, deal terms, and how pricing can significantly impact the success of an exit.

Exit processes often involve rigorous due diligence. You can help companies prepare by ensuring their financials, operations, and legal documentation are in order. This preparation can streamline the process and enhance the company’s attractiveness to potential buyers or investors.

A Recap of All the Ways a New VC Can Help Post-Investment

• Recruitment optimization
• Go-to-Market strategy
• Finding industry events
• Making introductions to industry experts
• Help startups navigate the regulatory landscape of their industries
• Brand strategy
• Future fundraising support
• Mentorship support
• Operational support
• Business development

Their Success Is Your Success

By establishing trust, providing strategic and operational guidance, and preparing for future funding rounds and exits, new VCs can significantly impact the success of their portfolio companies. Continuous learning and adaptation is an important part of further developing your ability to support startups and founders in the best way possible post-investment. Their success is your success after all!