Prediction Blog

Platform VCs: Are they the future?

Aug 1, 2019 5:49:04 PM / by Joe Charlesworth

A few years ago, I announced that I was leaving Playfair Capital to start a platform. Varying forms of  "VC Platforms" have been around for over 15 years, with Union Square Ventures, First Round Capital and Andreessen Horowitz having made the first forays into this form of VC product differentiation. It's now a rapidly changing landscape with innovative new models starting to emerge. 

What is a platform VC?

If you're not already familiar with the term "Platform VCs", they relate to VCs that have built or are building dedicated products or services to better serve the portfolio companies they invest in. This can take many forms such as the provision of operational staff to support portfolio companies or customised software applications to aggregate data. The general objective is to increase the performance of portfolio companies post-investment to in turn drive better deal flow as a result of the firm's enhanced brand reputation.

Which VCs have built their own platforms?

Let's take a close look at some of the operator VCs using this model.

Andreessen Horowitz

  • employs over 150 people entirely dedicated to helping their 300+ portfolio companies.
  • operations team is divided across market development, technical talent, executive talent, marketing, corporate development, policy, board partners and professors in residence.

First Round Capital

  • organises yearly CEO, CFO and CTO summits
  • provides a portfolio free access to a "venture concierge"

FirstMark Capital

  • hosts over 100 events per year (some public, some private) through their platform with the goal of connecting portfolio companies with talent, customers, and expertise

FFVC

  • built "Totem" - an in-house intelligence tool that centralizes data about their companies' management and metrics
  • FFVC use this to understand which companies can most benefit from support and in which areas, to identify problems early and more efficiently apply relationships and skills
  • provides finance & accounting support to portfolio companies, counsel on branding, messaging & communications as well as recruitment services, claiming to facilitate hundreds of key introductions annually

TrueVentures

  • offers leadership conferences, regular content articles on leadership and board pack templates

Lerer Hippeau

  • built a reverse job board called talent tracker
  • provides recruitment services to portfolio companies by way of pipeline sourcing and training

Primary Venture Partners

  • built the "Primary Expert Network", a network of New York based experts and mentors for their startups

Other VCs that are building their own platforms include:

The number of VC platforms is on the rise. VCplatform.com is a dedicated website for the community of individuals that are tasked at growing, supporting, and creating communities for their VC firm's respective portfolio companies.

What services do Platform VCs typically offer?

The volume of services offered by Platform VCs is far reaching and typically a function of the firm's cash resources. Providing high caliber operational support staff is expensive. To quote Peter Livine from A16Z, " You have to raise multi billion-dollar fund in order to hire 150 people" - if you are relying on fund management fees to pay for your operational staff.

Let's take a look at some of the services that Platform VCs provide.

1. Recruitment & HR

This can take many forms including:

  • Aggregating job openings from across the portfolio of companies
  • Interview coaching
  • Assistance with ATS (applicant tracking system) setups
  • Volume based discounts for recruiting software and services
  • The placement of on-site recruiters
  • Implementation of Internship placement programs
  • Rotational programs across portfolio companies (Ex: A CFO moves one from portfolio company to the next in a rotational format)
  • Employee performance and retention coaching

2. Business Development

A16Z do an excellent job here with their Briefings Service. VCs like A16Z are able to support portfolio companies by appointing designated individuals tasked at:

  • Better understand the technologies reshaping the portfolio companies' industry
  • Mapping out the industry to understand which large organisations have gaps and where solutions can be created for them
  • Uncover opportunities for partnerships, collaboration and corporate development
  • Facilitating introductions between larger organisations partner and portfolio companies

3. Advisor / Expert Network

More often that not, what founders really need is support from operational experts like growth marketers or analytics experts. Often, it doesn't make financial sense to hire these operators on a part-time position and what is needed is more on-demand advice.

PrimaryVC built a dedicated expert network for dealing with such requests from portfolio founders. Given that traditional expert network like Guidepoint or GLG can cost in excess of $1,000 for a 1 hour call, such expert networks can be very valuable to founders.

4. Leadership & Professional Development Resources

Our friends at Kindred Capital provide designated free coaching services to their portfolio founders. Other VCs might take a less hands on approach but provide lots of content around leadership such as FirstRound.

5. Accounting, Tax & Legal

For years, RocketInternet have employed dedicated finance managers to provide a whole suite of financial support activities for their portfolio companies including financial reporting, treasury and M&A. ffVC provide a team of CPAs to their portfolio companies that assist with a broad range of finance and accounting initiatives, from financial planning and analysis to accounting and payroll.

After all, a VC firm with 50 portfolio companies should be able to negotiate volume discounts with accounting professionals than a single startup.

6. Public Relations & Content Marketing

Many VC firms secure special relationships with PR firms. Andreessen Horowitz for example hired Margit Wennmachers as one of their operational support staff. Margrit is the founder of Outcast Communications and organized dinners with reporters to pitch story ideas, helping A16Z to build an exceptional brand.

7. Events & Peer -to-Peer Groups or Summits

Brand recognition helps open doors for startups and build credibility. Events are an important way to to build it. It's a way for portfolio startups to share knowledge, and learn from each other or outside serial entrepreneurs. For VCs that choose to open up some of these events to the general public, they represent an important source of potential deal flow and network building.

The Kleiner Perkins annual CEO Summit featured fireside chats with Bill Gates, Colin Powell. The Google Ventures CEO Summit featured Sergey Brin and Ron Conway. Increasingly, VCs are using events to deep dives on topics that attract experts and high caliber founders from outside their portfolios.

8. Capital Raising

A key founder expectation from VCs is that they utilise their network of investors up the chain from them to arrange follow on financing for subsequent capital raises. Some VC firms like NEX have built dedicated software platforms to help identify and reach out to other investors.


What's the connection between VC Platforms and Venture-as-a-Service (VaaS)?

There is a strong overlap between VC Platforms and VaaS in terms of services provided. All of the above listed services are available through our VaaS platform. The key differences relate to:

  1. Availability - A VC that operates a "VC Platform" typically only provides those services and tools to companies  within their portfolio. The VaaS platform is more widely available to startups with many features without needing to be a "portfolio company". There is however still an application process to be able to access the platform. 
  2. Fees - The VaaS platform does not rely on management fees to support itself. Instead, it charges startups success based fees in equity and cash based on milestones reached, allowing for a much larger network of vetted operators.

And we're not the only ones to think VaaS is the future of Venture Capital. Peter Levine from A16Z thinks so too....

“If I created a Venture Fund, I would create a firm with virtual services, not too different from the a16z model, but without employing people. So I would get CPOs, Engineering Talent, Marketing people who wanted to be involved with the venture fund and provide services. The reach in that case may be greater than the reach we currently have. You would create a network of people who could help companies without necessarily hiring them. They would get shares, have the privilege of investing with the venture firm, maybe get a little carry…that would be cool!”

 

Topics: VaaS, Venture as a service, platform VC

Joe Charlesworth

Written by Joe Charlesworth

Contributor at Prediction.VC